Is it possible for EU Multinational investment in China to benefit Essay

Is it possible for EU Multinational investment in China to benefit both the EU and China - Essay Example This, Oehler-Sincai (2011:74) notes can be attributed to the high growth rate in these economies and the high level of transformation from efficiency driven economies towards innovation driven economies. China in particular, has experienced the strongest growth among the emergent countries over the past three decades. This has been characterised with a high level of investment projects from various developed countries, the European Union (EU) the world’s leading source and host of foreign direct investment, being among them (Vanino, 2012:70). Both China and the EU are among the largest host and source of foreign direct investment in the world and the two countries have over the past years developed an integrated industrial and commercial relationship (Bustillo and Maiza, 2012: 355). Despite the continuously increasing trading relationship between the EU and China, increase investment flows between the two countries have remained limited in comparison. While the European invest ors agree and concur to the suitability of China as a desirable investment location that has high unexploited potential, there are still high concerns concerning a ‘lack of level playing field’ in the region as well as uncertainty and persistent barriers in the Chinese business environment (European Commission, 2012). In recent years, EU investment in China has reached about 20% of all foreign direct investment (FDI) in China. At the same time, China is also growing to be an active investor globally with a growing share invested in the EU market (Vanino, 2012:70). The high optimism on the growth potential within the Chinese market however does not translate immediately to EU confidence in China market as a predictable and sustainable investment environment. This is mainly because of the persistent barriers in China. Furthermore, the EU feels that China has obtained more benefits from their trading and investment relationship, as EU investment environment is more open to China, than China is to EU investors (Vanino, 2012:70; Bustillo and Maiza, 2012: 355). Taking into account the rising importance of China as an investment destination for EU investors, it is important to examine whether it is possible for EU investments in China to benefit both EU and China. Hence, this paper seeks to accomplish this purpose. Background to EU Multinational investment in China Over the past three decades since the Chinese reforms which liberalised the economy to adopt a more market based economy, China has rapidly experienced high growth rates, which has elevated economic development in the country (European Commission, 2011). Over this period, China has experienced a 9% annual average growth rates with its GDP rising exponentially to 5% of the global GDP. This growth resulted to the highest drop in poverty within a country in world history as the people living under a dollar a day reduced by 170 million between 1990 and 2000, and as the country experienced a sudden surge in middle class with a large purchasing power (Commission of the European Communities, 2006). The increased integration of China into the World’s trading system, mainly spurred by the country’s inclusion in the World Trade Organisation (WTO) in 2001, provided China with export markets that were open, hence elevating the country into a trading power. Furthermore, China became a major recipient of FDI with more than