The final 1 economics of china
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The final 1 economics of china The final 1 economics of china Document Transcript

  • Assignment: Managerial Economics 10/17/2012OVERVIEW:In the modern era, the world economy influences China was very less until the late 1980s. Atthat time, Chinese economic reforms initiated after 1978 began to generate significant andsteady growth in investment, consumption and standards of living. As of 2012 China is amajor importer of raw materials, manufacturer of basic goods, and exporter of consumergoods. The economy is dominated by large state-owned enterprises, but private enterprisesalso play a major role in the economy. State-owned enterprises are a major source of profitand power for members of the Communist Party of China and their families and are favoredby the government. Since 1978 hundreds of millions have been lifted out of poverty – yethundreds of millions of rural population as well as millions of migrant workers remainunattended: According to Chinas official statistics, the poverty rate fell from 53% in 1981 to2.5% in 2005. However, in 2009, as many as 150 million Chinese were living on less than$1.25 a day.In the 1949 revolution, Chinas economic system was officially made into acommunist system. Since the wide-ranging reforms of the 1980s and afterwards, manyscholars state that China can be defined as one of the leading examples of statecapitalism today. Since the introduction of economic reforms in 1978, China has become theworlds fastest-growing major economy. As of 2012, it is the worlds second-largest economy,after the United States, by both nominal GDP and purchasing power parity (PPP). I. General Information on China: China is most populated country in the world about 1.3 billion, covering approximately 9.6 mill- ion square kilometers of the area & the worlds second-largest country by land area. The Peoples Republic of China is a single-party state governed by the Communist Party of China with two mostly self-governing special administrative regions (Hong Kong and Macau). Its capital city is well developed known as Beijing.Fig1.1: A geographical map of ChinaEconomics of ChinaPRABIN RAI 1P i c t u r e
  • Assignment: Managerial Economics 10/17/2012Chinas landscape is vast and diverse, with forest steppes and the Gobi and Taklamakandeserts occupying the arid north and northwest near Mongolia and Central Asia, andsubtropical forests being prevalent in the wetter south near Southeast Asia. The topography ofwestern China is rough and high, with the Himalaya, Karakoram, Pamir and Tian Shanmountain ranges separating China from South and Central Asia. The Yangtze and YellowRivers, the third- and sixth-longest in the world, have their sources in the Tibetan Plateau andcontinue to the densely populated eastern seaboard. Chinas coastline along the Pacific Oceanis 14,500 kilometers (9,000 mi) long—the 11th-longest in the world—and is bounded by theBohai Sea, Yellow Sea, East and South China Seas.In the 1946–1949 phase of the Chinese Civil War, the Chinese Communist Party defeated thenationalist Kuomintang in mainland China and established the Peoples Republic of China inBeijing on 1 October 1949. The Kuomintang relocated the Republic of China government toTaiwan, establishing its capital in Taipei. Since 1949, the Peoples Republic of China and theRepublic of China (now widely known as "Taiwan") have remained in dispute over thesovereignty of China and the political status of Taiwan, mutually claiming each othersterritory and competing for international diplomatic recognition.In 1971, the PRC gained admission to the United Nations and took the Chinese seat as apermanent member of the U.N. Security Council. China is also a member of numerous formaland informal multilateral organizations, including the World Trade Organization, Asia-Pacific Economic Corporation, BRICS, the Shanghai Cooperation Organization, the BCIMand the G-20 major Economics. As of August 2012, all but 23 countries have recognized thePRC as the sole legitimate government of China.II. Political Geography:China is the second-largest country in the world by land area after Russia and is the thirdlargest by total area, after Canada. Chinas total area is generally stated as beingapproximately 9,600,000 km2 (according to CIA 3,705,407 sq mi).According to the Encyclopedia Britannica, the total area of the United States, at 9,522,055km2 (3,676,486 sq mi), is slightly smaller than that of China. Meanwhile, CIA WorldFactbook states that Chinas total area was greater than that of the United States until thecoastal waters of the Great Lakes was added to the United States total area in 1996.China has the longest combined land border in the world, measuring 22,117 km (13,743 mi)from the mouth of the Yalu River to the Gulf of Tonkin. China borders 14 nations, more thanany other country except Russia. China extends across much of East Asia, bordering China,Laos, and Burma in Southeast Asia; India, Bhutan, Nepal and Pakistan in South Asia;Afghanistan, Tajikistan, Kyrgyzstan and Kazakhstan in Central Asia; a small section ofRussian Altai Republic and Mongolia in Inner Asia; and the Russian Far East and NorthKorea in Northeast Asia.Economics of ChinaPRABIN RAI 2P i c t u r e
