A PROJECT ON CHINA’S ECONOMY

8/3/2019 A PROJECT ON CHINA’S ECONOMY

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BY: ANGELINA KAPADIA

CHIRAG JOSHI

AMEE MACHHAR

SONAL KHARWA

AARTI KALARIYA

SHABANA SAMA





` India considers China its largest trading partner. The expected joint Indo China trade has reach US$60 billion in end of 2009 , says, Mr. Shen

Wenping, Vice Director of Jiaxing Municipal Bureau of Foreign Trade and Economic Cooperation during a very recent Seminar withthe Business Delegation from Jiaxing, China,

organised by Confederation of Indian Industry(CII), in New Delhi.



` It is pertinent to note that China and Indiaexport and Import from each other¶s placein a huge manner .

` Out of total imports by India from China ,47% are of Electrical pr oducts, electronicproducts and machineries .Hence, there ishuge potential in Indian market for other

Chinese products`



` Machinery`

` Plastic`

` Ores, Slag, Ash`

` Iron And Steel`

` Metals`

` Organic Chemicals Salt;Sulphur; Earth, Stone

`

` Inorganic Chemicals; Rare EarthMetals

` Cotton and Yarn, Fabric`

` Copper and Articles Thereof `

` Electrical Machinery`

` Hides And Skins`

` Artificial Flowers, Feathers`

` Tanning, Dye, Paint, Putty`

` Precious Stones`

` Fish And Seafood



` Whereas, 76% to 80% of total exports by Indiato China consists of Ores, Slag, Cotton, Yarn, Fabric; Precious Stones, Metals, Artif icial Flowers, Feathers and hides, Copper Articles and skin

` The f igures of trade between 2001 to 2008speaks the rest of the story and also reflect whatis the potential of trade between these two

countries in coming years as both the countriesare committed to increase the trade.



Year Indian Imports Indian Exports Trade Volume

2004 5925.58 7672.51 13,598.09

Growth

2005

77.15%

8934.64

80.41%

9768.34

78.99%

18702.98

Growth

2006

50.5%

14588.04

27.2%

10469.18

37.4%

25057.22

Growth

2007

63.23%

24036.44

7.05%

146

58.7

9

33.87%

386

95.6

4

Growth

2008

64.7%

31500 (approx)

31%

40.02%

20300 (approx)

39%

54.42%

51800 (approx)

34%

India-China trade (2001-2008)



` Mr. Wenping mentioned , that Jaixing city was closely associated with the CII for over the past couple of years whicheventually led them to sign an MOU early this year . It was alsobrought to notice, that during the ongoing recession, China wasinvolved in speeding up the development of inf rastr ucture and education sector and Indian enterprises were invited to runlanguage schools from China.

` At present , CII is having a full fledged special office at Shanghai, China to boost the trade between India and China .

` T

he delegation from Jaixing, was visiting India determined topromote Jaixing city as an attractive destination amongst themany Indian enterprises along with developing bilateral ties.



` The main aim was to explore potential opportunities for individually owned companies in Jiaxing, to invest in theoverseas market. This enables promotion of cooperativeprojects within India, with an aim to gain new sources of imports.

` Mr. Wenping wished that their visit would solidify India-China trade relations. His visit to India and the manyproposals for developments within India served thispurpose. Jiaxing city planned to set up three to f ive ITO/BPO parks. It was now in the process of getting intouch with the big IT companies from India like Infosys,HCL, and T AT A Consultancy to offer their expertise, heaffirmed.



` In his welcome remark at the seminar, Mr. RaviBhoothalingam, Member, CII National Committee of Tourism & Chairman, Manas Advisory Pvt. Ltd. stated thatthe delegation¶s visit to India is very important especially atthe time when the meltdown has aff ected diverse

sectors within the country. In today¶s times, India andChina are big locomotives of the economy which can pull out the world f r om the economic mayhem.

` Mr. Bhoothalingam welcomes the delegation to pr ovide benef its to other sectors as well. These include providingcomplementary capabilities for business opportunities in IT,

Pharma, Hardware, Bulk Drugs, Power & Energy,Environment, Tourism and many more.



` In recent years lot of joint councils and chambers have emerged toboost the trade between China and India and one of the prominentbeing India China Chamber of Commerce & Industry(ICCI) having itsoffice in Mumbai, India. The main mission of this chamber is to promotethe business China, Hong Kong and Macau with India throughcommerce, investment, industrial collaboration, technology transfer,

joint ventures, international exhibitions, business delegations, economiccooperation, people to people friendship etc.` Recently, ICCI through its Addl. Director Ms Jenny Zeliang has entered

into an agreement with Karnataka Small Scale Industries Association(KASSIA) officials in Bangalore for strengthening the trade betweenchinese and Karnataka industries .

` These have had been some of the initiative and much more is expected

to come as both India and China are worlds strongest and emergingeconomy which were unfettered by the recent global recession as well.



