Factor endowments Basic factors Land Climate Coastal line Natural Resources

As well known, China has very good endowment with factor conditions of abundant natural resources including natural minerals, forests, water, plantation, long coast, etc. Thought the amount per capita is small, but the total size is quite attractive. The land area consists of 9,596,960 square kilometres (3,696,000 square miles), the third largest in the world after Russia and Canada. Arable land: 14.86% Permanent crops: 1.27% Other: 83.87% (2005) Referring to slide number 30, we can see the development across the coastline. The country's coastline is 14,500 kilometres (9,010 miles) long.

The climate varies from tropical to frigid and this does affect the culture across the different climatic zones which in turn affect the regional industries that develop. The varying climate conditions also provide the right environment for high-quality agriculture, forestry, and animal husbandry. The country has a multitude of mineral reserves and holds a reputation as one of the largest producers of antimony, zinc and tungsten in the whole world. China is also known for its production of coal, iron ore, magnetite, petroleum, aluminium, natural gas, mercury, tin, lead, manganese, molybdenum, vanadium and uranium. Goods like batteries require antimony as a lead hardener. Tungsten, because it has such a high melting point and high conductivity, is used in such applications as light bulb filaments." Both of these metals are manufactured in China where they occur naturally and are relatively easily accessible.

Advanced Factors Human Resources Capital Resources Infrastructure development Technology Education

Besides these, the largest number of cheap labour in the world fuelled Chinese economic rapid growth in the past 3 decades. The availability of cheap and skilled labour was a major factor which invited companies from across the globe to set up manufacturing units. However, this factor is giving way and is no more a strength. Chinas capital resources include the entire range from minimal hand tools through to modern heavy machinery. China has been investing heavily in electric power plants. China's biggest imports are machinery, and manufacturing its own machinery is a bigger industry than manufacturing consumer products. Computer usage has been climbing in China, for both industrial use and personal use Over the past two decades, one of the defining features of Chinas growth has been investment led growth supported by domestic savings. Chinas sustained high economic growth and increased competitiveness has been underpinned by a massive development of physical infrastructure. The investment forms a major percentage component of the GDP equation. The open economic policy made it possible for the inflow of foreign direct investment (FDI) mainly to the manufacturing sector. Cheap labour and better than adequate infrastructure were important prerequisites that led to a successful the export-led growth strategy. With seemingly unlimited supply of cheap labour from the rural sector, public investment in infrastructure became the keystone in the strategy. Technological advancements in various sectors such as electronics, telecommunication, space, military and transportation have played a big role in Chinas growth. Social infrastructure such as education, health, and housing are essential to promote better utilization of physical infrastructure and human resources, thereby leading to higher economic growth and improving quality of life.

Demand Conditions Consumption pattern

There was a time when China was characterized with famines. At the beginning of the economic reform in 1978-1979, everything was scarce in China, not only production capitals, but also consumer products such as food, clothes, shoes, household electrical, etc. The rapid developing market fed the Chinese industries including private sector. The consumption factor in the GDP equation has been rising. This can be seen in the slide 22. With increasing population and urbanization, the local demand is set to rise. Property boom

The 20052011 Chinese property bubble was a real estate bubble in residential and/or commercial real estate in the People's Republic of China. There have been many factors that may have led to rising housing prices. Possible contributors include low interest rates and increased bank lending, beginning in 2003. During the bubble, local government relied on land sales for income (accounting for up to 50% of revenue), incentivizing the continued sale and development of land. Limited access to foreign investments for Chinese citizens increased the appeal of domestic investments such as property.

The bubble started to deflate in late 2011 when housing prices began to fall, following policies responding to complaints that members of the middle-class were unable to afford homes in large cities. The deflation of the property bubble is seen as one of the primary causes for China's declining economic growth in 2012.

Firm Strategy, structure and rivalry Exploitation of Labor

The initial rule was characterized by exploitation of labor to lure companies to set up manufacturing units in China. Companies would setup factories and employee labor without any facilities or safety arrangements. With time as the area around the coastline began to develop and the labor started to organize themselves into unions where they demanded better wages, safety arrangements and other facilities. With the wage rates going up, China has been losing its advantage of cheap labor. Innovation and growth

