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Foreign Direct Investment in the Chinese Energy Market

            Recently surpassing Japan, China is now the second largest economy in the world following the United States (U.S. Department of State). This rise has taken place over the last three decades as China has slowly loosened its trade policies from a central system to a more market-orientated system (CIA). In 2009 its $4.814 trillion economy was one third the size of the United States (U.S. Department of State). This shift has allowed China to become one of the largest players in the world market. It is the most populated country in the world with a population of 1,330,141,295 billion people and a literacy rate of 93 percent (CIA). It has an inflation rate of 4.4% as of October 2010, which is relatively high compared to the rest of 2010 (see figure 1in the appendix). If this inflation rate continues to rise, this may mean that the money supply is growing faster than the rate of the economy and could negatively affect our foreign direct investment.
             In terms of energy opportunities in China, we found that there is a huge opportunity for growth in this area. China is the world's largest consumer of energy and the second largest producer of energy (U.S. Department of State). Clearly, China has a huge demand for energy, so a foreign direct investment in China would be a smart choice, especially since that demand is expected to grow 4 percent annually through 2030 (State Gov). "China is now one of the leading FDI recipients in the world, receiving over $108 billion in 2008, according to the Chinese Ministry of Commerce" (U.S. Department of State), which also shows that we are not the only country investing in China; there are many others that see the huge profit to be made in China.
             Although it seems to have a booming economy, there are still shifts that may occur in the future if China does not figure out a way to let its currency adjust significantly (Eichengreen). "Letting the Renminbi rise would slow the rate of growth of Chinese exports and shift domestic demand away from locally-produced goods.

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