The final 1 economics of china

Assignment: Managerial Economics
10/17/2012
OVERVIEW:
In the modern era, the world economy influences China was very less until the late 1980s. At
that time, Chinese economic reforms initiated after 1978 began to generate significant and
steady growth in investment, consumption and standards of living. As of 2012 China is a
major importer of raw materials, manufacturer of basic goods, and exporter of consumer
goods. The economy is dominated by large state-owned enterprises, but private enterprises
also play a major role in the economy. State-owned enterprises are a major source of profit
and power for members of the Communist Party of China and their families and are favored
by the government. Since 1978 hundreds of millions have been lifted out of poverty – yet
hundreds of millions of rural population as well as millions of migrant workers remain
unattended: According to China's official statistics, the poverty rate fell from 53% in 1981 to
2.5% in 2005. However, in 2009, as many as 150 million Chinese were living on less than
$1.25 a day.

In the 1949 revolution, China's economic system was officially made into a
communist system. Since the wide-ranging reforms of the 1980s and afterwards, many
scholars state that China can be defined as one of the leading examples of state
capitalism today. Since the introduction of economic reforms in 1978, China has become the
world's fastest-growing major economy. As of 2012, it is the world's 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 world's second-largest
country by land area. The
People's 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 China

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China's landscape is vast and diverse, with forest steppes and the Gobi and Taklamakan
deserts occupying the arid north and northwest near Mongolia and Central Asia, and
subtropical forests being prevalent in the wetter south near Southeast Asia. The topography of
western China is rough and high, with the Himalaya, Karakoram, Pamir and Tian Shan
mountain ranges separating China from South and Central Asia. The Yangtze and Yellow
Rivers, the third- and sixth-longest in the world, have their sources in the Tibetan Plateau and
continue to the densely populated eastern seaboard. China's coastline along the Pacific Ocean
is 14,500 kilometers (9,000 mi) long—the 11th-longest in the world—and is bounded by the
Bohai Sea, Yellow Sea, East and South China Seas.

In the 1946–1949 phase of the Chinese Civil War, the Chinese Communist Party defeated the
nationalist Kuomintang in mainland China and established the People's Republic of China in
Beijing on 1 October 1949. The Kuomintang relocated the Republic of China government to
Taiwan, establishing its capital in Taipei. Since 1949, the People's Republic of China and the
Republic of China (now widely known as "Taiwan") have remained in dispute over the
sovereignty of China and the political status of Taiwan, mutually claiming each other's
territory and competing for international diplomatic recognition.

In 1971, the PRC gained admission to the United Nations and took the Chinese seat as a
permanent member of the U.N. Security Council. China is also a member of numerous formal
and informal multilateral organizations, including the World Trade Organization, Asia-
Pacific Economic Corporation, BRICS, the Shanghai Cooperation Organization, the BCIM
and the G-20 major Economics. As of August 2012, all but 23 countries have recognized the
PRC 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 third
largest by total area, after Canada. China's total area is generally stated as being
approximately 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 9,522,055
km2 (3,676,486 sq mi), is slightly smaller than that of China. Meanwhile, CIA World
Factbook states that China's total area was greater than that of the United States until the
coastal 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 than
any 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 of
Russian Altai Republic and Mongolia in Inner Asia; and the Russian Far East and North
Korea in Northeast Asia.

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III. Economic Factors:
As of 2012, China has the world's
second-largest economy in terms of
nominal GDP, totaling
approximately US$7.298 trillion
according to the International
Monetary Fund (IMF). However,
China's 2011 nominal GDP per
capita of US$5,184 puts it behind
around ninety countries (out of 183
countries on the IMF list) in global
GDP per capita rankings. If PPP is
taken into account in total GDP Fig 3.1: The skyline of Shanghai's ultra modern
figures, 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 $8,382
per capital. In 2009, China's primary, secondary, and tertiary industries contributed 10.6%,
46.8% and 42.6% respectively to its total GDP. And are also the world's largest exporter and
second-largest importer of goods. On a per capita income basis, China ranked 90th by
nominal GDP and 91st by GDP (PPP) in 2011, according to the IMF. China is a recognized
nuclear weapons state and has the world's largest standing army, with the second-largest
defense budget. In 2003, China became the third nation in the world, after the former Soviet
Union 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, military
analysts, and public policy and economics analysts.

