China is an expanding economy that has shown great results in the development of GDP growth in the past few years. The general overview of the country is therefore discussed to give an introduction of the economy of the country and various other factors associated. Later the political, economic, socio-cultural and technological influences are evaluated and their associated benefits and advantages are discussed. Later the national resources and the factor endowment that creates competitive advantage are discussed. The foreign currency exchange rate and its influence on the economy have been compared with the various other competitive economies. An attempt is made to review the country’s existing trade policies, systems, barriers and incentives. Also the existing level of Foreign Direct Investment has been explained to get an in-depth view of the business situation. Finally the summary followed by recommendations is discussed.
China is a communist country where the private business is not allowed to grow and prosper. However the committed public sector is making way for the country in the new era for development, progress and growth. The past decade change in policy of the government to open foreign trade and develop entrepreneurship in the country resulted in huge profits and gains. The business of the country has reached every single corner of the globe. The rise in business relations with different countries has brought currency of the country Yuan in competition to United States dollars. The country is present in Asian continent and has world’s largest population. The country is developed in a diverse method in which the western China is more industrialized while the eastern China still depends on Agriculture (Eichengreen & Shin, 2011).
China is ruled under one party system in which the communist party rules the country. The country has changed its economic policies from 1984 and 1992 when the efforts were made to apply open economy system through which the international trade and foreign direct investments were allowed which was earlier banned. The country has been suffering from the issues of Tibetan asking for separate land in the south, Korean and Japanese issues in East and border issues with India. The benefits and advantages of the political influence are seen as the country has created a goodwill and control in the Asian continent with the development of nuclear power. The recent interference in the Thailand issue and consistent tension with India over Arunachal Pradesh clearly states the political ability of the country to maintain its super power status in the Asian continent.
The economic conditions of the country were observing boom stage until the advent of economic depression of 2008. Although the country along with India stated a positive GDP growth for next four years, but after 2012 the Yuan currency also started suffering a global set back. The benefits and advantages include the manifold expansion of the economy and business of the country till 2008 which brought the country under limelight in the international business arena.
The socio-cultural issues include the issues with the Tibetan sects which are headed by different Lama’s at different time period. Although the country observes the maximum presence of religion confusciasm and Taoism, the tolerance is shown to other religions as well including Buddhism, Islam and others. The advantage and benefits of socio-cultural influence is that the country has been able to control the uprising of the Tibetan controversy over separate state through harsh decisions.
The technological aspects of the country are developed in a diverse range. The western part of the country has observed huge technological upgrades while the Eastern part still depends on agricultural output. The upgraded technological upgrade in the manufacturing process has helped the country in supplying low cost finished goods to the world including electronics, food material and other goods.(SouthwesternUniversity, 2014)
The national resource with the country includes 12% of the world’s reserves for coal, iron, lead, zinc, mercury, tin, copper, graphite and tungsten. This way the country is rich in various natural resources that have helped it create and maintain competitive advantage. The factor endowment with the country includes the presence of land, labor, capital and entrepreneur. That is the country possess huge chunk of world’s land. The labor is also cost effective as compared to labor prices in other countries. The capital was invested by government from year 1992 that resulted in eruption of various entrepreneurs in the country that led the business to new destinations. The competitive advantage that the Chinese business retained was the cost effectiveness that the quick manufacturing ability and low price labor helped in achieving.
The Chinese Yuan is equal to .15 US dollars. That is 1 dollar is equal to 6.48 Chinese Yuan. The spread of trade in huge capacity in the last decade has resulted in making competitive advantage to its currency as at one point of time it reached to the demand equal to that of US dollar.
The existing trade policies of the country include the support to the private entrepreneurs such that the new opportunities in the foreign trade can be achieved. At present the trade policies of the country has helped in developing trade ties with the major economies of the world.
The above data clearly states that the US Goods and services have risen very closely with the US trade.
The system that the country follows is communist. That is the public sector has the hold over the main resources of the country. However due to change of the economic policies of the country in the last decade has helped the country develop entrepreneurship that has initiated the path of growth and development of the business in the global arena. However restrictions are still applied on wealth accumulation factors. The country however lacks the ability to apply FAS or Financial Accounting Standards as per the international regulations. This has developed a sense of distrust among the foreign investors. The regulations of the country towards the application of various accounting standards in 2012 have however initiated the process of development and transparency in reporting system since then.
Various trade barriers are observed in the country through which the foreign investment is limited in few sectors. Therefore the company still follows conservative rules up to great extent. The accumulation of private wealth is still considered an unhealthy practice. The various trade barriers to different countries and allowing MFN or Most Favored Nation too few countries has resulted in developing trade with few economies only.
A number of incentive schemes has been developed and promoted by the country from past decade which has helped in the development of entrepreneurship in the country. This has led the country towards the business expansion path in the international arena. This way the local entrepreneurs were given support of filling only 6 forms as compared to 36 forms in India and 18 forms in U.S. for the setup of business and getting permission for international trade. Thus the supportive measures to the locals helped the country develop foreign trade at high scale leading to increase in GDP and growth by manifolds.(Xie, 2012)
The foreign direct investment or FDI has been on the rise in the country until the advent of the year 2008 which initiated economic slowdown. The country still maintained its attractiveness in the foreign market until year 2012 when the FDI started falling as the country’s currency faced serious competition in the international markets. However it is observed that the FDI and ODI consistently made its way to attract foreign capital. This can be displayed as follows.
In conclusion, China is the fastest growing economy in the world. The country’s change in policy in the recent decades has resulted in bringing huge gains and profits to the world. The country has followed the path of growth and success by allocating support and resources to the private entrepreneurs. However the country still lacks the application of various legislations that could apply financial accounting measures to achieve transparency and reliability in the business process. This process could attract foreign capital as well as foreign direct investment. However the inability of the government to apply major changes has resulted in bringing down the FDI lately (Carlsson et al., 2014).
The various recommendations that could be advised to China include the followings.
- The country should apply equal growth in all parts of the country. At present the western part is way much developed than the eastern part. Therefore the attempts are required to be made to achieve equal growth of the whole country.
- The recent super normal profits earnings by the entrepreneurs have resulted in bringing inequality in income distribution. Therefore as per the basics of communist forum, the accumulation of wealth should be avoided and the public sector needs to safeguard the common public interest by taking over charge of the private entrepreneur in the recent past.
- The country needs to develop no barrier trade ties with various other countries. This includes developing trade ties with the neighbors. This will help the country gain access to various resources that could bring in cost effectiveness and long term gains to the business.
- China needs to review the business situation and apply FAS or Financial Accounting Standards such that the most transparent and dependable business can be developed. Therefore efforts should be made to apply various amendments and applications of the accounting standards such that the recording of the business transaction could follow the international guidelines.
Hence the system that the country follows is communist. That is the public sector has the hold over the main resources of the country. However due to change of the economic policies of the country in the last decade has helped the country develop entrepreneurship that has initiated the path of growth and development of the business in the global arena. However restrictions are still applied on wealth accumulation factors. The country however lacks the ability to apply FAS or Financial Accounting Standards as per the international regulations. This has developed a sense of distrust among the foreign investors. The regulations of the country towards the application of various accounting standards in 2012 have however initiated the process of development and transparency in reporting system since then.