  • Assignment: Managerial Economics 10/17/2012III. Economic Factors:As of 2012, China has the worldssecond-largest economy in terms ofnominal GDP, totalingapproximately US$7.298 trillionaccording to the InternationalMonetary Fund (IMF). However,Chinas 2011 nominal GDP percapita of US$5,184 puts it behindaround ninety countries (out of 183countries on the IMF list) in globalGDP per capita rankings. If PPP istaken into account in total GDP Fig 3.1: The skyline of Shanghais ultra modernfigures, China is again second only Pudong financial district, across Huangpu River.to the United States in 2011; its PPP GDP reached $11.299 trillion, corresponding to $8,382per capital. In 2009, Chinas primary, secondary, and tertiary industries contributed 10.6%,46.8% and 42.6% respectively to its total GDP. And are also the worlds largest exporter andsecond-largest importer of goods. On a per capita income basis, China ranked 90th bynominal GDP and 91st by GDP (PPP) in 2011, according to the IMF. China is a recognizednuclear weapons state and has the worlds largest standing army, with the second-largestdefense budget. In 2003, China became the third nation in the world, after the former SovietUnion and the United States, to independently launch a successful manned space mission.China has been characterized as a potential superpower by a number of academics, militaryanalysts, and public policy and economics analysts.World trade has steadily grown; its importance to the international economy has alsoincreased apace. Chinas foreign trade has grown faster than its GDP for the past 25years. Chinas growth comes both from huge state investment in infrastructure.Here, this picture shows the whole factors indicating economic of China, accordingly. Actual Previous Highest Lowest UnitMarketsCurrency 6.23 6.24 8.73 1.53Government Bond 10Y 3.60 3.57 4.61 2.70 PercentStock Market 2069.07 2068.88 6092.06 99.98 Index pointsExchange Rate 6.23 6.24 8.73 1.53GDPGDP Growth Rate 2.20 2.00 2.50 1.50 PercentGDP Annual Growth Rate 7.40 7.60 14.20 3.80 PercentGDP 7298.10 5878.63 7298.10 46.46 USD BillionGross National Product 472115.00 403260.00 470797.20 679.00 CNY HMLEconomics of ChinaPRABIN RAI 3P i c t u r e
  • Assignment: Managerial Economics 10/17/2012GDP per capita 2634.71 2425.47 2634.71 72.32 USDGDP per capita PPP 8442.23 7567.84 8442.23 250.16 USDLabourUnemployed Persons 918.00 907.00 922.00 810.00 PERSON TTHWages 42452.00 37147.00 42452.00 445.00 CNYWages in Manufacturing 36494.00 30700.00 36494.00 597.00 CNYPopulation 1344.13 1337.82 1344.13 660.33 MillionEmployed Persons 76420.00 76105.00 76420.00 20729.00 PERSON TTHUnemployment Rate 4.10 4.10 4.30 3.90 PercentPricesExport Prices 101.30 101.10 111.90 90.70 Index PointsGDP Deflator 534.99 501.64 534.99 100.00 Index PointsImport Prices 95.80 96.20 122.70 79.60 Index PointsConsumer Price Index (CPI) 101.90 102.00 128.40 97.80 Index PointsProducer Prices 96.40 96.50 113.47 91.80 Index PointsInflation Rate 1.70 1.90 27.70 -2.20 PercentMoneyForeign Exchange Reserves 3285095.00 3272901.00 3309657.00 2262.00 USD MillionInterest Rate 6.00 6.00 10.98 5.31 PercentMoney Supply M0 5343.35 5023.60 5982.07 17.85 CNY BillionMoney Supply M2 94368.88 92489.50 92499.12 5840.10 CNY BillionTradeExternal Debt 6949.97 5489.38 6949.97 158.28 USD HMLCapital Flows 221.06 286.86 1984.70 -63.21 USD HMLCurrent Account 59.70 23.50 133.10 -0.90 USD MillionCurrent Account to GDP 4.00 5.20 10.60 -3.70 PercentBalance of Trade 27.67 26.66 40.09 -66.00 USD BillionExports 186.35 177.97 186.35 2.84 USD BillionImports 158.68 151.31 162.40 2.57 USD BillionGovernmentGovernment Debt To GDP 25.80 33.50 33.50 1.00 PercentGovernment External Debt 6949.97 5489.38 6949.97 158.28 USD HMLGovernment Spending 63616.10 53614.40 61927.80 93.30 CNY HMLGovernment Budget -1.10 -2.50 0.58 -3.05 Percent of GDPBusinessIndustrial Production 9.60 9.20 29.40 -21.10 PercentBusiness Confidence 122.80 126.90 146.00 105.60Economics of ChinaPRABIN RAI 4P i c t u r e
