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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.
Economics of China
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Assignment: Managerial Economics 10/17/2012 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) longthe 11th-longest in the worldand is bounded by the Bohai Sea, Yellow Sea, East and South China Seas. In the 19461949 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, AsiaPacific 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 Markets Previous 6.24 3.57 2068.88 6.24 Highest 8.73 4.61 6092.06 8.73 Lowest 1.53 2.70 99.98 1.53 Percent Index points Unit
GDP Growth Rate GDP Annual Growth Rate GDP Gross National Product Economics of China
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Assignment: Managerial Economics 10/17/2012 GDP per capita GDP per capita PPP
Labour 2634.71 8442.23 2425.47 7567.84 2634.71 8442.23 72.32 250.16 USD USD
Unemployed Persons Wages Wages in Manufacturing Population Employed Persons Unemployment Rate
Prices
Export Prices GDP Deflator Import Prices Consumer Price Index (CPI) Producer Prices Inflation Rate
Money
Index Points Index Points Index Points Index Points Index Points Percent
3285095.00 3272901.00 3309657.00 2262.00 6.00 5343.35 94368.88 6.00 5023.60 92489.50 10.98 5982.07 92499.12 5.31 17.85 5840.10
External Debt Capital Flows Current Account Current Account to GDP Balance of Trade Exports Imports
Government
USD HML USD HML USD Million Percent USD Billion USD Billion USD Billion
Government Debt To GDP Government External Debt Government Spending Government Budget
Business
9.60 122.80
9.20 126.90
29.40 146.00
-21.10 105.60
Percent
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Consumer Spending Disposable Personal Income Consumer Confidence Bank Lending Rate Personal Savings Retail Sales MoM Retail Sales YoY
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.
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Assignment: Managerial Economics 10/17/2012 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.
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Assignment: Managerial Economics 10/17/2012 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.
Graph 3.1: A drastic change in Nominal GDP since 1978 to 2005 Economics of China
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IV.
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.
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Assignment: Managerial Economics 10/17/2012 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 domestic US dollar index exchange (2000=100) 1955 91,000 2.46 19.2 1960 145,700 2.46 20.0 1965 171,600 2.46 21.6 1970 225,300 2.46 21.3 1975 299,700 1.86 22.4 1980 460,906 1.49 25.0 1985 896,440 2.93 30.0 1990 1,854,790 4.78 49.0 1995 6,079,400 8.35 91.0 2000 9,921,500 8.27 100.0 2005 18,308,500 8.19 106.0 2010 25,506,956 6.97 112.0 Year Gross product Nominal Per Capita PPP Per Capita GDP GDP (as % of USA) (as % of USA) 2.43 3.04 2.63 2.20 2.32 2.52 2.04 1.65 2.84 1.48 3.43 2.17 5.44 2.69 6.75 4.05 9.61 6.23 15.90
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Figure 4.4: A graph showing the China Inflation Rate Economics of China
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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. Chinas 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) Chinas 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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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. Chinas main imports partners are: Japan, European Union, South Korea, Taiwan and ASEAN countries. This picture includes a chart with historical data for China Imports.
V.
Risk Analysis:
Until now Ive 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, Infrastructure development prompt by the motivation package, Very high corporate savings rate that funds most investments, etc. Economics of China
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Assignment: Managerial Economics 10/17/2012 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 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 pigs 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. Chinas 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 worlds 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 Chinas 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 Xian, 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 landusing 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 Chinas 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, 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.
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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, More opportunities provided by transformation and potential, Defend existing rivals on Chinese market, Diversification into new production lines in potential rapid growth area,
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Assignment: Managerial Economics 10/17/2012 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, Ive 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.
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Assignment: Managerial Economics 10/17/2012 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-chineseinvestment 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
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Annex
Economics of China
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