|← The Theories of Accounting for Stock Options||Chinese Economy: Issues and Policies →|
The State administration of foreign exchange in China is the administrative agency which bears the responsibility to govern the foreign exchange market in China. It also manages the foreign exchange reserves in People’s Republic of China. This Institution has boosted the foreign exchange in China to an exceedingly impressive extent. In the recent past, China has developed into an exceptionally attractive centre for foreign exchange investment. This is the key issue of concern in this paper. I think foreign exchange in China is deemed to continue increasing, especially with the rise of China as the world’s second largest economy. In this essay, several topics have been addressed with regards to their role in making China an attractive place for foreign investment. These topics include economic growth, market liberalisation, cultural issues, government policy and infrastructure. The paper critically analyses the role of all these issues in turning China into a harmonious and favourable place for foreign investment.
Reasons against the Argument
Although China is a favourable place for foreign exchange, several issues have been known to slow down the rate at which the foreign investors decide to invest in China. Some polices in China discourage foreign investors in the sense that they are taxed heavily on their trade. Also, natural calamities put the investors in a situation of fear of their investments. Some of them who would like to invest heavily in the tourism industry find hard to risk venturing into a place with a decidedly unfriendly natural environment. This scenario results from the natural calamities such as tsunamis, hurricanes, and storms. These natural calamities are likely to cause heavy losses to the investors (Chu 1986). Hence, the investors do not risk venturing in China. Thirdly, the history of China has not been favourable due to the wars and conflicts it had with super powers such as the United States. These conflicts make China an unfavourable place to settle and invest. Therefore, the investors do not feel safe in the Chinese environment. The infrastructure in the rural areas is also not particularly friendly in terms of welcoming investors. The investors who would like to have a rural setting in China are considered disadvantaged since the roads and communication systems are not fully developed. The policies that the government of China creates are sometimes not terribly appealing to investors. Therefore, China should consider improving the conditions in the Chinese government, in order to enhance the performance of the foreign investors in China. Perhaps, the government of the People’s Republic of China should consider developing a positive relationship with the rest of the world. This can be reached if diplomats and ambassadors undertake to negotiate opportunities for foreign investment (Wei & Liu 2001). Since 2008, the global economy and financial crisis have been affecting the foreign investment in China. The Inflation rates have caused a decrease in the amount of foreign investment into China. For example, there was a decrease in the first half of 2009, by 17.9%.
Reasons in Support of the Argument
To a great extent, China has become an attractive place for foreign investment. This has been because of favourable government policies, development of infrastructure, market liberalisation, economic growth and cultural issues. These issues make China a favourable place of investing for the foreign Investors. Chinese policies also encourage the foreign Investors to come to into China.
The government of the People’s Republic of China has played a highly essential role in making polices that enable the growth of foreign investment in China. A remarkable policy is the Amendment of the Foreign Investment catalogue. China’s National Development and Reform Commission issued the catalogue for Industries to guide foreign investment. This catalogue has been amended four times to enhance the stability of the rate at which investors venture in China. This catalogue sets up restricted, prohibited and the encouraged activities of foreign investments in China. This catalogue ensures that the encouraged investments projects are entitled to preferential treatment while the projects, which are restricted by the government, are likely to get restrictive approval. The amendment of this catalogue promotes the development of service industry in China, emphasises energy saving, develops emerging industries, as well as enhances general planning for restructuring and industry adjustment (Schaub 2009).
The Chinese government has also worked hard to create a policy that simplifies the approval process for activities of Foreign Investors. The government of China has relocated the authority, which governs foreign investment, to improve the efficiency of the approval process of foreign investors. The respective local governments are given additional authority in cases, where approving of foreign investors is needed. This amendment encourages the flow of foreign Investors into China since investors find China an easy place to settle and begin their investment with ease. Moreover, the government of China has worked hard to protect the rights of foreign investors in China. It has tried to improve efficiency in service provision to the foreign Investors in the recent past. This has encouraged the foreign investors into venturing into China. In fact, China made around $ 66.7 from the foreign exchange investments (Corne 1997).
