N110 : International Business : Assessment Answers

With the help of an emerging market, a country can develop its economic condition. This development can be measured by various socio-economic factors. An emerging market economy can be stated as an economy of a nation that is growing to become an advanced economy and this can be represented by liquidity in equity markets and local debt along with the existence of various types of regulatory authority and market exchange (Ahmed, Coulibaly & Zlate, 2017). Investors intend to invest in emerging markets due to the chances of higher returns, as this market experiences economic growth at a faster rate, measured by gross domestic product (GDP). However, investments in this emerging market experience higher level of risks due to the problem regarding domestic infrastructure, public instability, limited opportunities of equity and volatility of currency. The International Monetary Fund (IMF) and Morgan Stanley Capital International along with some other institutions have identified some countries that have emerging market economy, such as, Brazil, China, Chile, Indonesia, Malaysia and India and so on (Gay, 2016). The chosen country for this report is China, which has developed rapidly through shifting its centrally planned economy to a market based economy and consequently becomes an upper middle-income nation that has complex requirements for development.  

Analysis:

Country description:

After the market reform of 1978, China shifted its centrally planned economy towards a market-based one and consequently experienced rapid development in social and economical grounds. As a result, GDP growth of this country increased by 10% in a year and this, in turn, lifted almost 800 million people from the poverty level. By 2015, China has obtained all goals related to Millennium Development in global economy (World Bank., 2018). However, the GDP growth rate of this country has started to decline after 2012 due to its internal structural reform.

The above figure represents the nominal growth rate of China since 2000. According to this figure, it can be said that the growth rate has increased constantly over the year and this, in turn, has helped the country to achieve economic importance across the world. With total population of 1.42 billion, China has become the most populated nation across the world and second largest economy after the U.S.A (Tradingeconomics.com., 2018). Moreover, the country has provided a huge amount of financial support to the western countries after the global financial crisis, occurred in 2008. However, China is a developing country due to it incomplete market reform. Based on the current poverty standard of China, the country had almost 55 million poor in 2015 in rural areas.

Features of Chinese market:

During the present revolution of international trade, China can be ranked as the largest supplier of goods in the international market. It can be predicted that Chinese products can capture the market of other countries very soon. On the contrary, China is also demanding products and services from overseas. To understand the reason for increasing sustainability of China in the international market over the year, the report can analyze some features of the Chinese market.

Increasing growth of economy: China has grown rapidly over the past few years though the GDP growth rate has decreased in 2015 and become almost 7%. In 2008, the per capita GDP of China was USD 3805 while in 2017 this the amount has become USD 7329.09. This per capita GDP of China represents almost 58% of the world’s average GDP per capita. Thus, this increasing per capita GDP indicates that the country has an extremely large market due to increasing per capita consumption and consequently the country can receive a growing market that can attract new investors.

Workforce: Due to a large number of populations, China becomes a labor-intensive country. Hence, this workforce helps China to obtain economic growth through increasing national income of the country.

Economic leadership: The country has contributed a large number of shares to the global output for which it has become a leader in the international economy. In 1980, the country’s share of national income to global output was 2.5% only. However, the percentage has increased over the year and become 17.2% in 2015 (Wike, Poushter, Silver & Bishop, 2017). From this, it can be said that China has performed well over the period.

International trade: International trade also influences Chinese economy significantly, as it contributes almost 48% to the country’s national income (Burstein & Vogel, 2017). Consequently, the country has become the largest exporter and the second largest importer in international market.

Existence of middle class: This republic country has the largest number of middle-income group people compare to other countries all over the world. As of 2015, this number has exceeded the U.S.A. As a result, this middle group people in China increases total wealth of this country by almost 600% while for the rest of world, this group has increased total wealth by 115% (Bulman, Eden & Nguyen, 2017).

Increase in Consumption: As per capita real income of China has increased over the year, sales of consumer goods have also increased accordingly. For instance, retail sales in 2016 have increased by 10.4% (Lardy, 2016). Hence, increasing growth of economy along with extending middle class has led the aggregate demand for this country to increase further. Moreover, to improve the demand, the country needs to develop the quality of life of the people, lived in China. For this, the republic country provides various services including cultural, medical, recreational, and educational and some other services and this, in turn, increases the household budgets of this country.

Impact of Westernization: Chinese customers have adopted western customs and consequently, they demand many products, based on the aspiration. Most of the demand comes from higher hierarchy to differentiate people (Pan & Campbell, 2018). As a result, demand for various western products such as dining options, coffee, beer and other beverages increase and this further influence the import of this country positively.

