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QUESTION PART 2

DISCUSS WHAT ARE THE REASONS WHY INTERNATIONAL BANKS MIGHT WANT TO SHIFT THEIR OPERATIONS TO CHINA. ELABORATE ON THE ECONOMIC POLICIES THAT HAS TRANSFORMED CHINA ECONOMIC DEVELOPMENT IN RECENT YEARS. IF YOU ARE MULTINATIONAL COMPANY, WOULD LIKE TO INVEST IN CHINA, GIVE REASONS FOR YOUR DECISIONS.

TABLE OF CONTENTS

NUM
1.0

CONTENTS
INTRODUCTION

PAGE NUM
2

2.0

DISCUSS WHAT ARE THE REASONS WHY INTERNATIONAL BANKS MIGHT WANT TO SHIFT THEIR OPERATIONS TO CHINA

3-4

3.0

ELABORATE ON THE ECONOMIC POLICIES THAT HAS TRANSFORMED CHINA ECONOMIC DEVELOPMENT IN RECENT YEARS.

5-7

4.0

IF YOU ARE MULTINATIONAL COMPANY, WOULD LIKE TO INVEST IN CHINA, GIVE REASONS FOR YOUR DECISIONS.

8-10

5.0

CONCLUSION

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6.0

REFERENCES

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1.0 INTRODUCTION China who had over 1.3 billion people and is one of the most popular countries is the world as in just a few decades, China has gone from one of the poorest countries in the world to a regional and global leader in the world economy. In world history, Chinas economic progress in the last 30 years was said is bizarre. The Chinese economy has doubled in size and thus making it the largest country in the world behind Japan and United States. China was more known by the people in the world as the 2008 Olympic was held at there. Agriculture and industry was the two most important sectors that contribute in the Chinas economic growth. More than 70% of the labor force and 60% percent of GDP being employ and produced. By manufacturing consumer goods and industrial products cheaply for the rest of the world had make China emerged as an export driven economy. It not even help in moving Chinas population from the rural to urban areas but in the same time gaining strong productivity and increase the export trade to the world. Millions of Chinas citizen that starting who work in agriculture sector are slowly moving their works to highly productive manufacturing sectors who promises more incomes and at the same time increase the number of middle class consumer. China has become more involving in the international issues. Countries such as Korea, Japan, Taiwan and the ten Asian countries (Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam)--have felt China's growing influence. When these countries make policy decisions they now have to take China into account. On the future, China will continue to maintain with its self-identity as the worlds largest developing country with the reality of its status as a rising major power. Increasing global influence and upon which expectations will grow to take on greater responsibility for the security and stability of the international system.

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2.0 WHAT ARE THE REASONS WHY INTERNATIONAL BANKS MIGHT WANT TO SHIFT THEIR OPERATIONS TO CHINA
There are a few reasons why international banks might be interested in shifting their operations to China. For a start, the international banks want to shift their operations to China because the economic and trade relationship is increasingly close between the home country and China. The economy of China began to take off since China reformed. Especially after China have joined into WTO during 2001, China economic construction is further developed and the cooperation with foreign partners was getting closer and closer through the opening up on different industries. As a result of the increasing number in international banks entrance, more and more foreign clients carry on trade and investment in China. The international banks establish branches in China in order to retain the customer resources that are searching for overseas investment opportunities. The second reason for international banks access is to exploit for the giant market opportunities in China. There are a large number of wealthy residents accompanied by Chinas economic development. Plus, there is more and more people joint into the economic and trade sector. This will lead to the increased in wealth and the national income is corresponding growing. However, as a result of the non-maturity of the China economy, the CPI is really high and the inflation rate is higher than the actual saving interest rate which means that the funds are continuous depreciation in fact. Therefore, the residents will find new investment opportunities to the purpose of capital appreciation. It will be more diversified investment opportunities by foreign banks entrance in order to meet customers needs. Citibank and HSBC are the successful example of international banks that enter to China market and seize the China market. From the macro perspective, it is an opportunity for international banks since the entrance of restriction and resistance is reduce in China. The access restrictions usually reduce the degree of competition, thereby protecting the benefits of domestic banks in some ways. With the gradual relaxation of access restrictions from semi-open to the process of opening up, China began to welcome international investment banks to China and domestic banks have begun to participate in international competition. Chinas foreign market openings gradually quicken the pace of foreign capital into the region, quantity and equity restrictions. The large scale