World trade has steadily grown; its importance to the international economy has also
increased apace. China's foreign trade has grown faster than its GDP for the past 25
years. China's 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 Unit
Markets
Currency 6.23 6.24 8.73 1.53
Government Bond 10Y 3.60 3.57 4.61 2.70 Percent
Stock Market 2069.07 2068.88 6092.06 99.98 Index points
Exchange Rate 6.23 6.24 8.73 1.53

GDP
GDP Growth Rate 2.20 2.00 2.50 1.50 Percent
GDP Annual Growth Rate 7.40 7.60 14.20 3.80 Percent
GDP 7298.10 5878.63 7298.10 46.46 USD Billion
Gross National Product 472115.00 403260.00 470797.20 679.00 CNY HML
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GDP per capita 2634.71 2425.47 2634.71 72.32 USD
GDP per capita PPP 8442.23 7567.84 8442.23 250.16 USD

Labour
Unemployed Persons 918.00 907.00 922.00 810.00 PERSON TTH
Wages 42452.00 37147.00 42452.00 445.00 CNY
Wages in Manufacturing 36494.00 30700.00 36494.00 597.00 CNY
Population 1344.13 1337.82 1344.13 660.33 Million
Employed Persons 76420.00 76105.00 76420.00 20729.00 PERSON TTH
Unemployment Rate 4.10 4.10 4.30 3.90 Percent

Prices
Export Prices 101.30 101.10 111.90 90.70 Index Points
GDP Deflator 534.99 501.64 534.99 100.00 Index Points
Import Prices 95.80 96.20 122.70 79.60 Index Points
Consumer Price Index (CPI) 101.90 102.00 128.40 97.80 Index Points
Producer Prices 96.40 96.50 113.47 91.80 Index Points
Inflation Rate 1.70 1.90 27.70 -2.20 Percent

Money
Foreign Exchange Reserves 3285095.00 3272901.00 3309657.00 2262.00 USD Million
Interest Rate 6.00 6.00 10.98 5.31 Percent
Money Supply M0 5343.35 5023.60 5982.07 17.85 CNY Billion
Money Supply M2 94368.88 92489.50 92499.12 5840.10 CNY Billion

Trade
External Debt 6949.97 5489.38 6949.97 158.28 USD HML
Capital Flows 221.06 286.86 1984.70 -63.21 USD HML
Current Account 59.70 23.50 133.10 -0.90 USD Million
Current Account to GDP 4.00 5.20 10.60 -3.70 Percent
Balance of Trade 27.67 26.66 40.09 -66.00 USD Billion
Exports 186.35 177.97 186.35 2.84 USD Billion
Imports 158.68 151.31 162.40 2.57 USD Billion

Government
Government Debt To GDP 25.80 33.50 33.50 1.00 Percent
Government External Debt 6949.97 5489.38 6949.97 158.28 USD HML
Government Spending 63616.10 53614.40 61927.80 93.30 CNY HML
Government Budget -1.10 -2.50 0.58 -3.05 Percent of GDP

Business
Industrial Production 9.60 9.20 29.40 -21.10 Percent
Business Confidence 122.80 126.90 146.00 105.60
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Car Registrations 1528.82 1245.95 1528.82 337.20 10 Thousands
Changes in Inventories 11963.50 9988.70 11963.50 3.00 CNY HML

Consumer
Consumer Spending 164945.20 133290.90 162813.00 453.00 CNY HML
Disposable Personal Income 21810.00 19109.44 21810.00 343.40 CNY
Consumer Confidence 100.80 99.40 124.60 97.00
Bank Lending Rate 6.00 6.00 12.06 5.31 Percent
Personal Savings 0.35 0.50 3.15 0.35 Percent
Retail Sales MoM 1.41 1.28 1.41 1.28 Percent
Retail 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 the
economy have traditionally been
agriculture and industry, which together
employ more than 70 percent of the labor
force and produce more than 60 percent of
GDP. The two sectors have differed in
many respects. Technology, labor
productivity, and incomes have advanced
much more rapidly in industry than in
agriculture. Agricultural output has been
vulnerable to the effects of weather, while industry has been more directly influence by the
government.
Fig.3.2:Rice terrace in China (Guangxi)
China is the world's 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 the
world's largest producers of a number of industrial and mineral products, including cotton
cloth, 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 the
world but are only partially developed.

B. Tourism & Culture:
China is the third most visited country in the world. The number of overseas tourists was
55.98 million in 2010. Foreign exchange income was 45.8 billion USD. The number of
domestic tourist visits totaled 1.61 billion. According to the WTO, in 2020, China will
become the largest tourist country and among the largest for overseas travel. The famous
tourism places of China such as, Forbidden City, Beijing, Great Wall of China, Yellow River,
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Potala Palace, Macau, Hong Kong Island, Beijing, Shanghai, etc. The world is on the way of
a sustained Chinese tourism boom.