  • Assignment: Managerial Economics 10/17/2012Car Registrations 1528.82 1245.95 1528.82 337.20 10 ThousandsChanges in Inventories 11963.50 9988.70 11963.50 3.00 CNY HMLConsumerConsumer Spending 164945.20 133290.90 162813.00 453.00 CNY HMLDisposable Personal Income 21810.00 19109.44 21810.00 343.40 CNYConsumer Confidence 100.80 99.40 124.60 97.00Bank Lending Rate 6.00 6.00 12.06 5.31 PercentPersonal Savings 0.35 0.50 3.15 0.35 PercentRetail Sales MoM 1.41 1.28 1.41 1.28 PercentRetail Sales YoY 14.50 14.20 19.90 11.60 Percent Table 1: Overall Economy Indicators of CHINA A. Agriculture & Industry outputs:The two most important sectors of theeconomy have traditionally beenagriculture and industry, which togetheremploy more than 70 percent of the laborforce and produce more than 60 percent ofGDP. The two sectors have differed inmany respects. Technology, laborproductivity, and incomes have advancedmuch more rapidly in industry than inagriculture. Agricultural output has beenvulnerable to the effects of weather, while industry has been more directly influence by thegovernment. Fig.3.2:Rice terrace in China (Guangxi)China is the worlds largest producer of rice and is among the principal sources of wheat, corn(maize), tobacco, soybeans, peanuts (groundnuts), and cotton. The country is one of theworlds largest producers of a number of industrial and mineral products, including cottoncloth, tungsten, and antimony, and is an important producer of cotton yarn, coal, crude oil,and a number of other products. Its mineral resources are probably among the richest in theworld but are only partially developed. B. Tourism & Culture:China is the third most visited country in the world. The number of overseas tourists was55.98 million in 2010. Foreign exchange income was 45.8 billion USD. The number ofdomestic tourist visits totaled 1.61 billion. According to the WTO, in 2020, China willbecome the largest tourist country and among the largest for overseas travel. The famoustourism places of China such as, Forbidden City, Beijing, Great Wall of China, Yellow River,Economics of ChinaPRABIN RAI 5P i c t u r e
  • Assignment: Managerial Economics 10/17/2012Potala Palace, Macau, Hong Kong Island, Beijing, Shanghai, etc. The world is on the way ofa sustained Chinese tourism boom.Since ancient times, Chinese culture has been heavily influenced by Confucianism andconservative philosophies, which were instituted in 605 AD to help the Emperor select skilfulbureaucrats. In recent years, a number of New Confucians have claimed that moderndemocratic ideals and human rights are compatible with traditional Confucian values.Many important aspects of traditional Chinese morals and culture, suchas Confucianism, Chinese art, literature, and performing arts like Peking opera, were misusedto conform to government policies and half truths at the time.Fig.3.3: Great Wall of China Fig.3.4: Huanglong (Yellow Dragon) Fig.3.5: Lijiang River, Guilin C. Science and Technology:China was a world leader in science and technology until the Ming Dynasty. Ancient Chinesediscoveries and inventions, like, papermaking, printing, the compass and gunpowder(the FourGreat Inventions), contributed to the economic development of Asia and Europe. However,Chinese scientific activity entered a prolonged decline in the fourteenth century. UnlikeEuropean scientists, medieval Chinese thinkers did not attempt to reduce observations ofnature to mathematical laws, and they did not form a scholarly community offering peerreview and progressive research. After repeated military defeats by Western nations in the19th century, Chinese reformers began promoting modern science and technology as part ofthe Self-Strengthening Movement. After the Communist victory in the Chinese Civil War in1949, efforts were made to organize science and technology based on the model of the SovietUnion. Since the end of the Cultural Revolution, China has become one of the worlds leadingtechnological powers, spending over US$100 billion on scientific research and developmentin 2011 alone. China is rapidly developing its education system with an emphasis on science,mathematics and engineering; in 2009, it produced over 10,000 Ph.D. D. Energy and mineral resources:Since 1980, Chinas energy production has grown dramatically, as has the proportionallocated to domestic consumption. Some 80 percent of all power generated from fossil fuelat thermal plants, with about 17 percent at hydroelectric installations; only about two percentis from nuclear energy, mainly from plants located in Guangdong and Zhejiang. AlthoughChina has rich overall energy potential, most have yet to be developed. In addition, thegeographical distribution of energy puts most of these resources relatively far from theirmajor industrial users. Basically the northeast is rich in coal and oil, the central part of northEconomics of ChinaPRABIN RAI 6P i c t u r e
