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    Foreign direct investment and Inter business in Ch Essay

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    When one thinks of the Caribbean, one often envisions beautiful beaches, vibrant cultures and impressive scenery. Though these amenities still thrive, a renewed Caribbean is unfolding as industries such as tourism, healthcare and education continue to develop. The Caribbean Community (CARICOM) is an organization of fifteen Caribbean nations, established in 1973 with the main objective of promoting economic integration and cooperation among its members, ensuring that the benefits of integration are equitably shared, and encouraging foreign policy. Through recent years, China has continued to be an essential source of Foreign Direct Investment (FDI) for the CARICOM countries as they continue to provide the necessary funds in order to facilitate these developments. In 1999, China launched its Go Global Policy initiative in an effort to encourage Chinese investments overseas and to assist domestic companies in developing a global strategy to reap the benefits of investing in expanding international markets.

    China has experienced significant growth since the implementation of this policy as well as a movement towards a more Market-Based Economy since joining the World Trade Organization (WTO) in 2001.

    This growth is attributable to large scale capital investments, productivity and trade expansions which by extension benefitted the entire global economy. Above is a table showing China’s growth performance from 1990 – 2009. Economic reforms helped increase economic efficiency that led to a boost in output and increased resources for additional investments in the economy. Growth for the Chinese economy was at its peak in 2007 (14.2%). The global economic slowdown which began in 2008 had a significant impact on the economy, and as such growth began to decline thereafter.

    However, all these investment opportunities come at a cost for the countries who accept the relative funding from China. For example in 2013, the Chinese president launched the “Belt and Road” initiative which is essentially a state-backed campaign to achieve global dominance. This initiative involves building a silk road From South-east Asia to Eastern Europe and Africa. The project includes 71 countries that make up half the world’s population and a quarter of global GDP. It involves the underwriting of billions of dollars of infrastructural investment in countries, expenditure amounting to roughly $150 billion a year in 71 countries that have signed up. But what are the risks for the countries involved? Governments In Sri Lanka for example are currently experiencing the costs on getting involved in such a scheme. A port in said country had to be leased to a Chinese company for 99 years after defaulting on loan repayments. Building ties with China can be quite beneficial, however certain amendments should be stipulated in contractual agreements so as to protect assets of the countries.

    In spite of this, foreign direct investment is good for any economy, especially developing countries and emerging markets. The funding received from FDI can be used to expand international sales and strengthen trade with developed countries. FDI helps to diversify holdings out of the host country, which increases returns without increasing risk and improves the standard of living of its people. CARICOM countries should therefore take forge ahead and deepen its FDI interactions with countries like China.

    One strategy geared towards deeping CARICOM’s interaction with China is encouraging Foreign Direct Investment. China has become the second largest source of Foreign Direct Investment (FDI) in the world and is a major contributor of financial and developmental aid to small countries, especially within the Caribbean.

    Most of the investments are geared towards providing infrastructure and improving booming industries like oil extraction and mining. Ofcourse this is beneficial for both parties. The Chinese are able to secure access to raw materials and other resources needed to continue their vast production and within the Caribbean, economic activity is stimulated. For example, In St. Lucia the launching of the recent Desert Star Holdings (DSH) Project to build St. Lucia’s first ever racetrack is expected to create a number of job opportunities. This is a $2.6 billion project known as the ‘Pearl of the Caribbean’ to be constructed in the southern part of the island called Vieux Fort. However, the government received significant backlash from the people over signing this deal as over 900 acres of government and privately-owned, coastal and agricultural lands were sold to chinese developers at US $1 per acre for 99 years. This sounds frighteningly similar to what is currently being experienced in Sri Lanka as mentioned above. Failure to repay these loans results in a seizure of assets by these Chinese developers. As such, when seeking out these investments, it is imperative that certain limitations are made in the negotiation of the contracts so a to diminish the neo colonialistic influences China may have on these CARICOM countries.

    Secondly, Chinese crewships should be persuaded to come to the Caribbean to increase Tourism. CARICOM countries heavily dependent on Tourism like The Bahamas and St. Lucia will benefit substantially from the influx of tourist activity. As shown in the graph, from 2005 the number of tourist arrivals in the Caribbean have increased substantially, reaching a whopping 25.23 million in 2016. In countries like Jamaica, the number of Chinese tourists arrivals has increased. In 2015, roughly 1,000 chinese tourists disembarked from a cruise ship which was marked as a record number chinese visitors on the island. As Jamaica tries to develop new markets for tourism with China, visa-free concession for vacationers from China has since been implemented.

