Table of Contents

 Introduction
 Basic information about China
o Land Area
o Population
o Climate
o Language
o Currency
o Fiscal Year
o Time
o Holidays
 Geography
o Political geography
o Landscape and climate
o Biodiversity
o Environmental issues
 Location advantages
o Rivers
o Mountains
o Deserts
o Bordering nations
 Socio-economic information
 Political information
o Communist party
o Government
o Administrative divisions
o Foreign relations
o Trade relations
o Territorial disputes
 Economic analysis
o Macro performance
 Monetary policy
 Fiscal policy
o Exchange rate
o Trade performance
 Imports
 Exports
o Investment
 Production and resource structure
o Major companies
o Major resources
 Land resources
 Cultivated Land
 Forests
 Grasslands
 Water resources
 Mineral resources
 Marine resources
 Salt fields
o Competitive advantages
 Reforms
 Political Stability
 Market Size
 Economy
 Lifestyle
 Internet
 Labor
 Transportation
o Human Capital advantages
 Huge number of labor
 Favorable demographic structure
o Social capital advantages
 SWOT
o Strengths
o Weaknesses
o Opportunities
o Threats
 Conclusion
 References
China
Introduction
China, officially the People's Republic of China (PRC), is a unitary sovereign state in East Asia
and the world's most populous country, with a population of around 1.404 billion covering
approximately 9.6 million square kilometers (3.7 million square miles), it is the world's second-
largest state by land area and third- or fourth-largest by total area. Governed by the Communist
Party of China, it exercises jurisdiction over 22 provinces, five autonomous regions, four direct-
controlled municipalities (Beijing, Tianjin, Shanghai, and Chongqing) and the Special
Administrative Regions Hong Kong and Macau, also claiming sovereignty over Taiwan.

China emerged as one of the world's earliest civilizations in the fertile basin of the Yellow River
in the North China Plain. For millennia, China's political system was based on hereditary
monarchies, or dynasties, beginning with the semi-legendary Xia dynasty. Since then, China has
expanded, fractured, and re-unified numerous times. In 1912, the Republic of China (ROC)
replaced the last dynasty and ruled the Chinese mainland until 1949, when it was defeated by the
communist People's Liberation Army in the Chinese Civil War. The Communist Party
established the People's Republic of China in Beijing on 21 September 1949, while the ROC
government retreated to Taiwan with its present de facto capital in Taipei. Both the ROC and
PRC continue to claim to be the legitimate government of all China, though the latter has more
recognition in the world and controls more territory.

Since the introduction of economic reforms in 1978, China's economy has been one of the
world's fastest-growing. As of 2016, it is the world's second-largest economy by nominal GDP
and largest by purchasing power parity (PPP). China is also the world's largest exporter and
second-largest importer of goods. China is a recognized nuclear weapons state and has the
world's largest standing army and second-largest defense budget. The PRC is a member of the
United Nations, as it replaced the ROC as a permanent member of the U.N. Security Council in
1971. China is also a member of numerous formal and informal multilateral organizations,
including the WTO, APEC, BRICS, the Shanghai Cooperation Organization (SCO), the BCIM
and the G20. China is a great power and a major regional power within Asia, and has been
characterized as a potential superpower.

This was a brief introduction of China. Let’s discuss some basic information about China’s
population, area, languages, currency, holidays, time and other necessary information.
Basic information about China
Land area

9,561,000 sq km

Population

1.38bn (2016; official estimate)

Main towns

Population (millions) of metropolitan areas

 Shanghai: 22.7
 Beijing (capital): 19.3
 Shenzhen: 12.2
 Guangzhou: 10.7
 Tianjin: 10.4
 Chongqing: 9.3
 Dongguan: 8.7
 Foshan: 8.1
 Wuhan: 8.0
 Chengdu: 7.5
 Nanjing: 6.8
 Shenyang: 6.1

Climate

Continental, with extremes of temperature; subtropical in the south-east

Weather in Shanghai (altitude 4 meters)

Hottest months, July and August, 23-33°C (average daily minimum and maximum); coldest
month, January, -1 to 9°C; driest month, September, less than 5 mm average rainfall; wettest
month, June, 160-165 mm average rainfall.

Language

Mainly putonghua, or Standard Chinese, based on northern Chinese (the Beijing dialect known
as Mandarin); local dialects and languages are also used
Measures

The metric system is used alongside certain standard Chinese weights and measures, of which
the most common are:

1 jin = 0.5 kg 2,000 jin = 1 tonne

1 dan = 50 kg 20 dan = 1 tonne

1 mu = 0.0667 ha 15 mu = 1 shang = 1 ha

Currency

Renminbi (Rmb), or yuan. Rmb1 = 10 jiao = 100 fen.