  • Assignment: Managerial Economics 10/17/2012China has abundant coal, and the southwest has immense hydroelectric potential. But theindustrialized regions around Guangzhou and the Lower Yangtze region around Shanghaihave too little energy, while there is relatively little heavy industry located near major energyresource areas other than in the southern part of the northeast. E. China Industrialization & Manufacturing:China has obtained highly sophisticated foreign production facilities and through"localization policies" also built a number of advanced engineering plants capable ofmanufacturing an increasing range of sophisticated equipment, including nuclearweapons and satellites, but most of its industrial output still comes from relatively badlyequipped factories. The technological level and quality standards of its industry as a wholeare still disastrous, despite a marked change since 2000, urged in part by foreign investment.China has experienced total factor productivity growth of 4 per cent per year since 1990, oneof the fastest improvements in world economic history.Mainly, China has a success in manufacturing the goods as a low-cost producer. This iscredited to a combination of cheap labor, good infrastructure, relatively high productivity,favorable government policy, and a possibly undervalued exchange rate. The final has beensometimes responsible for Chinas huge trade surplus (US$262.7 billion in 2007) and hasbecome a major source of dispute between China and its major trading partners—the US, EU,and Japan; despite the Yuan having be de-pegged (fixed in) and having risen in value by 20%against the US dollar since 2005. China is moreover widely criticized for manufacturing largequantities of counterfeit (imitating) goods—in 2005, the Asia Business Council suspectedthat the counterfeit industry accounted for 8% of Chinas GDP at the time.The state still dominates in strategic "pillar" industries (such as energy and heavy industries),but private enterprise (composed of around 30 million private businesses has expandedenormously; in 2005, it accounted from 33% to 70% of national GDP. Graph 3.1: A drastic change in Nominal GDP since 1978 to 2005Economics of ChinaPRABIN RAI 7P i c t u r e
  • Assignment: Managerial Economics 10/17/2012IV. Importance of Macroeconomics indicators:Macroeconomics application involves here about China is predicating aggregate measures ofeconomic activity at the international, national, regional, or state levels indicating of grossdomestic product (GDP), unemployment, interest rates. Commonly includes consumerspending, business investment, home building, exports, imports, federal purchases andspending by state and local government and so on.In 1978, Chinas market-oriented reforms and economic liberalization (privatization) began.Chinas investment- and export-led economy has grown almost a hundredfold and is thefastest-growing major economy in the world. According to the IMF, Chinas annual averageGDP growth between 2001 and 2010 was 10.5%, and the Chinese economy is predicted togrow at an average annual rate of 9.5% between 2011 and 2015. Between 2007 and 2011,Chinas economic growth rate was equivalent to all of the G7 countries (France, WestGermany, Italy, Japan, United Kingdom, United States, and Canada) growth combined. A. China GDP:China is the worlds fastest-growing major economy, with growth rates averaging 10% overthe past 30 years. China is also the largest exporter and second largest importer of goods inthe world. On a per capita income basis, China ranked 90th by nominal GDP and 91st byGDP (PPP) in 2011, according to the International Monetary Fund (IMF). GDP in Chinaexpanded 2.20 percent in the third quarter of 2012 over the previous quarter. Historically,from 2011 until 2012, China GDP Growth Rate averaged 2.07% reaching an all time high of2.50% in June of 2011 and a record low of 1.50% in March of 2012. The GDP in China was worth 7298.10 billion US dollars in 2011, according to a report published by the World Bank. The GDP value of China is roughly equivalent to 11.77 percent of the world economy. Historically, from 1960 until 2011, China GDP averaged 963.58 Billion USD reaching an all time high of 7298.10 Billion USD in December of 2011 and a record low of 46.46 Billion USD in December of 1962. The GDP is equal to the total expenditures for all final goods and services produced within the country in a stipulated period of time. This picture includes a chart with historical data for China GDP. Figure: 4.1: China expanding GDPEconomics of ChinaPRABIN RAI 8P i c t u r e
  • Assignment: Managerial Economics 10/17/2012The table below shows the trend of the GDP of China at market prices estimated by theInternational Monetary Fund (IMF) with figures in millions (Chinese Yuan=CNY). Forpurchasing power parity comparisons, the US dollar is exchanged at 2.05 CNY only. Inflation Nominal Per Capita PPP Per Capita Gross domestic US dollarYear index GDP GDP product exchange (2000=100) (as % of USA) (as % of USA)1955 91,000 2.46 19.2 2.43 -1960 145,700 2.46 20.0 3.04 -1965 171,600 2.46 21.6 2.63 -1970 225,300 2.46 21.3 2.20 -1975 299,700 1.86 22.4 2.32 -1980 460,906 1.49 25.0 2.52 2.041985 896,440 2.93 30.0 1.65 2.841990 1,854,790 4.78 49.0 1.48 3.431995 6,079,400 8.35 91.0 2.17 5.442000 9,921,500 8.27 100.0 2.69 6.752005 18,308,500 8.19 