Reference no: EM132408030

Most Americans are probably aware that many of the products they buy are made in China. However, many Americans might be surprised to know that the U.S. retail giant Wal-Mart is actually China's eighth largest trading partner. In fact, about 70 percent of the products sold in a Wal-Mart store are manufactured in China. In 2004, Wal-Mart's purchases from China were estimated to be about $18 billion. Wal-Mart's relationship with China is not a one-way street though. Wal-Mart has successfully opened several stores in China that attract crowds of shoppers. One man even bought his house so that he could be close to the store.

Chinese exports to the United States are attractive to Americans because of their low prices. Experts also note that the low prices also help hold down inflation rates in the United States. The Chinese are able to sell their products cheaply because of the low wage rates in China. In 2002 for example, the average Chinese factory worker made just $0.64 per hour as compared to the $21 per hour earned by an American factory worker. While some Americans raise concerns about the possibility of more manufacturing jobs being shifted to China, experts agree that those jobs have already left the United States, and will not return. If the Chinese do not manufacture the goods, another low-cost Asian country will.

China's exports to the United States are also important to Americans because they give the Chinese the income to buy American-made goods like airplanes and cars. Roads in China are now clogged with American-made cars, and shopping districts advertise American products like McDonald's, KFC, Pepsi, and Coca-Cola. The Chinese are likely to continue to buy more and more products labeled "Made in America" thanks to new legislation that further opens the Chinese market to American companies. U.S. companies like Wal-Mart now have permission to build as many stores as they want, wherever they want. America's love affair with Wal-Mart and the inexpensive Chinese-made goods it sells is strong, and now it seems the legendary retailer has captured the hearts of the Chinese as well.

Discussion Questions:

1. What type of investment does Wal-Mart have in China? Why do you think Wal-Mart followed this strategy? What are the benefits to China of Wal-Mart's investment?

2. Approximately 70 percent of everything Wal-Mart sells is made in China. Why does Wal-Mart buy so much from China?

3. Explain the three approaches to foreign direct investment. Which approach best reflects China's attitude toward foreign investment? What does your answer imply for companies seeking to expand into China?

4. What actions can China take to ensure that it continues to attract inward foreign direct investment? What challenges do you see for China as it courts new investment?

5. China has attracted significant investment from foreign companies including Wal-Mart in recent years. How has its trade and investment affected economic and social development in China