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international banks include the JP Morgan chase Bank, Germanys Dresdner Bank and Germanys Siemens and Japan Bank of Tokyo-Mitsubishi Toyota. In addition, foreign banks enter into China also with the purpose of customer service needs. The development potential of the China market and attract more foreign capital, foreign banks must quickly enter the China market. Banking is an information sensitive industry, foreign banks are often lack of information about the customer needs in host country. With follow the customer to enter the China market, foreign banks able to offer its customer more perfect than the China-funded bank services in order to safeguard its long-term customer relationships. Also, given the fact that foreign banks have considerable international exposure and can launch new products (e.g., Credit Card, ATM, etc.) besides providing better services, they are in advantageous position to capture Chinas banking business. Foreign banks are always in order to dominate the highly lucrative trade-related businesses. Foreign banks have advantage in technology, management, service network, asset quality, financial capacity and as well as adequate power and ability to expand its market share in China gradually. Foreign banks may not be the most cost consuming to build a large organization network, but more through foreign acquisitions in the form of shares in the banks. Only with that foreign banks can bypass the Chinas government restriction policy and seize the China market.

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3.0 ELABORATE ON THE ECONOMIC POLICIES THAT HAS TRANSFORMED CHINA ECONOMIC DEVELOPMENT IN RECENT YEARS.
China was one of the Asian countries that had major economic policies reformation. This reformation showed excellent results. It began when Deng Xiao Ping had decided to embark on Chinas economic reform and the Open door policy was introduced since 1978. China who virtually have no foreign investment and a low level of international trade and exchange until , now, China is the worlds second largest economy right after USA, although China is the fourth largest country in term of size after Russia, Canada and the USA. After the open door policy was introduced, it can be seen that significant and steady growth in investment, consumption and standard of living. The poverty had been reduced as hundreds of millions have been lifted out. While for the economic growth and rising incomes, the standard of living has risen and the common man was afford to own consumer goods such as cars and television sets that was once reserved for the elite. There are four modernizations that were emphasized, the modernizing agriculture, industry, national defense, science and technology. These special efforts are made to adopt the worlds advance technologies and equipment. China is the world largest producer of rice, and is the main sources of wheat, corn (maize), tobacco, soybeans, peanuts and cotton. Thus, agriculture was the first things that economic reforms started to change. At this point of time, changing the central of agriculture from farming to household activities was tried. Other than it, the rule of law, decentralization and resource ownership is also one of the attentions in undertaking the agricultural reforms. Nonagricultural activities such as village enterprise in rural areas, and promoted more selfmanagement for state-owned company, increased competition in the marketplace and facilitated direct contract between Chinese and foreign trading enterprises was also encouraged by the government too. A firm welfare system named iron rice bowl was updated so that Chinese worker in China will have lifetime employment. On the end of 1978, almost all enterprise was owned by the state, and the top of each sector was the State-owned Enterprises (SOEs) that will response to the national government.

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While in 1989, economic reform had been made in order to catches up with the worlds technology, China change into advancing it owns scientific and technological progress, improving the quality of the labor in China. The direction of Chinas development policies such as extension of the market system, greater economic openness and limitation of population growth is being confirmed by Chairman Jiang Zemin. China had cooperative relationships not only with the U.S but also Japan and European Union. An agreement that covers cooperation such as marine conversation, renewable energy and health had been made between China and U.S, and this agreement had been extend for 5 years since April 2006. The 10th Five-Year plan was implemented on 2001 to 2005. The major anticipated objectives of economic structural adjustments were to optimize and upgrade industrial structures and strengthen world competitiveness. While on the 11th December of 2001, China became the member of the World Trade Organization (WTO). In order to opened up more to the rest of the world and increase its trade with Japan and the Association of South- East Asian Nation (ASEAN), movements and decision such as lower tariff rate, abolish market impediment. The importance of further raising living standards, continuing improvement in the market system and increase overseas trade, foreign investment and international co-operation had been highlighted by Jiang Zemin in providing further guidance on policies for continuing develop of China. Economic Stimulus Plan has been implemented in 2008-2009 year. On the following years, compare to the 10th Five- Year Plan who proposed more in relatively rapid development the 11th Five- Year Economic Program (2006-2010) is proposed on steady and relatively rapid development. Chinas 11th Five-Year Plan (20062010) was from Getting Rich First to Common Prosperity, focus to the concepts of the scientific approach to development and constructing a Harmonious Socialist Society.