106.0 4.05 9.612010 25,506,956 6.97 112.0 6.23 15.90 Table 2: GDP (PPP); CNY exchange rate with USD B. China GDP Growth Rate:The Gross Domestic Product (GDP) growth rate provides an aggregated measure of changesin value of the goods and services produced by an economy. Chinas economy is the secondlargest in the world after that of the United States. During the past 30 years Chinas economyhas changed from a centrally planned system that was largely closed to international trade toa more market-oriented that has a rapidly growing private sector. A major componentsupporting Chinas rapid economic growth has been exports growth. This picture includes achart with historical data for China GDP Growth Rate. Fig.4.2: China GDP growth rateEconomics of ChinaPRABIN RAI 9P i c t u r e
  • Assignment: Managerial Economics 10/17/2012 C. China GDP per capita:The Gross Domestic Product per capita in China was last reported at 2634.71 US dollars in2011, according to a report published by the World Bank. The GDP per Capita in China isequivalent to 21 percent of the worlds average. Historically, from 1960 until 2011, ChinaGDP per capita averaged 601.70 USD reaching an all time high of 2634.71 USD inDecember of 2011 and a record low of 72.32 USD in December of 1962. The GDP per capitais obtained by dividing the country’s gross domestic product, adjusted by inflation, by thetotal population. This picture includes a chart with historical data for China GDP per capita. Figure 4.3: A graph showing China GDP per capita D. China Inflation rate:The inflation rate in China was recorded at 1.7 percent in October of 2012. Historically, from1994 until 2012, China Inflation Rate averaged 4.3 Percent reaching an all time high of 27.7Percent in October of 1994 and a record low of -2.2 Percent in March of 1999. Inflation raterefers to a general rise in prices measured against a standard level of purchasing power. Themost well known measures of Inflation are the CPI which measures consumer prices, and theGDP deflator, which measures inflation in the whole of the domestic economy. This pictureincludes a chart with historical data for China Inflation Rate. Figure 4.4: A graph showing the China Inflation RateEconomics of ChinaPRABIN RAI 10P i c t u
  • Assignment: Managerial Economics 10/17/2012 E. China Unemployment Rate:The urban unemployment rate in China was last reported at 4.1 percent in the third quarter of2012. Historically, from 2002 until 2012, China Unemployment Rate averaged 4.15 Percentreaching an all time high of 4.30 Percent in December of 2003 and a record low of 3.90Percent in September of 2002. The unemployment rate can be defined as the number ofpeople actively looking for a job as a percentage of the labor force. This picture includes achart with historical data for China Unemployment Rate. Figure 4.5: A graph showing China unemployment rate F. China Balance of Trade:The worlds second largest trading power behind the US, with a total international trade valueof US$3.64 trillion in 2011. China also increasingly invests abroad, with a total of $68 billionin 2010. China reported a trade surplus equivalent to 27.7 Billion USD in September of 2012.Historically, from 1986 until 2012, China Balance of Trade averaged 6.2 Billion USDreaching an all time high of 40.1 Billion USD in November of 2008 & a record low of -66.0Billion USD in December of 1989. Export growth has continued to be a major componentsupporting China’s rapid economic growth. Exports of goods and services constitute 39.7%of GDP. China major exports are: office machines & data processing equipment,telecommunications equipment, electrical machinery and apparel & clothing, and so on.China imports mainly commodities: iron and steel, oil and minerals; machinery andequipments, plastics, optical and medical equipment and organic chemicals. Its main tradingpartners are: European Union, The United States, Japan, Hong Kong and South Korea. Thispicture includes a chart with historical data for China Balance of Trade.Economics of ChinaPRABIN RAI 11P i c t u
  • Assignment: Managerial Economics 10/17/2012Fig4.6: A graph comparing the 2011 nominal GDPs of major economies in US$ billions, according to IMF data G. China Exports:China exports were worth 175 Billion USD in October of 2012. Historically, from 1990 until2012, China Exports averaged 50.3 USD Billion reaching an all time high of 186.4 USDBillion in September of 2012 and a record low of 2.8 USD Billion in January of 1990. Exportgrowth has continued to be a major component supporting Chinas rapid economic growth.Exports of goods and services constitute 39.7% of its GDP. China major exports are: officemachines & data processing equipment, telecommunications equipment, electrical machineryand apparel & clothing. China’s largest exports markets are European Union, United States,Hong Kong, Japan and South Korea. This picture includes a chart with historical data forChina Exports.October 13, 2012 (Voice of America news)China’s exports increased more than expected in September, contributing to a widening tradesurplus with the rest of the world. Figures released by the government Saturday showed exports up9.9 percent from a year earlier, despite economic problems in Europe and the United States.Economics of ChinaPRABIN RAI 12P i c t u