Since ancient times, Chinese culture has been heavily influenced by Confucianism and
conservative philosophies, which were instituted in 605 AD to help the Emperor select skilful
bureaucrats. In recent years, a number of New Confucians have claimed that modern
democratic ideals and human rights are compatible with traditional Confucian values.

Many important aspects of traditional Chinese morals and culture, such
as Confucianism, Chinese art, literature, and performing arts like Peking opera, were misused
to 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 Chinese
discoveries and inventions, like, papermaking, printing, the compass and gunpowder(the Four
Great Inventions), contributed to the economic development of Asia and Europe. However,
Chinese scientific activity entered a prolonged decline in the fourteenth century. Unlike
European scientists, medieval Chinese thinkers did not attempt to reduce observations of
nature to mathematical laws, and they did not form a scholarly community offering peer
review and progressive research. After repeated military defeats by Western nations in the
19th century, Chinese reformers began promoting modern science and technology as part of
the Self-Strengthening Movement. After the Communist victory in the Chinese Civil War in
1949, efforts were made to organize science and technology based on the model of the Soviet
Union. Since the end of the Cultural Revolution, China has become one of the world's leading
technological powers, spending over US$100 billion on scientific research and development
in 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, China's energy production has grown dramatically, as has the proportion
allocated to domestic consumption. Some 80 percent of all power generated from fossil fuel
at thermal plants, with about 17 percent at hydroelectric installations; only about two percent
is from nuclear energy, mainly from plants located in Guangdong and Zhejiang. Although
China has rich overall energy potential, most have yet to be developed. In addition, the
geographical distribution of energy puts most of these resources relatively far from their
major industrial users. Basically the northeast is rich in coal and oil, the central part of north
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China has abundant coal, and the southwest has immense hydroelectric potential. But the
industrialized regions around Guangzhou and the Lower Yangtze region around Shanghai
have too little energy, while there is relatively little heavy industry located near major energy
resource 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 of
manufacturing an increasing range of sophisticated equipment, including nuclear
weapons and satellites, but most of its industrial output still comes from relatively badly
equipped factories. The technological level and quality standards of its industry as a whole
are 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, one
of the fastest improvements in world economic history.

Mainly, China has a success in manufacturing the goods as a low-cost producer. This is
credited to a combination of cheap labor, good infrastructure, relatively high productivity,
favorable government policy, and a possibly undervalued exchange rate. The final has been
sometimes responsible for China's huge trade surplus (US$262.7 billion in 2007) and has
become 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 large
quantities of counterfeit (imitating) goods—in 2005, the Asia Business Council suspected
that the counterfeit industry accounted for 8% of China's 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 expanded
enormously; in 2005, it accounted from 33% to 70% of national GDP.

Graph 3.1: A drastic change in Nominal GDP since 1978 to 2005
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IV. Importance of Macroeconomics indicators:
Macroeconomics application involves here about China is predicating aggregate measures of
economic activity at the international, national, regional, or state levels indicating of gross
domestic product (GDP), unemployment, interest rates. Commonly includes consumer
spending, business investment, home building, exports, imports, federal purchases and
spending by state and local government and so on.

In 1978, China's market-oriented reforms and economic liberalization (privatization) began.
China's investment- and export-led economy has grown almost a hundredfold and is the
fastest-growing major economy in the world. According to the IMF, China's annual average
GDP growth between 2001 and 2010 was 10.5%, and the Chinese economy is predicted to
grow at an average annual rate of 9.5% between 2011 and 2015. Between 2007 and 2011,
China's economic growth rate was equivalent to all of the G7 countries' (France, West
Germany, Italy, Japan, United Kingdom, United States, and Canada) growth combined.

A. China GDP:
China is the world's fastest-growing major economy, with growth rates averaging 10% over
the past 30 years. China is also the largest exporter and second largest importer of goods in
the world. On a per capita income basis, China ranked 90th by nominal GDP and 91st by
GDP (PPP) in 2011, according to the International Monetary Fund (IMF). GDP in China
expanded 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 of
2.50% 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 GDP
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The table below shows the trend of the GDP of China at market prices estimated by the
International Monetary Fund (IMF) with figures in millions (Chinese Yuan=CNY). For
purchasing power parity comparisons, the US dollar is exchanged at 2.05 CNY only.

