China is identified to have a remarkable period of significant growth shifting from a centrally organised to a market based financial system. In recent times China is considered as an appointment income country comprising multifaceted developmental needs whereby bank or other financial organisations continue to serve a major developmental role. Reports by Allen and Gu (2015) have revealed China’s rapid economic growth in 7 years with its Gross Domestic Product GDP to have risen by around 7% in 2017. Furthermore, it is recorded to be the first time since 2010 that the pace of China’s economic growth raised rather than facing reductions (Allen & Qian, 2014). As a result China’s financial system is recognised to be the second largest in the world. According to Allen and Gu (2015) the growth of China’s GDP has brought the country’s economy to around two-third of the dimension of the United States economy last year along with the current rate which has the propensity to overtake it within the next decade. The purpose of the following report is to provide an inclusive assessment of China’s potential and opportunity for Foreign Direct Investment (FDI).
Overview of China’s Economy
With a population of around 1.5 billion, China is identified as the second largest financial system and thus is increasingly playing a decisive role in development as well as in the global economy (Allen & Qian, 2014). This has led China to be the largest single contributor to world economy growth since the international financial crisis occurred in 2008. In the view of Wang et al. (2018), China’s current poverty standard reveals a populace of over 55 billion financially marginalised section in the rural areas in 2015. However rapid economic ascendance has created certain challenges which include high level of inequality along with rapid urbanization with criticality related to environmental sustainability as well as external financial imbalances. Furthermore according to Brunnermeier, Sockin and Xiong (2017), the country has been encountering certain demographic demands concerning an ageing population along with the internal migration of labour. These factors result to an increase in the need of important policy adjustments for a sustainable growth of China’s economy.
China Financial Overview
Source: (Allen & Qian, 2014)
Chen and Zha (2018) have further revealed that China’s 13th five year plan from 2016 to 2020 forcefully seeks these areas of challenges. Furthermore it accentuate the growth of services and measures in order to attain environmental as well as social imbalances and establishing targets in order to successfully reduce population level and further to raise the efficiency level of energy and other forms of resources and to expand the social protection (den Elzen et al., 2016). Thus the annual growth target in the 13thfive year plan is around 7% further signifying the rebalancing of the financial system along with a significant focus on the quality of growth, while still preserving the objective of attaining a moderately prosperous society by the next 2 years (Allen & Qian, 2014).
China’s 13th Five Year Plan from 2016 To 2020
Source: (Brødsgaard, 2016)
It has been noted by several reports that China is an economic and political influence and over the years it has employed a number of initiatives of change and created spectacular development in various fields. Thus in terms of nominal GDP China attains a second largest economic position in the world. The purpose of this article is to evaluate some of China’s political economic social technological environment as well as legal factors which have been benefited as well as impacting the country.
China’s Mass Entrepreneurship And Innovation Programme
Source: (Gosens et al., 2018)
Shu, He and Cheng (2015) have noted that the incomprehensible trade trend by predictable trade theory with the increasingly immediate need for government intervention that requires an advanced theory of international trade. Fratzscher and Mehl (2014) have speculated that the strategic trade policy based on the framework of monopolistic competition tends to attract global interdependency of governmental policy as a vital variable into the framework of strategic trade policy. Shu, He and Cheng (2015) at this stage have noted that the external environment for China’s export has undergone significant changes whereby the buyer fundamentally attains greater degree of market power. Furthermore, Cheung and Rime (2014) have evaluated the influence of strategic trade policy present in the automobile sector of China and revealed that the optimal tariff has the tendency to raise the national welfare in comparison to a zero tariff. McKinnon and Schnabl (2014) further posited that although the non-tariff limitation could decline gradually, the import quota along with import channel management would have safety effect on the automobile sector. In addition to this, Gosens et al. (2018) have asserted that a R&D subsidy would be superior to an export subsidy in the automobile sector; however the financial support received from government has been estimated to be lower in comparison to the optimal subsidy. Furthermore, the moderate intervention of the government in trade can be viewed in varied sectors of China and thus will successfully enhance the level of national welfare. Fratzscher and Mehl, (2014) have noted that while the calibration method has been widely approved in assessing the impact of strategic trade policy in China, it does not necessarily signify real world implications in market. Reports of Wang et al. (2018) have revealed that China has raised its R&D investment significantly and developed as the second-highest R&D investment country in the world. In 2017, the rate of electronic information products exportation has augmented by 32% further estimating for 45% of the foreign trade along with the level of contribution of R&D to the export growth which was estimated to be 38% (Brødsgaard, 2016).
Comprehensive research of Gosens et al. (2018) has indicated that since development, China financial system along with foreign trade has attained substantial trade surplus along with foreign exchange reserves. The constant appreciation of the RMB (Renminbi) has created a significant impact on China’s economy. Nevertheless the currency approval has served contributory role for the import and an adverse impact on exportation, yet the RMB appreciation (Yuan currency exchange) on China’s financial system has been considered to be advantageous for its overseas trade market (Wan, Williamson & Yin, 2015). Shu, He and Cheng (2015) have revealed that with the inclined shift of sectors in order to promote developments in China, certain adjustments of industrial structure along with the up gradation of its products are created. However the appreciation of the RMB tend to stimulate technological advancement and further augment the added value of products export enterprises instead of encouraging low prices to attain the market (McKinnon & Schnabl, 2014). It has been noted that the appreciation of the RMB has destabilized the price advantage of domestic products in the large-scale market to productively improve the product in the international market share in which the domestic manufacturers must change the developmental method of trade and depend on selling cost effective transfer to superior quality, advanced technology in order to sustain China’s significant shift from trading influence to trade power (Fratzscher & Mehl, 2014). However, on the other hand McKinnon and Schnabl (2014) are of the opinion that the approval of the RMB to raise China’s exportation commodity prices in foreign currencies critically destabilize China’s export price competition benefits also creates challenges for the nation to develop a successful overseas trade alliance. Furthermore, appreciation of the RMB results to the increase of China’s export product price resulting product backlog along with the decrease in new overseas investment Cheung & Rime, 2014). In addition to this, Shu, He and Cheng (2015) have speculated that the approval of the RMB will not only increase threats of the outbreak of economic crisis in China but will further drive the country to face profit decline and pose adverse impact on the global export markets competitive ability.
RMB Appreciation on China’s Financial System
Source: (Gosens et al., 2018)
Conclusion
On a concluding note, China should take into consideration the significance of regional trade agreements (RTA) that is an advanced and hidden form of strategic trade policy and further implement this crucial policy in the process of import and export trade. However if China intends to use the strategic policy, the method choice of the strategic trade policy along with the impact of strategy trade policy would further show their reliance on the ‘spillover’ impact as well as the on inclusion of worldwide R&D. Additionally as an emerging international market, China has a time-consuming method to institute a well-organised market system by connecting several industrial policies such as the strategic trade policy which would be decisive for the Chinese government. As RTA recently emerged as a chief strategic trade policy instrument, China must efficiently consider the importance of Regional Trade Agreements regarding who is taking strategic trade policy as it may be liable to generate the chain outcome. In addition to this, as several trade associates have been efficiently fixed in a range of regional trade agreements the country must emphasize on importance of strategic trade policy through a unilateral approach.
References
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