PESTEL ANALYSIS



` i. Constitutional System` China or People¶s Republic of China adopts socialist

system or communism in their political system in their decision-making processes in governing the country.The country¶s sole political party in power is known asthe Communist Party of China. The government havethe sole power to control all activities done by their citizen as what have been described in howcommunism system worked in governing a country. Inother words, the purposes of working in China are to

contribute to the nation and also to the government asthe government control on all activities in the country.



` ii. Stability of Government` The stability of the China government is quite moderate and

stable because the administration of the government are notpublicize to the public either through the press or on the internet.So, the degree of the citizen involvement in the politics islow because of the heavy restrictions impose by the government.However, the policies impose and the law regulations are quiteeffective in terms of economy where China is one of the leadingcountries in the world. In the recent years (2001), China has joined the World Trade Organization and results rapid growth inindustrial and manufacturing sectors because of the cheap labor in China. But still problems such as managing environmental

degradation, demographic pressure and the extreme immigrationfrom rural to urban area must be faced by the government.



` iii. Business Freedom` The business freedom in China is quite tight because of the regulation

impose by the government where they restrict businesses from other countries coming in. But recently, China government open their gate tothe outside world to set up business in their country. It takes 37 days tostart

`

` A new business in China compared to the world average 38 days.While it takes 1.7 years from the filling for insolvency in court until theresolution of distressed assets. Examples of business freedom in Chinaare supermarketization and opening market to foreign multinationalscompany because of the entry of China into WTO. Supermarketizationis where the government shuts down the traditional ³wet market´ and

transform them into supermarket.



` iv. Trade Freedom` In the past few decades, China loosen their trade policy to the

outside world in their trading, export and import industry. China¶sweighted average tariff rate was 3.9 percent in 2008 based fromthe web (heritage.org). Factors that affect the cost of tradefreedoms are import and export bans and restrictions, import andexport licensing non-transparent tariff classifications, complexregulations and standards, subsidies, state trading in certaingoods, services market restrictions, issues involvingthe protection of intellectual property rights, and inconsistent andcorruption-prone customs administration add to the cost of trade.So, China¶s trade freedom score to account for non-tariff barriers

deducted about twenty points.



` v. Tax Policies` Below are the economic data for China.` Tariff Rate 3.9` Income Tax Rate 45.0`

CorporateT

ax Rate 25.0` GDP (billion) 7900` GDP per Capita 5962` Unemployment Rate 4.2` Inflation Rate 5.9` FDI Inflow (millions) 108300` Tax Burden % GDP 18.3` Government Expenditure % GDP 19.9` Population (billions) 1300



` Based on the rates and statistic given, we can see thatChina has moderate Corporate Tax Rate and high IncomeTax rate. The government encourages more new-technology business in the market besides allowing foreigninstitution enters the nation financial institution in providing

foreign` currency. Because of lower corporate tax rate many MNC

started to open their business in China and the numbers of FDI have increased rapidly. Furthermore, on October 2008,new policies impose where individual income tax is nolonger paid on interest on bank deposits. The overall tax

revenue as a percentage of GDP was 18.3 based on whatrecorded in the recent years.



` Economic Freedom Score ±51.0

` Population - 1.3 billion GDP(PPP)

` $7.9 trillion` 9.0% growth` 11.0% 5-year compound

annual growth` $5962 per capita` T

ariff Rate 3.9` Income Tax Rate 45.0` Corporate Tax Rate 25.0

` GDP (billion) 7900` GDP per Capita 5962` FDI Inflow (millions) 108300` Tax Burden % GDP 18.3` Government Expenditure %

GDP 19.9` Unemployment 4.2%` Inflation 5.9%` FDI Inflow - $108.3 Billion



` i. Credit accessibility

` The government has directly and indirectlycontrols their banks and financial institution.

Investment done in China is also control andregulated because of their legal system is veryvulnerable to the political issues and influence.



` ii. Unemployment rates

` Labor force - 812.7 million

` Labor force by occupation

` a) agriculture (39.5%)` b) industry (27.2%)

` c) services (33.2%)

` Unemployment rate - 4.2% (2008)



` Iii .Fiscal Freedom` China has moderate Corporate Tax Rate and high

Income Tax rate. The government encourages morenew-technology business in the market besidesallowing foreign institution enters the nation financialinstitution in providing foreign currency. Because of lower corporate tax rate, many MNC started to opentheir business in China and the numbers of FDI haveincreased rapidly. Furthermore, on October 2008, newpolicies impose where individual income tax is no

longer paid on interest on bank deposits. The overalltax revenue as a percentage of GDP was 18.3 basedon what recorded in the recent years.



` iv. Monitory Freedom

` From 2006 until 2008, the inflation rate is around 5.2%where it is consider moderate for that particular percentage. As what mention where China economic

freedom scores around 51 from the full score 100. So, wecan see that the economic is a mixture of free market andcontrol market. The price of product sold can bedetermined by the quantity demanded of the product. Butstill the government intervenes on certain goods andproducts to maintain stability of the prices. The government

also gives subsidies to small business and industry tocompete with foreign goods where they can sell at lower prices.



