International Business

China - Unbalanced

What economic strategy has China

followed since 1978?
De-collectivization of agriculture,
Gain access to international markets through
WTO
Surplus labor in rural areas (low urban
wages)
Low exchange rate
Maximized employment
Foster accumulation and technology transfer
through FDI
Privatization of State owned Enterprises

How did China reform its system that

helped foreign business in China?
By attaining high degree of openness
amongst other populous nations,
Tariffs and other trade barriers reduced with
tariff rate being reduced to 15% from 56%,
By 2001, only 40% of total imports were
subjected to tariffs & 9% to licensing,
No VAT on exports,
Introduction of SEZs in late 1980s with
exemptions to taxes and duties.

What is the rationale for going out

strategy?
Was initiated in 1999 to promote Chinese
investment abroad,
Pursue product diversification,
Improve level and quality of the products,
Expand financial channels with respect to
national market,
Promote brand recognition of Chinese
companies in EU & US markets.
Chinas FDI rose from US$ 3 billion in 1991 to
US$ 35 billion in 2003.

How did China deal with the

Financial crisis of Sep 2008?
Centralized Communist Govt reacted quickly
& cut interest rates for the first time since
2002
Cut interest rates again over next few months
Increased export tax rebate on Labour
intensive goods
In Nov 9th , Announced 4 trillion yuan ($586
Bn) stimulus package targeting key areas like
housing, Infra, Transportation, Health, to
spend by end of Sep 2010
Stimulus package was implemented much
more quickly too

Will China Surpass US Economy?

China is expected to surpass the US in

terms of nominal GDP in 10 years
Chinas growth has slowed considerably
compared to the 10% annual growth
rates of the past few decades

Will China Surpass US Economy?

However, it is still expected to maintain a
significant growth advantage over USA
Consulting firm PWC projects that China will
grow at an annual rate of 4.6% between
now and 2050, while the United States will
grow by 2.4% a year
Apart from this reforms are also expected to
be in place like removal of barriers, Factors
of production will be made easily available.
China is also looking to keep good ties with
oil producing countries like Russia which will
take care of its oil needs.

Impact of Chinas Slowdown on

India?
China is India's largest trading partner in goods
China accounts for approximately one-tenth of India's
merchandise trade, and bulk of it comes from
imports of goods to India
In 2014/15, Chinese imports accounted for 13.5 per
cent of India's total merchandise import bill of $448
billion
The value of goods exported from India to china was
just 3.9 per cent of $310 billion
Devaluation of Yuan, will make imports from China
cheaper and our products more expensive
Slowing down of economy in China will also create
excess capacities, leading to increased dumping of
cheap products into India.