The 11th Five- Year Program was to balance the wealth distribution, at the same time, increase agricultural productivity, facilitate development of non-agricultural sectors and the transfer of rural labor to these sectors, reduce tax and fee burdens on farmers, improve rural infrastructure and environmental protection, boost health care provision in the countryside, and extend nineyear mandatory education to poor regions and poor households with support by central and local governments. 6

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On 2010, China is the worlds second-largest trading nation after the U.S, it total trade had surpassed $2.97 trillion. While, he Economic Stimulus Plan was implement to deal with the Global financial crisis, action such as the increasing of affordable housing, easing credit restriction for mortgage and SMEs, lower taxes such as real estate sales and commodities, invest more in infrastructure development are being taken. On 2010 to 2011, China was at a key stage of steering the economic recovery to stable growth after the influences of 2009s stimulus policies. Further, China had implemented the 12th FiveYear Plan (2011-2015). The 11th five-year plan shows that China had to sustain an annual growth rate of 8% for the foreseeable future; in order to continue develop its industrial prowess, raise its citizens standard living.

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4.0 IF YOU ARE MULTINATIONAL COMPANY, WOULD LIKE TO INVEST IN CHINA, GIVE REASONS FOR YOUR DECISIONS. China is a land of opportunity with a quickly-developing economy and infrastructure. Although investing in China is slightly problematic due to the country's bureaucracy and cumbersome legal framework, it is a great value to prospect multinational companies who plan to invest in China. Basically there are a few reasons that motivate multinational companies to invest in China. China is now the world's leading recipient of foreign direct investments (FDI) among developing countries. Foreign direct investment (FDI) into China increased from US$44.2 billion in 1997 to US$52.7 billion in 2002. This caused China's share of total FDI into the developing world during this period to rise from 22.9 percent to 32.5 percent, and its share of total FDI into Asia to soar from 40.6 percent to 55.5 percent. China is currently the leading FDI recipients in the world, receiving over $80 billion in 2007 according to the Chinese Ministry of Commerce. The flow of FDI into China is also a primary reason why many foreign investors and multinational companies are investing in China. There is also multinational companies that are interested to setup company in china. In fact, there are waiting lists to set up a company in China in selected regions. These main regions are Shanghai, Beijing and Nanjing. Regardless of the difficulties of starting a multinational company in China, many global investors choose invest in China to tap the huge opportunities offered in one of the world's fastestgrowing economies. China is proved to be one of the fastest growing economies in the world by Chinas GDP level averaging 9.5% since 1978. This continuous vibrant economic growth seems to be a boost for multinational companies that are interested to invest in china. Although opening a multinational company in China is difficult, recent changes to Chinese company law have simplified the procedures required to set up a company in China. License of Business Company has been open to foreign investors since 11 Dec, 2004. It is quite a new knowledge and procedure for foreign investors and related government departments. Since its accession to the World Trade Organization (WTO) in 2001, China has made substantial legal and regulatory progress. China agreed to lower tariffs and abolishes market impediments. Chinese and foreign businessmen, for example, gained the right to import and export on their own, and to sell their products without going through a government middleman. Meanwhile, 8

