Why there may be greater potential for FDI activity in China rether Essay

Why there may be greater potential for FDI activity in China rether than India under the present economic climate - Essay Example However, when it comes to economic development both India and China have lot of similarities. These two countries are the most rapidly developing nations in the world at present. It is often said that global wealth is currently shifting from less heavily populated regions to the most heavily populated regions because of the developments in these two countries. India and China have shown the world that how the big curse (Population growth) can be turned to big blessing with the help of suitable economic policies. While most of the other developing nations such as America and European countries are struggling to find enough manpower, India and China have surplus manpower which they are utilizing cleverly for economic development. Even though a developing country may have many other sources of external finance, FDI seems to be the largest among all those sources. According to Malik et al.( 2012), â€Å"FDI is not only considered as a healthy sign for the overall national economy but al so a positive indication for the local industry considering its positive spill over effects† (p.230). FDI is bringing dividends in the progress of India and China in recent times. Majority of the prominent companies have invested heavily in India and China in recent times to capitalise the cheap manpower and other resources. . It should be noted that America and European region are not much promising for the multinational companies at present because of the ongoing recession problems and the ill-health of the economies there. On the other hand, India and China offer fertile soil for such companies and they work on their expansion plans based on the prospects in these two emerging economies. Some people believe that the investment climate in China is better than that in India. On the other hand, many others are of the view that India provides better climate than China for FDI. However, considering the recent performances of India and China in economic development, once can defi nitely say that China has slight edge over India in attracting FDI. This paper analyses why there may be greater potential for FDI activity in China rather than India under the present economic climate. What is FDI? According to Dicken (2007), Direct investment is a kind of investment intended to gain control over the activities of another firm. Moreover, FDI is the investment across nations (p.36). Ietto-Giles (2002) pointed out that â€Å"The flow of FDI and portfolio investments across countries generates a very large amount of investment incomes going in the opposite direction† (p.27). In short, the economic progress of a country in the modern era heavily depends on its ability to attract FDI. It should be noted that foreign direct investment is the investment of foreign capital in domestic goods and services. Since the internal resources of a country are limited, the ability to attract FDI determines which way the country is progressing. Adina (2011) mentioned about the training effect of FDI. In her opinion, FDI may help a country to modernize techniques and technologies, increase production and supply of goods, improve quality and competitiveness, create new jobs and grow the quality of life (p. 148). There is a limit for many countries to invest in infrastructure development projects because of various reasons such as budgetary constraints. FDI helps such countries to develop infrastructure with the help of foreign capital even though foreign companies, which bring capital, may exploit some internal resources. While balancing the profit and loss of FDI, profit will exceed the loss and hence most countries try to attract as much as FDI possible. In fact, competition for attracting FDI is huge among