Divestment Of Multinational Corporations In China Under Financial Crisis

Since the reform and opening up, the policy of absorbing capital as well as the huge market size and potential in China have attracted a large number of foreign investments, whose scale has expanded each year. By the end of March 2009, China has already approved 55 thousand foreign-funded enterprises, and have utilized more than $760 billion foreign capitals. The large inflow of foreign capitals will inevitably be accompanied by the divestment phenomenon. In recent years, although the FDI inflow has been growing in China, the similarly growing of divestments has greatly limited the number of actual utilization of foreign investment. As the main form of FDI, the disinvestment and re-investment of foreign multinational companies are very significant for us to learn.In 2007, sub-prime mortgage crisis in America trigger a global financial crisis and economic recession, and the FDI market have also been affected in China.This article analyzes the impact of FDI on China's economy in all aspects in this special period through investigating the disinvestment and re-investment of multinational corporations, so as to provide theoretical support for handling the similar situation in the future. And there is also a certain practical significance for our country to stably and safely pass through the financial crisis.First of all, the first chapter of this article concretely describes the investment and divestment of multinational corporations in China. The investment is divided into four stages: the first stage is from 1979 to 1991, belonging to the initial pilot stage; the second stage is from 1992 to 1993, belonging to high-speed development stage; the third stage is from 1994 to 1997, belonging to the adjustment phase; and the fourth stage is from 1998 to beginning of the financial crises, belonging to the steadily improving phase.The second chapter introduces the divestment of multinational corporations under the financial crisis. The excessive release of sub-prime loans and the over derivatization have triggered the sub-prime crisis when external environment changed rapidly in the United States. It transmitted to the whole world by credit market and capital market, and finally evolved into the global financial crisis, bringing great impact on international financial stability and world economic growth.With the deepening of global financial crisis, people made in-depth investigations on the profound reason of the crisis, such as global imbalances of economy and trade.As China's financial system is relatively independent and involved only a little in the international financial market, we all only at the margin of the financial crisis. However, China is an opening up country with 60% dependence on foreign trade, so it is not realistic to stay aloof. On the one hand, because of the sharply devalued American bank debenture hold by the Chinese, we would suffer huge economic losses. On the other hand, due to the deterioration of the world trade environment, China's export growth rate has dropped.Chapter two also theoretically analyzes the factors of divestment by multinational companies: multinational companies are cross-border economic entities, and their business activities will inevitable be subject by the environment of their home country and host country, and other factors, such as business strategy of the parent company as well as its own company. Therefore, the study of the disinvestment dynamic should also take into account many aspects.The financial crisis also has some influence on the divestment of transnational corporations: the deterioration of the macroeconomic environment; the pessimistic expectations for the future; and worse company's operation performance.The third chapter is mainly about the impact of divestment of multinational companies to our country. First of all, in the area of employment, due to a number of workers employed in these enterprises, the divestment will directly lead to their unemployment. The larger the scale of the divestment, the more serious it influence our country's employment. The short-term rapidly increasing unemployment will be a great burden and stress to China's political economy. Secondly, the divestment of multinational companies will have some impact on China's industrial structure, both positive and negative.The fourth chapter describes China's policy to response to transnational corporations and the perspective of introducing FDI.Once foreign corporations begin divest, it would caused a series of adverse effects on the technology transfer, industrial structure, employment, and the balance of payments. A large-scale divestment of multinational companies will lead to rapidly rising unemployment as well as worse situation for the employment, leading to the country's political and economic instability.Our government should strengthen the establishment system, optimize the investment environment, and ensure policy transparency, continuity, and stability. We should also prevent more multinational companies from divesting by reducing the investment risks and uncertainties of multinational companies.The global financial crisis has brought a heavy blow to the economy all over the world. Since China has a stronger ability of anti-crisis, it is expected to take the lead to recover its economy, and this also attracted foreign investment.It can be concluded that the comparative advantage in the decline of China's location advantages will benefit our country on foreign capital restructuring.The survey results of World Investment Prospects for the next three years released by UNCTAD recently show that China is still considered to be the best investment target for transnational corporations because of the stable economic fundamentals, huge domestic market, and low-cost labors. The relevant officials of UNCTAD said that although the financial crisis had brought a greater impact on China's exports and economic growth, however, in the long term market size and growth potential, the Chinese market still attracted multinational corporations greatly.