The government of China has also worked a lot on the infrastructure of China. It has worked a lot in improving the roads, railway systems and other communication systems, especially in rural areas. This has tremendously developed the rate of foreign investment in China. Improvement of infrastructure has played a crucial role in optimising the structure of foreign investment.
The China market entry challenge has become a hugely powerful one in the Western companies of all sizes and shapes. Even though, there tends to be a difficult economic climate in United States and Europe, the economy in China has grown continuously by a double figure rates in the last couple of years. China gets poised to pass the US as the world’s second largest economy by the year 2020. It gets also destined to remain as an engine of global growth for the coming decade. For this to be made possible, most companies in the B2B sphere have made it their priorities to understand how to enter large and complex market. With China changing demographics rapidly, increased consumer spending, rising incomes and having an increasingly open business environment have given a boost to the Chinese market. This is usually achieved by making the market increasingly attractive to businesses in the Western countries. The rapidly declining sales in their local markets have forced many European and US companies to relocate to China; thus, to assure the long term growth strategies in the global marketplace. The first and most challenging realization that foreign companies need to have is that, in China, there tends to be no homogeneous and uniform market (Podpiera & Leigh 2006). China can be considered as a unified and geo-political country. However, when looked in social and economic way, the picture appears to be more fragmented and disparate. There have been uneven rates of growth in economics in different parts of China. Like in most of the countries, China has encouraged the bringing up of industrial clusters, in some regions and cities. This has opened possibilities for foreigners to infuse investments in the country.
Even though the cost of labour in China is growing at a high rate and hence slowing economic, China still remains the second largest attractive economic country for foreign investors. At some point, the disappointing figure in economics seems to have dampened the confidence of investors, who tend to be foreigners. However, the ruling government in China has not been worried much by this drop. The Ministry of Commerce in the country believes that the long term plan for the Chinese government is to be the most attractive country for the foreign investors. This has seen some of the multinational companies, including Caterpillar, disagree on this issue (Hai Lin 1986). As the construction of infrastructure decelerates and the machinery equipments demand in China shrinks, industrial companies face a difficult period. This has seen the companies, e.g. Caterpillar to start exporting Chinese made machinery to Africa and Middle East. This has usually led to the slackening growth in the China. Through the China’s competitive labour costs and the policy of opening up and reforms, China found itself growing into an unusually hot spot for some foreign investors. This happened before the financial crisis in the year 2008.
China has been ranked as the country which has got the most appealing destination in investment for over the next ten years. This estimation got done by the United Nations Conference dealing with Trade and Development. However, as China makes adjustments to its foreign investment policy towards aiming at high-end manufacturing, green industry and services as it aims to make a transformation to its economic growth model, there are some foreign companies that make complainants about the business climate in the country in the coming two years (Chen 2012). Although there are some foreign countries that are delaying their investment into China, a US based company believe that China will serve as the leading country in the world where foreign investors will always run.
The arrival of some foreign investors in the country along with import rise has made the Chinese people confront a new reality which tends to be challenging. The Chinese society in the modern generation can be said to be in a transformation stage. This is because the mindset of the consumers always seems to be divided between the rigid principles that got gained in an era of deprivation and the aspirations so as to inspire the Western mode. A study that compares the contents of the commercial advertisements in China and the United States showed two values in common: modernity and youth. This suggests that the Chinese culture tends to be influenced by the western culture with the deep implementation of reform and opening policy. This shows that the Chinese culture influences the foreign investors in China because the foreign companies need to invest with commodities that are allowed in the Chinese culture (Broadman & Sun 1997).
It is clear that making the first step in the Chinese market is quite an intimidating step for most foreign companies. However, as the Chinese economy grows continuously, it becomes increasingly easy and beneficial for most foreign countries to make investments in China. China is a country that tends to be constantly on the change, and the markets in the country are evolving constantly. The liberation of the Chinese market has seen many foreign countries make investments in the country. However, due to the economic crisis that happened in 2008, it has seen some foreign countries withdraw investments from the country. China is in the rise in economic growth which has seen most foreign countries see China as an ideal place to make investments. The main target of the Chinese government though is to make China one of the biggest countries that every foreign investor would consider making a try in the next ten years, as far as investments are concerned.