Gsbs6041 Global Marketing Strategy | Assessment Answers

Answer:

Research the Chinese Yuan and discuss its importance in the global economy.

The Chinese Yuan is the local currency of the People’s Republic of China. It is also called Renminbi by Chinese locals which means the people’s currency. In October 2016, the Chinese Yuan was listed as the first emerging market currency and was included in the basket of reserves known as special drawing rights

Globally, the Yuan is important because China has signed huge bilateral currency agreements with over 40 countries, aiming at facilitating cross-border investments and trade (Fratzscher & Mehl, 2014). China being a manufacturing giant, the use of the Yuan in global markets will facilitate swift trade with her traders.

Looking at China’s current economy, discuss their exchange rate and the impact it has had on the foreign direct investment (FDI) in their country

Renminbi has continually risen steadily in the global market. This is catalyzed by China’s engagement in over a quarter of cross-border trade. Over 50 countries have adopted the Chinese currency as their reserves. The exchange rate against the dollar stands at an average of 6.56. This value is at the backdrop of Chinese authorities earlier not freeing the currency to offshore markets (Huang & Renyong, 2014). China started economic reforms in 1978, and that time it was ranked ninth in the nominal gross domestic product. The country has gone through astonishing growth and as of now, it is the world’s second-largest economy. China has stood above global economic crisis due to its large surplus reserves that protect the country from financial crisis. It is a major manufacturing hub surpassing the United States in 2013, to become the world’s biggest trading nation.

What restrictions does the government have in place to restrict free trade?

Following its accession to the World Trading Organization, China has reviewed its import regulation and now companies wanting to engage in import trade need only to register with China’s Ministry of Commerce. However, the ongoing trade war between the US and China has seen both countries impose sanctions on each other. Some of the restrictions by China include; import tariffs. China assesses the tariffs on basis of goods value including insurance premiums, transportation costs and any other charges that may be incurred (Bloom, Draca & Van Reenen, 2016). There is also import inspection whereby, goods have to be thoroughly scrutinized and if they don’t meet the quality requirements they are confiscated or returned. China has currency controls also for importers to convert foreign currencies to renminbi, but certain formalities have to be followed to ensure the money is only for funding imports and not for any other purpose. There is also a wide range of packaging and labeling requirements and consumer goods that do not abide by these are refused entry.

Discuss whether the Chinese Yuan is being used more in global transactions

Financial institutions globally are increasingly using China’s Yuan to settle payments. Most of this institutions are located in Asia, Europe, and America. The currency has a market share of 8.7 percent and is the second to the US dollar, as the most trading currency (Ma, Wei & Huang, 2013). This has boosted the bid to internationalize the currency.

The International Monetary Fund has included the currency into its benchmark currency basket. The People’s Bank of China is establishing a connection with various foreign central banks to ensure financial institutions around the world can access China’s Yuan.  This trend mirrors global confidence in China’s economy, financial system, and the government

References

Bloom, N., Draca, M., & Van Reenen, J. (2016). Trade induced technical change? The impact of Chinese imports on innovation, IT and productivity. The Review of Economic Studies, 83(1), 87-117.

Fratzscher, M., & Mehl, A. (2014). China's dominance hypothesis and the emergence of a tri?polar global currency system. The Economic Journal, 124(581), 1343-1370.

Huang, X., & Renyong, C. (2014). Chinese private firms’ outward foreign direct investment: Does firm ownership and size matter? Thunderbird international business review, 56(5), 393-406.

Ma, F., Wei, Y., & Huang, D. (2013). Multifractal detrended cross-correlation analysis between the Chinese stock market and surrounding stock markets. Physica A: Statistical Mechanics and its Applications, 392(7), 1659-1670.