  • Assignment: Managerial Economics 10/17/2012 Figure 4.7: China exports exceed billion in USD H. China Imports:China imports were worth 143.6 Billion USD in October of 2012. Historically, from 1990until 2012, China Imports averaged 43.6 USD Billion reaching an all time high of 162.4 USDBillion in May of 2012 and a record low of 2.6 USD Billion in January of 1990. Chinaimports mainly commodities: iron and steel, oil and mineral fuels as well as machinery andequipment, plastics, optical and medical equipment and organic chemicals. China’s mainimports partners are: Japan, European Union, South Korea, Taiwan and ASEAN countries.This picture includes a chart with historical data for China Imports. Figure 4.8: A graph showing China Imports V. Risk Analysis:Until now I’ve examined managerial decision making under conditions of risk and certainty.In such cases, the manager knows exactly the outcome of each possible course of action.Many managerial decisions are, indeed, made under conditions of certainty, especially inshort run. And the return in long run investment depends on economic conditions in thefuture, the degree of future competition, consumer tastes, technological advances, and thepolitical situation and so on. Such factors may create imperfect business and faces risk anduncertainty.STRENGTHS  External accounts benefitting from competitiveness and industrial diversification,  Risk of foreign over indebt & to the high level of foreign exchange reserves and to the current account surplus,  Self-governing risk contained: public debt mostly domestic and denominated in local currency,  Gradual move up-market,Economics of ChinaPRABIN RAI 13P i c t u
  • Assignment: Managerial Economics 10/17/2012  Infrastructure development prompt by the motivation package,  Very high corporate savings rate that funds most investments, etc.WEAKNESS  Growing social tensions linked to increasing inequalities,  Aging of the population & cheap labor,  Overcapacity in industry and trade  Weakness of Chinese banks due to credit dynamism and uncertainty as to the level of Non-Performing Loans,  Environmental problemsVI. The role of Government in economy:The role of government is maintaining law and order and establishing secure national defenseexpanding to conduct the business without harming its competitors through illegal businesspractices. China has been under the communist party rule for many decades. The communistparty exercises absolute power over legislations and economic & cultural institutions.Unlike western economies where the government promotes transparency for doing business;in China rules and regulations are not so transparent or absolute. Large manufacturingbusinesses can come under various regulations and bureaucracies; China promotes a form ofsocial network called guanxiwang, where guanxi is the relationship between the individualand the entities of the network. Due to lack of transparency and corruption the guanxiwang orthe social network with people from the communist party can help western businesses avoidred tape and bureaucracy. Without guanxi a westerner entering China is like entering anabyss, which is also demonstrated by the famous Chinese saying “turning at the temple doorwithout a pig’s head” Understanding guanxi is a challenging process for a foreigner andbuilding a guanxiwang is often a time consuming process, so it is sensible for a foreignercompany to recruit the right people with the appropriate guanxiwang to overcome thesechallenges. Strict laws and patents in economies of the west protect domestic and foreignbusinesses, whereas in China, the legal system is loosely defined, giving rise to variousloopholes in the law. China’s agreement to the WTO has brought with it the inclusion ofinternational business laws and patent rights amendments, but even today it is common to seetechnology being stolen either by the employees of the outsourced firm in China or by aChinese competitor in the country.―Shanzhai‖ or the copycat culture is an integral part of the Chinese society; the society ispredominantly Confucian and the Confucian tradition promotes individuals sharing what theycreate with the society to promote greater harmony. Hence anything from shoes to cellphones are copied and sold openly in markets across the country. China today is the world’slargest producer of counterfeit (imitation) products.Economics of ChinaPRABIN RAI 14P i c t u