` v. Investment Freedom` China¶s Foreign Investment Catalogue describe that

different foreign investment are group under differenttypes such as encouraged, prohibited, restricted andpermitted China laws and regulatory are non-transparency, complex and inconsistently enforcedlaws and regulations, weak protection of intellectualproperty rights, corruption, industrial policiesprotecting local firms, and a legal system that cannotguarantee the sanctity of contracts where these must

be face by the foreign investor. Financial transactionsare also tightly regulated.



` vi. Financial Freedom

` The financial systems in China are control directlyto the government and it is tightly controlled. In

China, there are supervised roughly 5,600financial institutions in 2008 and China has onlytwo private banks while there are four state-ownedbanks account for over 50percent of total assets.T

his financial system is control and supervised byThe China Banking Regulatory Commission.



` vii. Interest rates

` Central bank discount rate - 2.79%Commercialprime lending rate - 5.31%

` viii. Inf lation` Inflation rate - 5.9% (2008) and -0.7% (2009)

` Inflation rate decline vastly from 2008 until 2009because of the stable currency of China.



` Population : 1.34 billion (2009)` Population growth rate : 0.66% (2009)` Population Below Poverty Line : 2.00%

(2009)` Infant mortality rate : 20.25 deaths per

1,000 live births (2009)` Life expectancy at birth :

` total population: 71.44 years` male: 69.71 years` female: 73.26 years(2004)` Total fertility rate : 1.79 children per

woman (2009)

` noun: Chinese (singular and plural)adjective: Chinese

` Religions: Daoist (Taoist), Buddhist,Christian 3%-4%, Muslim 1%-2% note:officially atheist (2002 EST.)

` Languages: Standard Chinese or Mandarin (Putonghua, basedon theBeijing dialect), Yue (Cantonese), Wu

(Shanghainese), Minbei (Fuzhou),Minnan(Hokkien-

`

` Taiwanese), Xiang, Gan, Hakka dialects,minority languages (see Ethnic groupsentry)

` Total population: 90.92 %male: 95.14%female: 86.53 % (2004 est.)

` HIV/AIDS - Adult Prevalence Rate:0.10% (2009)



` i. Distribution of Wealth` Distribution of income or consumption by percentage

share:`

` Lowest 10% : 1.80%` Lowest 20% : 4.66%` Second 20% : 9.00%` Third 20% : 14.22%` Fourth 20% : 22.13%` Highest 10% : 33.06%` Highest 20% : 49.99%` China has an extreme gap between the lowest 20% and

the highest 20% after 60 years China change their systemin their economy.



` ii. Changes in lif estyles and trends

` Lifestyles and trends in China change in manyways such as the level of consumption, attitudetowards new product especially from the west,

changes in the quality of life, and also changingfrom quantity satisfaction to quality satisfaction.Besides that, changes in trends can be seen fromthe degree of fashion sense where citizen tend

to buy more colourful and striking colours comparedull- colored clothes.



` iii. Educational levels

` The literacy rate for China is around 91.0% was able toread and write at a specified age. While the average yearsof schooling is 11.2 year. Education expenditures in Chinais about 1.9% of the GDP.

` iv. Labor Freedom Ranks

` China¶s labor regulations hinder overall employment andproductivity growth. Then on-salary cost of employing a

worker is high. Dismissing an employee may require prior consultation with the local labor bureau and labor union.



` v. Freedom of corr uption

` Corruption is perceived as widespread. Chinaranks 72nd out of 179 countries in Transparency

Internationals Corruption Perceptions Index for 2008. Corruption affects banking, finance,government procurement, and construction mostseverely and there is a lack of independent

investigative bodies and courts.



` vi. Pr operty Rights

` Chinas judicial system is weak, and many companiesresort to arbitration. Local officials can ignore courtdecision with impunity. All land is state-owned, butindividuals and firms may own and transfer long-termleases (subject to many restrictions) as well asstructures and personal property. Intellectual propertyrights are not enforced effectively. Copyrights, patents,

brand names, trademarks, and trade secrets areroutinely stolen.



` i. Science and Technology` Through the period, the achievement of science and

technology in China are remarkable where theymanage to achieve many discoveries in the sciencefield. The major achievements are the discovery of theDaqing Oilfield, building the first atomic reactor,successful testing of atom and hydrogen bombs,synthesis of crystalline insulin, positron and negatronelectronic collider, nuclear power stations,carrier rockets, and satellite launching technology.

Rapid improvement in science and technology alsocreate more jobs in the manufacturing industry andalso make the quality of life better and easier.



` ii. Research and Development

` The government design many plans andstrategies in developing the R&D industry. Many

programs to enhance R&D industry are launchedsuch as the ³Torch Program´ and the ³ ScalingHeights Program´



` i. Envir onmental Pr otection Laws

` The government takes serious matter onprotecting the environment where they impose

many regulations and laws in protecting,preventing and controlling industrial pollution andimproving urban environment. The governmentalso collaborate with many NGOs in order to

maintain the Mother Nature.



` i. Employment Regulations

` China¶s labour regulations delay overallemployment and productivity growth. The non-

salary cost of employing a worker is high.Dismissing an employee may require prior consultation with the local labour governmentdepartment and labour union.



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A PROJECT ON CHINA’S ECONOMY

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