China has become the recent story of economic success. Having enjoyed three decade (1979-2008) double-digit growth which has mainly been resource-intensive, the Chinese economy is now at the cross road. Due to resource constraints at home and abroad as well as raising costs, Chinas policy makers are steering the economy towards an alternative growth model in which knowledge and technology would play the key role. For this reason, innovation is becoming increasingly important and vigorously promoted in the Chinese economy. Chinas R&D expenditure as a proportion of GDP has expanded from 0.71% in 1990 to 1.52% in 2008. This figure is expected to reach 2.5% in 2020. Tough local competition usually benefits the genesis and development of international leading position of a nation, only if the competition is well monitored and guided. Chinese private sectors are mostly created with individual capitals, with few instance of borrowing from banks which are mostly owned by the state and treat private sector discriminatorily. This trait determines that most of Chinese private firms have to start from very small scale, and can only grow gradually through self-cumulated capitals, thus in the end, hinder the otherwise faster rate of growth, and sacrifice the competitiveness. Related and Supporting Industries Though the economic reform began just roughly 30 years ago, clustering exists widely in Chinese industries, mainly dispersed in coastal areas where private sector flourishes. For example, the majority of pneumatics enterprises are located in Fenghua Ningbo and Yueqing Wenzhou. In Fenghua, as in Yueqing, thousands of factories specialize in various production processes, from die casting, machining, coating, through assembling; in various products including air preparation units, air cylinders, valves, and fittings, etc. All these players compose of a value chain. Challenges facing one of the members are transmitted to others through the chain, pushing upstream and downstream members to improve, otherwise, all members involved would be punished by losing orders and surpassing by competitors. The convenience of proximity and common dialect foster the frequent communication between owners and technicians of closely located enterprises by meeting, which make quick response possible.

Automotive sector Electrification Financial sector

The above three sectors have played a major role in the development of China as a major exporter of many goods and services. For the above three sectors, we have the Porter theory analysis and if someone is interested we can share the same. Due to time constraint we wont be able to explain them. Government Policy Nationalization Free economy Privatization

1949-1978 After the establishment of PRC, the China Communist Party followed Soviet Unions model to restructure the economy, by taking several steps to transform the originally market economy into a highly centrally planned, or command, economy. Overall, this is a progress of anti-market economy transformation, through nationalization, rationing system, pricing system elimination, totalitarian control of state over-all economic aspects of China, economic de-liberalization of citizens. Chinas Economic Reform since 1979 In 1978, realizing the centrally planned economy had failed to produce efficient economic growth, the Chinese Communist Party decided to carry out a reforming program to improve the economic performance. Firstly, reforms began in agriculture, by decollectivizing agriculture and introducing the HouseholdResponsibility system, which divided and allocated the land of communes as private plots to individual farmer families. More important, after handing in a fixed share to the state, farmers were entitled to keep the rest as earnings. This system extremely offered incentive for farmers and increased agricultural production and living standards of hundreds of millions of farmers. In urban industries, a dual price system, with two markets of plan and negotiable prices, was introduced, in which SOEs were allowed to sell output beyond the plan target. The plan proportion was to be sold at fixed price, the proportion beyond the plan target to be sold at market/negotiable price, thus pricing system got freed partly, and more incentives motivated people and enterprises. Meanwhile, private businesses were allowed to operate, and service sector recovered. China was opened to foreign investment again, by creating a few special economic zones which later became growth engines for the national economy.
19982007: Privatization and Trade Liberalization

The 15th Congress of the Chinese Communist Party held in 1997 was a milestone in Chinas economic policies. The Congress formally sanctioned ownership reforms of the state-owned firms and

also legalized the development of private enterprises. With the reduction of legal barriers, private enterprises grew rapidly. Collective enterprises such as township and village enterprises lost their edge, some were closed and many of them were privatized, also in the form of management buyouts. As part of the lead-up to Chinas joining the World Trade Organization in 2001, Chinas government also started to cut tariffs, broadened trade rights, and liberalized its regime for foreign direct investment. Between 1998 and 2007, the share of total urban employment in domestic private enterprises and foreign-invested enterprises increased from 8 to 24 percent. The increase in the manufacturing sector was even more pronounced. By 2007, domestic private enterprises alone accounted for 51 percent of total urban employment in the manufacturing. Location Coastal development Inland expansion

As we saw in one of the slides that the initial settlement and development took place around the coastline which had the advantages of cheap labor and quick transportation for trade. But as wage rates went up, the labor intensive work started to be handed over to the labor in inland of China. Since enacting its 2009 stimulus package, Beijing has dramatically expanded its transport infrastructure to better connect the major cities in the countrys interior to the rich coastal provinces. Building out this infrastructure has led to increased foreign direct investment (FDI) in Central China. Attracting FDI is necessary to improve the Chinese interiors economic prospectsimprovement that is important for Beijings goal of transitioning from a heavily export-based economic model to one that utilizes more domestic consumption. However, most of the areas being integrated with the coasts through new infrastructure (and thus receiving the most FDI) are already large urban centers, and many rural areas have been left behind. The continuing disparity between urban and rural areas in the Chinese interior will make it difficult for the country to establish a more balanced economic model unless other reforms are undertaken.