    Graph showing Number of Tourist arrivals in the Caribbean from 2005 – 2016.

    According to Bloomberg News, “Lines including Royal Caribbean Cruises Ltd. and Carnival Corp. have sent an armada of luxury vessels to China to tap the world’s fastest-growing market … in addition to satisfying the tastes of Chinese passengers, they sail in the shadow of the region’s increasingly volatile politics. And soon, a new threat will emerge: Chinese companies are building their own big ships.” Matched with the increasing investments in infrastructure within the Tourism sector of these economies, crews ships will more than likely gravitate to the Caribbean as tourist destinations. More hotels makes the regions more attractive. For example, Chinese investors are to plunge more than US$1 billion into developing Antigua and Barbuda’s first mega-resort, creating 1,000 jobs for the tiny cash-strapped nation. The influx of these tourists generates foreign exchange and stimulates trade within these economies.

    Thirdly, it may also be beneficial to obtain low interest rate loans from China in order to finance certain local projects as it is one of the world’s largest net savings economies (about 27 trillion). This is why they have been able to invest such large sums of money into projects in many developing countries around the world. China is a fast growing country with an average growth rate of 9.8% observed over the past 25 years. The Chinese economy operates more or less at full employment and all the Chinese growth from 2016 to 2040 will come singularly from productivity. This means that not even .1% will come from population growth and with their recent launching of “Made In China 2025” initiative this will be made possible. This initiative is a state – backed policy that seeks to make China dominant in global high tech manufacturing in ten high – tech industries. Much of the goods that we consume nowadays are in fact “Made in China” and with the rapid pace at which the economy is growing, by 2025 China will achieve 70% self – sufficiency. This state – led industrial policy is expected to increase the incomes of the chinese workers as well as enable them to be more competitive in the global marketplace. Due to their high propensity to save, more incomes will ofcourse mean more savings which by extension will result in more net investment outflows abroad which play an important role in China’s international economic positioning. It only makes sense to lean on them in times of trouble.

    Fourthly, CARICOM Economies have been major exporters of raw materials and resources. As China’s economy grows, it will need a greater amount of goods and services to meet the demands of its rapidly expanding population as well as factor inputs needed to continue with its daily production. China’s population is estimated at 1.4 billion. Due to this immense population size and increasing income, China’s demands of these resources will open up new markets for countries outside of China. CARICOM countries can use this as an opportunity to build a trade relationship with China. Haltmatier (2007) found that in recent years, China’s growth has had a much more pronounced impact on the economic growth performance of other economies, and this will be beneficial to the Caribbean. Some commodities such as Crude Oil can be exported to China whose demand for oil and gas (second largest in the world) is expected to increase amidst all the plans to expand its productivity volume. Give Guyana’s recent oil discoveries, this can create some opportunities for them. As shown below,

    The United States Geological Survey (USGS) estimates that the offshore Guyana-Suriname basin holds up to 15.2 billion barrels of oil and 850 Bcm of gas. Guyana has sprung up as one of the hottest oil spots in the region and since the International Monetary Fund (IMF) expects oil revenues in Guyana to reach 56 billion GYD, it is safe to say Guyana indeed has a promising future.

    Lastly, CARICOM countries should encourage China to invest in human capital in the Caribbean. Over the past 30 years, China’s human capital have improved significantly however, they are now facing an aging population. As their productive capacity continues to improve, they may require skilled workers. In countries like St. Lucia, they have provided full scholarships for students seeking tertiary level education in whichever field they choose. According to Dmitriy Frolovskiy in an article written in The Diplomat, “ China’s universities increased from 1,022 in 2001 to 2,824 in 2014, and now host almost 37 million students — the world’s largest student population, constituting one out of five students in the world. During the height of this boom, there were claims that China builds a new university every single week”. Perhaps, after graduating they can stay and contribute towards the economy by seeking employment and internship opportunities. Likewise, the skills these scholarship recipients obtain in China can also be beneficial to their home country.

    This essay was written by a fellow student. You may use it as a guide or sample for writing your own paper, but remember to cite it correctly. Don’t submit it as your own as it will be considered plagiarism.

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    Foreign direct investment and Inter business in Ch Essay. (2019, Jan 25). Retrieved from https://artscolumbia.org/foreign-direct-investment-and-inter-business-in-ch-essay-74664/

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