One of the most important factors to be considered while carrying out international business is choosing the right jurisdiction to operate out of. It must be remembered that different nations have different policies and regulations pertaining to business; furthermore, factors like political stability, economic conditions, financial infrastructure, labor laws, legal environment, business environment and cultural fabric could make or break businesses in foreign lands (Cavusgil et al., 2014). This paper would analyze the impact of economic structures in Singapore and China, and the similarities and differences between the two nations. Firms in Singapore have a distinct organizational structure and function in an entirely different economic environment than the ones in China; thus, for a firm in Singapore to expand globally into the Chinese market, a sound knowledge of the Chinese economy would be essential. The paper also analyzes the role of government intervention in the economic structures of the two nations, and draws a comparative study accordingly.
According to the Doing Business Report released by the World Bank in 2011, Singapore was ranked at number one, while China was lagging behind at seventy nine; this can be taken as an indicator of the superior economic structure of Singapore (Doingbusiness.org, 2018). It can safely be assumed that Singapore boasts of a mixed economic structure; while the nation has a number of free market regulations and policies, one cannot deny the role of the government in the economy, especially in the case of macroeconomic development (Chiu, 2018). This paves the way for a unique kind of economic model, which has since been termed the Singapore Model. The economic policy in Singapore is based on foreign trade drive, which may often be categorized as unstable or unsuitable for most developing countries; this is primarily because of the rigidity within the system and the inability to incorporate social adjustments. This is one of the major points of difference between the economies of Singapore and China, which has a socialist economy.
Ever since the early nineteenth centuries, the economy of Singapore has been largely a free market one, depending mainly on international trade; consequently, the economic structure of Singapore is characterized by free trade and markets and an economic openness; however, the government of Singapore was compelled to implement stringent policies that would protect the Singapore market from global threats. At the same time, government intervention has also paved the way for newer industries and innovative economic initiatives – all of which proved to be beneficial for the economy of the country. Because of its economic infrastructure, Singapore has been immune to the global economic crises of 1997 and 2008 (Rodan, 2016). On the other hand, in China, the government has been entirely entrusted with the management of the national economy. In 1978, after Deng Xiaoping implemented a capitalist market plan, the Chinese economy began to show significant progress, with a constant growth of nearly ten percent GDP every year. However, most of these economic reforms that were implemented focused on agricultural activities since that was a key factor in the national economy back then (Su et al., 2013). The recent five year plan implemented by the government highlighted certain challenges which could curb the overall economic growth of the nation. They include sustainable employment opportunities for the growing population, reducing corruption, limiting damage caused to the environment, elimination of social strife, reducing high domestic savings rates and so on (Wu et al., 2014).
According to the Global Competitiveness Report released by the World Economic Forum for 2014 – 2015, Singapore ranks as one of the most competitive economies in the world whereas China ranks at number 28, out of a total of 144 economies (“The Global Competitiveness Report 2014-2015”, 2018). Political instability, restricted access to finances, corruption, tax regulations, ineffectual government bureaucracy, inadequate infrastructure – these are some of the factors that have posed as a hindrance in China’s growth as a highly competitive economy. On the contrary, Singapore ranked high on the global competitiveness chart owing to its government efficiency, clear labor laws and regulations, sophisticated market infrastructure and reduced corruption. According to the 2010 report on economic freedom, Singapore ranks second internationally as far as free economies are concerned; Singapore has a robust tax regime, a regulated and efficient business environment, a versatile labor market, transparent services, equity in terms of domestic and foreign investors and a well established legal environment all of which help in making Singapore an economically free nation. On the other hand, China ranks at 140; rigid and strict financial regulations and a restricted foreign investment policy, coupled with corruption, have curbed the overall growth of the national economy in China (“2010 Index of Economic Freedom – Institute of Economic Affairs”, 2018).