  • Assignment: Managerial Economics 10/17/2012VII. My Investment Decision: 1) The economic growth rate of China will be keeping at average 9% in the future decade: The economic growth rate of China has been at average 9% annually for last two decades, which is three times rates of the economic growth of the developed countries, but the China’s economy will keep this growth rate at least twenty years. The main reason is that the economy of China is in the course of urbanization, internationalization, industrialization and marketalization. More than half of population in China will give up the rural village life style and embrace the urban life style. It means that at least 700 million Chinese will change its life style, such as eating, drinking, dressing, transporting, communicating, sheltering, etc. It indicates a large potential business opportunities for a foreign investor. 2) China has built an extensive transportation network since 1980. China has built an effective, extensive transportation network for last twenty years. China has 80000km railway, 3.73 million kilometers highway, 152 airports. It is very easy for a passenger to travel from the North to the South, from the West to the East. Many high speed railway lines connecting Beijing with Tianjin, Beijing with Shanghai, Wuhan with Guangzhou, Zhengzhou with Xi’an, have been running since 2008. Even Lasha, the capital of Tibet, is connected with other cities in China by a railway line. 3) The favorite investment policies are still available in special economic development zone. In order to develop economy of the inland regions of China, the governments of China set up a series of favorite investment policies, ranging from taxation to land- using on these provinces. Encouraging foreign investment in the coast area is the first tier of opening door policy of China. 4) Doing business and improving life quality are thinking by everybody in China. Now the seed is blooming and growing, everyone not only enjoy the status of the economy, but also want improve and contribute to the economy sustainable. The energy and power of the economic growth in China not only rely on the favorite economic policies, but also burst out of the Chinese hot heart. The later will push the China’s economy grow up more healthy and more sustainable. For any investors, it means that the business in China will be more effective. 5) High educated work force in China is growing. Every year, more than 6 million students graduated from the universities in China. Most of them are bilingualism--- Chinese and English. Most of Chinese students are learning English at the kindergarten, and English exam is a big subject in the Chinese education system, Economics of China PRABIN RAI 15P i c t u
  • Assignment: Managerial Economics 10/17/2012 either for entrance to high school or admission to university. So for any foreign investors, language is not a problem for running the business in China. 6) China has a large market to develop. Everyone knows that China has a large land and a large population. Literally, it does mean a large market. Economically, China has a large effective market for an investor to develop. For instance, China has 80 million vehicles including 30 million cars by 2008. The vehicle ownership number is growing by 30% yearly. So, the business relating the vehicle maintenance is a large market. 7) Green economy, green society and healthy life are the growing markets in China. Green and healthy are the hot topic in China now. Clean city, clean air, clean water are demanded in China. China has been named the third largest market all over the world by the World Bank. The government of China has invested billion dollars in the clean energy industry. The promoting policies for using clean energy are implemented across country. Especially, the government of China will support a clean tech project economically.There is a model postulate that regional advantages influence the decision to invest in oneregion as opposed to another. That is,Yi = f (Xi) (1)Where,Yi = the amount of investment in region i;Xi = a q-dimensional vector of exogenous variables such as factor costs, taxes, businessclimate, and agglomeration economics; andf (∗) = an unknown functional form.Accordingly, if a country or region wants to attract FDI, it can increase the rate of return onforeign firms’ projects and reduce their investment risks. Enhancing political stability canreduce the risks of investing in a country. After-tax rate of return can be increased byreducing taxes or improving infrastructure.Tax rates and tax incentives are found to be important determinants in making new plants andcapital investment location decisions (Fortune, 1977; Papke, 1987; Ondrich and Wasylenko,1993). In China, the magnitude of FDI in different investment incentive zones and citiesshould vary because of the tax differentiation. Hence, this study examines the effectiveness oftax rates.In Summary,  Better access to Chinese market,  Maintain a foothold/test-ground in Chinese market,  Expanding products export/open up new market by investing,Economics of ChinaPRABIN RAI 16P i c t u
