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Country Risk Analysis China

3026 words - 13 pages

With the development of economic globalization, foreign direct investment (FDI) is increasingly being recognized as an important factor in the economic development of countries. Although FDI began centuries ago, the biggest growth has occurred in recent years. This growth resulted from several factors, particularly the more receptive attitude of governments to investment inflows, the process of privatization, and the growing interdependence of the world economy. Team B will perform a country risk analysis to ensure that endeavors of investing into the Chinese markets are warranted.Initial ScreeningGreater China has been one of the most dynamic areas in the world economy. With the entry of ...view middle of the document...

China supports over 1.29 billion people and this number is increasing by .93%. If the standard of living persists and income levels rise, it would be possible to accept the Chinese as potential consumers that would unlock a huge market of individuals.The massive population has been a burden on China because the economy, as it stands now, cannot bear to support such a number of citizens. The government is trying to gain control of this problem by limiting the number of children to one per household, with exceptions to ethnic minorities and those living in rural areas. Other countries are offering their services to attempt to control the birthrate by showing the government that population control can be managed without a coercive and involuntary approach. The government has been losing its authority due to political changes and popular resistance that make population standards difficult to maintain. Therefore, some projections still approximate that 1.6 billion will make up China's population by the year 2025.Countries wishing to take advantage of China's emerging opportunities are investing a large amount of time, effort and money in order to access such a vast market. These possibilities were made possible when China started its reform in 1978, opening its doors to foreign investments and trade. This changed a self-reliant central economy into a mixed economy that combined state owned enterprises and private businesses. China could now allow individual citizens to have different amounts of incomes. The results have changed China dramatically making it the fastest growing economy for 15 years. When the reforms began in 1978, 60 percent of the population earned less than $1 a day. Since the reform, GDP has grown steadily by an average of 9 percent. In the year 2000, GDP grew by 8 percent. Currently, per capita is equivalent to $3600 and as the economy continues to expand the purchasing power of individuals will increase as well.The new economic reform policy intends to reduce central planning and increase business autonomy and spread income. Many problems still exist, despite the success of the policy and rapid economic growth. There is a movement for more privatization of some State Owned Enterprises because many remain unprofitable. In the year 2000, 46.5% of the SOEs were running at a loss. These problems stem from the socialist system that is still in place under their Constitution. Under the Chinese Constitution, it is the responsibility of the government to manage the economy by means of production quotas and price setting. This apparent contradiction between the reform policy and the Constitution (1982) seem to work against each other. China will never succeed at full potential unless it retires the Marxist views and embraces a market directed system.Economic IndicatorsChina's economic growth remains quite high due to the large investments from the United States and Europe. The labor sector has a competitive edge with the rest of the globe...

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