Reports also suggest that China’s economic structure does not exhibit openness to trade on account of its faulty transportation infrastructure. An ordinary customs procedure that would be completed in 5 days in Singapore would take almost a month in China. One of the reasons for such a prolonged procedure could be the high tariff rates imposed by the Chinese government and the restrictions on flow of international capital (Zhang, Zhu & Lu, 2015). On the contrary, Singapore has a very well developed border administration and approach to foreign trade; this is because Singapore, as compared to China, has a transparent bureaucracy which promotes foreign trade and domestic economy. Unlike China, Singapore has a strong, productive, cosmopolitan and formidable work or labor force; such harmonious relations within the work force ensure high productivity and contribute to the growing economy of the nation (Autor, Dorn & Hanson, 2016).
The chief reason why the Chinese economic structure is lagging behind that of Singapore is because of government autonomy in most of the industrial sectors; it would be wrong to say that China’s economic growth has been declining over the years, as can be seen from the development of trade links and settlements in Singapore and other countries. Previously however, China experienced a period of stagnancy when the government feared the threat of western colonization and shut its economy up to foreign trade; it was this policy, founded on the basis of sheer paranoia, which suffocated its own economy (Kirby, 2013). It was then that Xiaoping introduced the reform, which revolutionized Chinese economy. Whereas the Chinese economy was vastly dependent on agriculture, this particular industry has practically no relevance in Singapore’s GDP. Ever since the foundations of the economic structure were laid in Singapore, it endowed importance to the industrial sector; electronics and digital industry along with that of petrochemicals and petroleum control a major part of the Singapore market. Similarly, Singapore has a state of the art banking and finance industry, in contrast to the relatively primitive systems in China.
In conclusion, it can be said that China and Singapore have economic structures that are very different in nature; for instance, while the Singapore economy is ruled by foreign trade and open markets, the Chinese economy is more rigid and not receptive to global expansion. This is assumed to be one of the main reasons why China is still behind Singapore in the race to the top, as far as economic structures are concerned. In addition, while China mainly emphasizes on agriculture as part of the economy, Singapore has focused on building and developing its industrial sector. However, it has been observed that in both countries, the government exercises a certain degree of control over the economy. These economic factors along with the role of government intervention will have to be taken into account if firms in Singapore were planning to expand into China.
References:
2010 Index of Economic Freedom – Institute of Economic Affairs. (2018). Retrieved from https://iea.org.uk/publications/co-published-books/2010-index-of-economic-freedom
Autor, D. H., Dorn, D., & Hanson, G. H. (2016). The china shock: Learning from labor-market adjustment to large changes in trade. Annual Review of Economics, 8, 205-240.
Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., & Rose, E. L. (2014). International business. Pearson Australia.
Chiu, S. W. K. (2018). City states in the global economy: Industrial restructuring in Hong Kong and Singapore. Routledge.
Doingbusiness.org. (2018). Doing Business 2011 – Making a difference for entrepreneurs – World Bank Group. [online] Available at: https://www.doingbusiness.org/reports/global-reports/doing-business-2011
Kirby, S. (2013). Introduction to the Economic History of China. Routledge.
Rodan, G. (2016). The political economy of Singapore’s industrialization: national state and international capital. Springer.
Su, B., Heshmati, A., Geng, Y., & Yu, X. (2013). A review of the circular economy in China: moving from rhetoric to implementation. Journal of Cleaner Production, 42, 215-227.
The Global Competitiveness Report 2014-2015. (2018). Retrieved from https://reports.weforum.org/global-competitiveness-report-2014-2015/
Wu, H. Q., Shi, Y., Xia, Q., & Zhu, W. D. (2014). Effectiveness of the policy of circular economy in China: A DEA-based analysis for the period of 11th five-year-plan. Resources, Conservation and Recycling, 83, 163-175.
Zhang, C., Zhu, Y., & Lu, Z. (2015). Trade openness, financial openness, and financial development in China. Journal of International Money and Finance, 59, 287-309.
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