Fragmented market structure: The market of China is fragmented into various segments. People of higher income group purchase premium products while the demand for middle and lower income group people differ. Thus, export and import pay vital role to meet demand for their domestic customers as well as for the foreign customers.

Foreign investment:

Foreign direct investment (FDI) measures the amount of capital that is invested in a country through providing service and manufacturing capabilities for both domestic and international consumers. With the help of FDI, a country can bring its goods and services in international market (Siddique, Ansar, Naeem & Yaqoob, 2017). Hence, arrival of foreign investment within an economy shows confidence among investors to conduct business and improve geopolitical condition of the host country, as capital link economies of different countries. China has also received the benefit of FDI to a large extent. Hence, in this context, some factors can be described that have helped the country to attract such foreign investment.

Availability of capital: In the initial phase of the 2000s, China surpassed the United States by becoming the largest recipient of foreign investment across the world. FDI means the amount of capital, which foreign investors invest within a country (Zhou, Gong, Luo & Xu, 2018). Hence, the economic condition of the recipient country plays a significant role to determine the flow of capital into the country. This is also true for China. The rapidly growing economy of this country has influenced many foreign investors to invest within the country for earning higher amount of revenue.

Competitiveness: Attractiveness of China as a destination for investing capital depends on the development of various factors such as resource availability, infrastructure, workforce skills, productivity and developing of business through the process of the value chain. The country can be the most attractive destination for foreign investment across the world due to the fastest growth of this country along with policies and structural reform that can help China to capture a significant position in international market. In 2016, the amount of FDI in China was increased by 4.1% while in the next year this amount is expected to reach almost 15% (Wangping & Xiaolu, 2018). In addition to this, to compete in international market with other developed economies, China has intended to open more sectors for FDI to operate these sectors in international market. Moreover, through providing infrastructural facilities, low-cost and skilled workers, China can attract more foreign investors. Infrastructure plays significant role to grow and develop an economy while lower cost influences investors to earn higher amount of revenue. Furthermore, skilled labors generate, produce and serve goods and services of greater quality so that the country can compete in international market.

Local market of China: The chief feature about China is that it has largest number of population and market (Zhang, Liu, Jin & Van Dijk, 2018). Thus, the ability of producers to sell products in a large local market helps China to become an attractive destination for foreign investors.

However, China experiences some difficulties for which doing business in international market through export and import become difficult. The trade barriers of this country chiefly consider various fees and restrictions that negatively influence trade. These barriers can be divided into two parts, which are, tariff barriers and non-tariff barriers.  

Recommendation:

Due to rapid growth of economy along with increasing trade with international economy, natural resources are exploited completely. Thus, the government of China can adopt suitable policies related to environment to obtain sustainable growth within the economy. For this, the government can restrict production of some commodities that are produced with the help of natural resources but cannot fulfill basic requirements of the people. In addition to this, the government can impose tax on some factors of production that the country has insufficient amount of storage. In addition to this, the government can implement rules and regulations to control excessive production within the economy and use resources in an efficient way so that future generate can use excess resources for their production purposes.

Conclusion:

In conclusion, it can be said that China has become an important emerging market economy across the world by capturing maximum share in international market. The chief reason behind this emerging market is the increasing growth of the Chinese economy. In addition to this, a higher amount of labour and middle–income people along with fragmented market and impact of western countries have influence international trade of China to develop further. The amount of foreign investment has also developed within the country. Some chief factors that can influence foreign investors to invest money for earning a higher amount of revenue are competitiveness, availability of capital and local market of China.  It is seen that China has exceeded the USA for getting a higher amount of foreign investment. At the end of this discussion, some recommendations are provided so that China can achieve sustainable growth.

References:

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Bulman, D., Eden, M., & Nguyen, H. (2017). Transitioning from low-income growth to high-income growth: is there a middle-income trap?. Journal of the Asia Pacific Economy, 22(1), 5-28.

Burstein, A., & Vogel, J. (2017). International trade, technology, and the skill premium. Journal of Political Economy, 125(5), 1356-1412.

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Lardy, N. R. (2016). China: Toward a consumption-driven growth path. In SEEKING CHANGES: The Economic Development in Contemporary China (pp. 85-111).

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Wike, R., Poushter, J., Silver, L., & Bishop, C. (2017). Globally, More Name US than China as World’s Leading Economic Power. Pew Research Center, 13.

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