Inflation Nominal Per Capita PPP Per Capita
Gross domestic US dollar
Year 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 2.04
1985 896,440 2.93 30.0 1.65 2.84
1990 1,854,790 4.78 49.0 1.48 3.43
1995 6,079,400 8.35 91.0 2.17 5.44
2000 9,921,500 8.27 100.0 2.69 6.75
2005 18,308,500 8.19 106.0 4.05 9.61
2010 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 changes
in value of the goods and services produced by an economy. China's economy is the second
largest in the world after that of the United States. During the past 30 years China's economy
has changed from a centrally planned system that was largely closed to international trade to
a more market-oriented that has a rapidly growing private sector. A major component
supporting China's rapid economic growth has been exports growth. This picture includes a
chart with historical data for China GDP Growth Rate.

Fig.4.2: China GDP growth rate
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C. China GDP per capita:
The Gross Domestic Product per capita in China was last reported at 2634.71 US dollars in
2011, according to a report published by the World Bank. The GDP per Capita in China is
equivalent to 21 percent of the world's average. Historically, from 1960 until 2011, China
GDP per capita averaged 601.70 USD reaching an all time high of 2634.71 USD in
December of 2011 and a record low of 72.32 USD in December of 1962. The GDP per capita
is obtained by dividing the country’s gross domestic product, adjusted by inflation, by the
total 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, from
1994 until 2012, China Inflation Rate averaged 4.3 Percent reaching an all time high of 27.7
Percent in October of 1994 and a record low of -2.2 Percent in March of 1999. Inflation rate
refers to a general rise in prices measured against a standard level of purchasing power. The
most well known measures of Inflation are the CPI which measures consumer prices, and the
GDP deflator, which measures inflation in the whole of the domestic economy. This picture
includes a chart with historical data for China Inflation Rate.

Figure 4.4: A graph showing the China Inflation Rate
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E. China Unemployment Rate:
The urban unemployment rate in China was last reported at 4.1 percent in the third quarter of
2012. Historically, from 2002 until 2012, China Unemployment Rate averaged 4.15 Percent
reaching an all time high of 4.30 Percent in December of 2003 and a record low of 3.90
Percent in September of 2002. The unemployment rate can be defined as the number of
people actively looking for a job as a percentage of the labor force. This picture includes a
chart with historical data for China Unemployment Rate.

Figure 4.5: A graph showing China unemployment rate

F. China Balance of Trade:
The world's second largest trading power behind the US, with a total international trade value
of US$3.64 trillion in 2011. China also increasingly invests abroad, with a total of $68 billion
in 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 USD
reaching an all time high of 40.1 Billion USD in November of 2008 & a record low of -66.0
Billion USD in December of 1989. Export growth has continued to be a major component
supporting 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 and
equipments, plastics, optical and medical equipment and organic chemicals. Its main trading
partners are: European Union, The United States, Japan, Hong Kong and South Korea. This
picture includes a chart with historical data for China Balance of Trade.

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Fig4.6: 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 until
2012, China Exports averaged 50.3 USD Billion reaching an all time high of 186.4 USD
Billion in September of 2012 and a record low of 2.8 USD Billion in January of 1990. Export
growth has continued to be a major component supporting China's rapid economic growth.
Exports of goods and services constitute 39.7% of its GDP. China major exports are: office
machines & data processing equipment, telecommunications equipment, electrical machinery
and 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 for
China Exports.

October 13, 2012 (Voice of America news)

China’s exports increased more than expected in September, contributing to a widening trade
surplus with the rest of the world. Figures released by the government Saturday showed exports up
9.9 percent from a year earlier, despite economic problems in Europe and the United States.

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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 1990
until 2012, China Imports averaged 43.6 USD Billion reaching an all time high of 162.4 USD
Billion in May of 2012 and a record low of 2.6 USD Billion in January of 1990. China
imports mainly commodities: iron and steel, oil and mineral fuels as well as machinery and
equipment, plastics, optical and medical equipment and organic chemicals. China’s main
imports 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 in
short run. And the return in long run investment depends on economic conditions in the
future, the degree of future competition, consumer tastes, technological advances, and the
political situation and so on. Such factors may create imperfect business and faces risk and
uncertainty.