  • Assignment: Managerial Economics 10/17/2012  More opportunities provided by transformation and potential,  Defend existing rivals on Chinese market,  Diversification into new production lines in potential rapid growth area,  Expected higher profits,  The desire to induce China into a long-term commitment to a particular type of technology,  Investment incentives in China,  Use of relative low-cost labor,  Establishment of an export base.With a view to realize such a target, I’ve been taking following measures: Improving thebusiness and investment environment as followings: Revise legal instruments on foreign investment in an efficient manner. Diversify investment forms to deploy more channels for attracting investment through conversion of operations with different companies. Invest for infrastructural improvement and heightening the quality of financial, banking, technological services.Recommendations and Conclusion:Although the business plans were not always met, the companies underlined that they wereon the right track, but had to find ways to optimize their operations. When a firm hasinformal way of developing their market entries, without extensive business planning andanalysis, a long-term business focus is necessary, long-term business planning is difficult inChina. Only the implementation stage will indicate if sufficient parameters have beenconsidered during the planning stage. Smaller firms had a more practical approach to market-entry. Even as not setting too many barriers during the initial strategy design, operationalaspects were seen as being of more importance. As a result the planning of the market-entryexplicitly considers high flexibility in decision-making during implementation. As aconsequence for the smaller firms short-term targets have been more significant.As claimed by an American business magnate, investor, and philanthropist: widelyconsidered the most successful investor of the 20th century. …“The 19th century belongedto England, the 20th century belonged to the US and 21st Century belongs to China. Investaccordingly.” - Warren Buffett, The Chairman and CEO of Berkshire Hathaway.It is a fact that the expanding Chinese trade may have induced painful restructuring withinsome the most vulnerable and employment generating industries in the region. Emergingeconomy firms are becoming important participants in the global economy, and the results ofthis study tend to confirm that new multinationals use each other as reference points in theirinternational market entry decisions. So the firms do, face competition from more establishedmultinationals from developed economies in this internationalization process.Economics of ChinaPRABIN RAI 17P i c t u
  • Assignment: Managerial Economics 10/17/2012In examining host location policy uncertainty and home country institutional distance, thisstudy has improved the understanding of how institutional forces shape entry strategies inemerging economies.And the results contribute to the understanding of the influence of reference groups andidentities, by showing the influence of prior investments from different reference groups.Multinationals from emerging economies seem more likely to be influenced by prior entriesfrom their home country than by firms from other countries, and more level to follow theentries of other emerging economy firms than those of firms from developed economies.Hence, one of the key challenges for emerging-economy firms is to catch up, as theirdeveloped economy peers are likely to have superior resources and capabilities.References:http://en.wikipedia.org/wiki/Chinahttp://www.tradingeconomics.com/china/indicatorshttp://www.coface.com/CofacePortal/COM_en_EN/pages/home/risks_home/country_risks/country_file/China?extraUid=572105http://www.zerohedge.com/news/chinas-non-performing-loan-nightmarehttp://www.businessweek.com/articles/2012-10-03/why-the-u-dot-s-dot-needs-chinese-investmenthttp://www.globalfinance.org/portal/data/publications/countryrisk/China05.pdfhttp://www.voanews.com/content/china-export-rise-nearly-ten-percent/1525941.htmlhttp://en.wikipedia.org/wiki/File:PR_China-SAR_%26_SEZ-English.pngRelated News Blogs and Books:  CNNMonney.com  270 Park Avenue, New York, NY 10017 © 2011 JPMorgan Chase & Co. jpmorgan.com/institutional  CHINA’S Emerging Financial Markets Challenges and Global Impact (2009) John Wiley & Sons Forwarded by: Paul A. Volcker Former Chairman, US Federal Reserve Zhou Xiaochuan Governor, People’s Bank of ChinaEconomics of ChinaPRABIN RAI 18P i c t u
  • Assignment: Managerial Economics 10/17/2012  Annex Final Figure00: A map showing Special Chinese Economic zonesEconomics of ChinaPRABIN RAI 19P i c t u