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Benefits and Costs of Investing in China Essay

In terms of economic performance, China has been performing impressively compared to its neighbouring countries in Asia and can compete at par with top developed countries like United States and United Kingdom in terms of volume of trade and sources of competitive advantages. Likewise, due to its large population sixe and high disposable income of every Chinese household due to its impressive economic development for the past years, China offers great potential market to many multinational companies seeking for large number of customers. This will provide multinational companies high sales and profit from operating in China.

Alongside with the influx of foreign direct investment in China, Chinese share of trade on their GDP continuous to increase every year as multinational firms increases the international trading transactions of China to the rest of the world. Furthermore, due to China’s large population, it has been able to offer cheaper laborers and large potential market which are both attractive to foreign investors leading to the improvement of their foreign direct investments for the past years since the late 1990’s. Without this component, it is impossible for China to attain its present state and achievements.

Since 1999, the GDP growth rate of China has been performing impressively as foreign direct investments stabilized major economic indicators, specifically the trade balance and domestic consumption, which are vital in determining the overall performance of a given economy. This only suggests that China can offer high return on investments to investors in the next coming years as China’s GDP growth rate continuous to increase every year.

Due to the effort of the Chinese government to attract more foreign investors into their market, it has been extensively supporting the development of its communication infrastructure by providing subsidies to telephone companies. This would soon boost the business activities all over the domestic market of China.

Costs

Compared to communication infrastructure, physical infrastructure of China seems to develop at a slower rate thereby could impede for the fast growth of foreign investments in China. Though the Chinese government is also on the process of improving their facilities in this area, but, overall it is still lower compared to the development of their communication facilities as mentioned above.

On the communist government, one of the primary factors that scare foreign investors in putting their capitals in China due to rampant corruption and insufficient laws that would protect the interest of foreign investors.  Add to this the weak economic freedom, which could draw potential investors away of China if the situation continues to exist in the next coming years.

Per capita GDP in urban areas are undeniably high but considering the conditions of those households from the rural areas, overall, per capita GDP of China is not in good condition as wealth distribution is still skewed towards to the households in the urban areas.

 Another cost or disadvantage in the Chinese economy is the high inflation rate which has been one of the economic problems of China that it presently faces due to its fast-paced economic growth. This could pose either as beneficial or detrimental to foreign investors depending on the type of product they will sell in the Chinese market and the size of their operation in China.

In terms of infrastructure, most of the major waterways of China are on the process of gradual formation as the Chinese government wants to utilize its waterways efficiently specially the river systems in the mainland. The Chinese government is still on the process of developing its roads and highways especially those roads that would connect different provinces to major cities. It would still take a few more years before this physical infrastructure will be fully developed.

References:

Bodde, Derk. Introduction. Chinese Thought, Society, and Science : The Intellectual and Social Background of Science and Technology in Pre-modern China. Honolulu University of Hawaii Press, 1991. pp 3-4.

Qiang, Christine Zhen-Wei. China’s Information Revolution : Managing the Economic and Social Transformation. Herndon, VA, USA: World Bank, The, 2007. p 2.


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