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investors starting a company in China now receive better protection for intellectual property rights. Increasing numbers of investors are being encouraged to set up a company in China. Business companies can be set up in major cities such as Shanghai. This is because Shanghai is the fastest growing city in the world, attracting large amounts of foreign investment every year. Capital growth has increased from 15% in 2002, to 25.5% in 2003. In 2004 it stabilized at 19%. Shanghai is becoming an increasingly cosmopolitan city and due to the strength of the economy there is a large and increasing amount of local wealth. Large and exclusive department stores and Gucci, Prada and Armani boutiques line the streets next to Rolls Royce and Ferrari showrooms. Western multinationals have already marked their presence such as Starbucks, IKEA and B&Q. Shanghai will receive worldwide attention when it hosts parts of the Olympics in 2008. The World Expo in 2010 and Disney and Universal Studios open in the city. Some of you may have also noticed the famous brand new race track which hosts the Chinese Formula One Grand Prix every year. China has made significant progress implementing its WTO commitments. China was also one of the most important markets for U.S. exports in 2008. Export growth continues to be a major driver of China's rapid economic growth. To increase exports, China has pursued policies such as fostering the rapid development of foreign-invested factories, which assemble imported components into consumer goods for export, and liberalizing trading rights. Next, China and Hong Kong signed a Free Trade Agreement in year 2004, called the Closer Economic Partnership Agreement (CEPA). The agreement has opened the Chinese market to Hong Kong-based businesses, as well as encouraging manufacturers to set up companies in China since Hong Kong services are now available to Chinese manufacturing facilities. This agreement was also boost for multinational companies looking to profit from a Hong Kong/Mainland China strategy, Hong Kong is the ideal base. The citys infrastructure, business and cultural links with the China, as well as its institutions, regulatory environment and people provide an excellent entry platform.

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From the political view, Chinas political stability is another core reason for multinational companies to invest in China. China's political and social landscape is stable because of three decades of reform and opening-up. The Communist Party of China (CPC) has been committed to transforming the country's leadership, improving governance according to the needs of the people at the time ever since launching reform and opening-up. Political stability is still priority number one for the Chinese central government which views continued and regionally-balanced economic growth as the key to such stability. Managing economic growth while curtailing inflation as well as implementing elements within the 12th Five-Year-Plan is likely to take center stage on the policy front. Localized unrest over various social issues such as corruption, environmental hazards and pollution, land seizers, wages, working conditions, are likely to continue, but highly unlikely to pose credible threats to the CCP in the near-term. Another final reason for a multinational company to look forward for investing in china is the rapid development of the transportation and infrastructure around the nationwide. A good transportation and systematic infrastructure is definitely needed if a country would like to progress forward. Therefore, China has just spent $586 billion on a stimulus package and most of this money is heading towards highways, railroads, and airports. According to the Malaysian Insider, Chinas Infrastructure spending has been increasing an average of 20% annually for the past 30 years. This spending has eventually resulted in Chinese economys explosive growth. As an example, today it only takes two hours to board a fast train from Shanghai to Nanjing.

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5.0 CONCLUSION From the topic, we can conclude that there are many reasons that motivate an international bank to china. These reasons are very attractive that many banks have already shifted their operations to China. Meanwhile, China economic transformation has been successful in boosting the economic growth in the country. The transformation which took nearly thirty years have has resulted in a great outcome. The outcome is that China has become a economy leader in the world. Many multinational companies have also invested in China and also set up branches in China. This due to reasons that have been good grounds for the operations and also profit generating to this companies. In future, it is believed that in this current pace, china will be the number one leader of economy in the world. Therefore, all Asian countries such as Malaysia should take China as a an example an strive forward to improve economic growth for the well being of the citizens

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6.0 REFERENCES Drysdale, P. (2010). China's economic policy strategies-weekly editorial. Retrieved from http://www.eastasiaforum.org/2010/04/19/chinas-economic-policy-strategies-weekly-editorial/ Economy of the peoples republic of China. (2011). msnbc in profile 2011.

http://www.msnbc.msn.com/id/35018963/ns/business/ Fan, C. C. (2006) Chinas Eleventh Five-Year Plan (20062010): From Getting Rich First to Common Prosperity. Eurasian Geography and Economics, 47(16), 708-723. Hu, Z., Khan, M.S. (1997)

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fast?.

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from

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McGeehan, K. (2005) Chinas Banking System and How Citibank can capitalize on Its

Liberalization (Masters thesis, Tufts University, Medford, United State). Retrieved from
http://repository01.lib.tufts.edu:8080/fedora/get/tufts:UA015.012.DO.00098/bdef:TuftsPDF/get PDF Statistics New Zealand. (2007). New Zealand in profile 2007. Retrieved from

http://www.stats.govt.nz Zhao, L. (2009) The motivation and impact on the foreign banks entrance in China ( Masters thesis, Lund University, Scania, Swedan). Retrieved from http://biblioteket.ehl.lu.se/olle/papers/0003555.pdf

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