Falling FDI in 2008

By QU Yi

Long term investment by a foreign direct investor in  an enterprise resident in an economy other than that in which the foreign direct investor is based The FDI relationship, consists of a parent enterprise  and a foreign affiliate which together form a transnational corporation Parent enterprise investment must afford the parent  enterprise control over its foreign affiliate

Direct investment in new Primary type of FDI   facilities/ expansion of involving transfer of existing existing facilities assets from local firms to foreign firms Objective to create new  Assets and operation of  production capacity and firms from different jobs, transfer technology countries are combined to and know-how and form establish a new legal entity linkages to the global (Cross-border merger) marketplace Greenfield Investment Mergers & Acquisitions

Inflow of equipment & technology Crowding of local industry   Competitive advantage & innovation Loss of control   Financial resources for expansion Repatriation of profits/dividends   by investor Employment generation  Conflicts of codes/laws  Contribution to exports growth  Possible exploitation of  Access to global marketplace for  resources- material/ wages domestic players Effect on local culture/sentiments  Access to low cost resources for  –socio cultural effect investor Effect on natural environment  Access to new market / distribution  channel Improved consumer welfare  Advantages Disadvantages

Attracting long-term foreign capital to supplement  domestic investment efforts, particularly in infrastructure and export competitive sectors Creating skilled employment opportunities and  import of world class managerial practices Developing attractive configurations of local  advantages at global level Promoting technology and other linkages to enhance  domestic industry competitiveness

2000000 1800000 1600000 1400000 1200000 1000000 800000 600000 400000 200000 0 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 World Developing economies Developed economies

0 -100000 200000 300000 400000 500000 600000 700000 800000 900000 100000 1971 1973 1975 1977 1979 US 1981 1983 UK 1985 1987 EU 1989 1991 Japan 1993 1995 1997 1999 2001 2003 2005 2007

0 20000 40000 60000 80000 100000 -20000 1971 1973 1975 Brazil 1977 1979 1981 1983 Russia 1985 1987 1989 1991 India 1993 1995 1997 1999 China 2001 2003 2005 2007

2000000 80000 70000 1800000 60000 50000 1600000 40000 30000 1400000 20000 10000 1200000 0 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1000000 World 800000 600000 400000 200000 0 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 World

350000 300000 250000 200000 150000 100000 50000 0 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 US

0 20000 40000 60000 80000 100000 -20000 1971 1973 1975 Brazil 1977 1979 1981 1983 Russia 1985 1987 1989 1991 India 1993 1995 1997 1999 China 2001 2003 2005 2007

 Global economic recession  Tighter credit conditions  Falling corporate profits  Gloomy prospects and uncertainties for global economic growth  Curtail production, lay off, and capital expenditures cut

Falling FDI in 2008

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