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,
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 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 problems

VI. The role of Government in economy:
The role of government is maintaining law and order and establishing secure national defense
expanding to conduct the business without harming its competitors through illegal business
practices. China has been under the communist party rule for many decades. The communist
party 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 manufacturing
businesses can come under various regulations and bureaucracies; China promotes a form of
social network called guanxiwang, where guanxi is the relationship between the individual
and the entities of the network. Due to lack of transparency and corruption the guanxiwang or
the social network with people from the communist party can help western businesses avoid
red tape and bureaucracy. Without guanxi a westerner entering China is like entering an
abyss, which is also demonstrated by the famous Chinese saying “turning at the temple door
without a pig’s head” Understanding guanxi is a challenging process for a foreigner and
building a guanxiwang is often a time consuming process, so it is sensible for a foreigner
company to recruit the right people with the appropriate guanxiwang to overcome these
challenges. Strict laws and patents in economies of the west protect domestic and foreign
businesses, whereas in China, the legal system is loosely defined, giving rise to various
loopholes in the law. China’s agreement to the WTO has brought with it the inclusion of
international business laws and patent rights amendments, but even today it is common to see
technology being stolen either by the employees of the outsourced firm in China or by a
Chinese competitor in the country.

―Shanzhai‖ or the copycat culture is an integral part of the Chinese society; the society is
predominantly Confucian and the Confucian tradition promotes individuals sharing what they
create with the society to promote greater harmony. Hence anything from shoes to cell
phones are copied and sold openly in markets across the country. China today is the world’s
largest producer of counterfeit (imitation) products.

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VII. 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,

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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 one
region 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, business
climate, and agglomeration economics; and

f (∗) = an unknown functional form.

Accordingly, if a country or region wants to attract FDI, it can increase the rate of return on
foreign firms’ projects and reduce their investment risks. Enhancing political stability can
reduce the risks of investing in a country. After-tax rate of return can be increased by
reducing taxes or improving infrastructure.

Tax rates and tax incentives are found to be important determinants in making new plants and
capital investment location decisions (Fortune, 1977; Papke, 1987; Ondrich and Wasylenko,
1993). In China, the magnitude of FDI in different investment incentive zones and cities
should vary because of the tax differentiation. Hence, this study examines the effectiveness of
tax 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 China

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 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 the
business 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 were
on the right track, but had to find ways to optimize their operations. When a firm has
informal way of developing their market entries, without extensive business planning and
analysis, a long-term business focus is necessary, long-term business planning is difficult in
China. Only the implementation stage will indicate if sufficient parameters have been
considered 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, operational
aspects were seen as being of more importance. As a result the planning of the market-entry
explicitly considers high flexibility in decision-making during implementation. As a
consequence for the smaller firms short-term targets have been more significant.

As claimed by an American business magnate, investor, and philanthropist: widely
considered the most successful investor of the 20th century. …“The 19th century belonged
to England, the 20th century belonged to the US and 21st Century belongs to China. Invest
accordingly.” - Warren Buffett, The Chairman and CEO of Berkshire Hathaway.

It is a fact that the expanding Chinese trade may have induced painful restructuring within
some the most vulnerable and employment generating industries in the region. Emerging
economy firms are becoming important participants in the global economy, and the results of
this study tend to confirm that new multinationals use each other as reference points in their
international market entry decisions. So the firms do, face competition from more established
multinationals from developed economies in this internationalization process.

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In examining host location policy uncertainty and home country institutional distance, this
study has improved the understanding of how institutional forces shape entry strategies in
emerging economies.

And the results contribute to the understanding of the influence of reference groups and
identities, by showing the influence of prior investments from different reference groups.
Multinationals from emerging economies seem more likely to be influenced by prior entries
from their home country than by firms from other countries, and more level to follow the
entries 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 their
developed economy peers are likely to have superior resources and capabilities.

References:

http://en.wikipedia.org/wiki/China
http://www.tradingeconomics.com/china/indicators
http://www.coface.com/CofacePortal/COM_en_EN/pages/home/risks_home/country_risks/co
untry_file/China?extraUid=572105
http://www.zerohedge.com/news/chinas-non-performing-loan-nightmare
http://www.businessweek.com/articles/2012-10-03/why-the-u-dot-s-dot-needs-chinese-
investment
http://www.globalfinance.org/portal/data/publications/countryrisk/China05.pdf
http://www.voanews.com/content/china-export-rise-nearly-ten-percent/1525941.html
http://en.wikipedia.org/wiki/File:PR_China-SAR_%26_SEZ-English.png

Related 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 China

Economics of China

10/17/2012

 Annex

Final Figure00: A map showing Special Chinese Economic zones

Economics of China

The final 1 economics of china

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