Average exchange rate in 2016: Rmb6.64:US$1

Fiscal year

January-December

Time

8 hours ahead of GMT

Public holidays

 January 1st (New Year's Day, observed on January 2nd)

 January 27th-February 2nd (Chinese New Year)
 April 2nd‑4th (Qingming Festival)
 May 1st (Labour Day)
 June 28th-30th (Dragon Boat Festival)
 October 1st-3rd, 5th-8th (National Day)
 October 4th (Mid-Autumn Day).

All public holidays are technically one day long, except for Chinese New Year and National
Day, which are three days long. When the holiday covers weekdays in excess of this figure, these
are compensated for by working weekends around the holiday.
Geography
China's landscape is vast and diverse, ranging from the Gobi and Taklamakan Deserts in the arid
north to subtropical forests in the wetter south. The Himalaya, Karakoram, Pamir and Tian Shan
mountain ranges separate China from much of South and Central Asia. The Yangtze and Yellow
Rivers, the third- and sixth-longest in the world, respectively, run from the Tibetan Plateau to the
densely populated eastern seaboard. China's coastline along the Pacific Ocean is 14,500
kilometers (9,000 mi) long and is bounded by the Bohai, Yellow, East China and South China
seas. China connects through the Kazakh border to the Eurasian Steppe which has been an artery
of communication between East and West since the Neolithic through the Steppe route – the
ancestor of the terrestrial Silk Road.

Political geography

The People's Republic of China is the second-largest country in the world by land area after
Russia, and is either the third- or fourth-largest by total area, after Russia, Canada and,
depending on the definition of total area, the United States. China's total area is generally stated
as being approximately 9,600,000 km2 (3,700,000 sq mi). Specific area figures range from
9,572,900 km2 (3,696,100 sq mi) is according to the Encyclopedia Britannica, 9,596,961 km2
(3,705,407 sq mi) according to the UN Demographic Yearbook, to 9,596,961 km2 (3,705,407 sq
mi) according to the CIA World Fact book.

China has the longest combined land border in the world, measuring 22,117 km (13,743 mi)
from the mouth of the Yalu River to the Gulf of Tonkin. China borders 14 nations, more than any
other country except Russia, which also borders 14. China extends across much of East Asia,
bordering Vietnam, Laos, and Myanmar (Burma) in Southeast Asia; India, Bhutan, Nepal,
Afghanistan, and Pakistan in South Asia; Tajikistan, Kyrgyzstan and Kazakhstan in Central Asia;
and Russia, Mongolia, and North Korea in Inner Asia and Northeast Asia. Additionally, China
shares maritime boundaries with South Korea, Japan, Vietnam, and the Philippines.

Landscape & Climate

The territory of China lies between latitudes 18° and 54° N, and longitudes 73° and 135° E.
China's landscapes vary significantly across its vast width. In the east, along the shores of the
Yellow Sea and the East China Sea, there are extensive and densely populated alluvial plains,
while on the edges of the Inner Mongolian plateau in the north, broad grasslands predominate.
Southern China is dominated by hills and low mountain ranges, while the central-east hosts the
deltas of China's two major rivers, the Yellow River and the Yangtze River. Other major rivers
include the Xi, Mekong, Brahmaputra and Amur. To the west sit major mountain ranges, most
notably the Himalayas. High plateaus feature among the more arid landscapes of the north, such
as the Taklamakan and the Gobi Desert. The world's highest point, Mount Everest (8,848m), lies
on the Sino-Nepalese border. The country's lowest point, and the world's third-lowest, is the
dried lake bed of Ayding Lake (−154m) in the Turpan Depression.
China's climate is mainly dominated by dry seasons and wet monsoons, which lead to
pronounced temperature differences between winter and summer. In the winter, northern winds
coming from high-latitude areas are cold and dry; in summer, southern winds from coastal areas
at lower latitudes are warm and moist. The climate in China differs from region to region
because of the country's highly complex topography.

A major environmental issue in China is the continued expansion of its deserts, particularly the
Gobi Desert. Although barrier tree lines planted since the 1970s have reduced the frequency of
sandstorms, prolonged drought and poor agricultural practices have resulted in dust storms
plaguing northern China each spring, which then spread to other parts of east Asia, including
Korea and Japan. China's environmental watchdog, SEPA, stated in 2007 that China is losing
4,000 km2 (1,500 sq mi) per year to desertification. Water quality, erosion, and pollution control
have become important issues in China's relations with other countries. Melting glaciers in the
Himalayas could potentially lead to water shortages for hundreds of millions of people.

Biodiversity

China is one of 17 megadiverse countries, lying in two of the world's major ecozones: the
Palearctic and the Indomalaya. By one measure, China has over 34,687 species of animals and
vascular plants, making it the third-most biodiverse country in the world, after Brazil and
Colombia. The country signed the Rio de Janeiro Convention on Biological Diversity on 11 June
1992, and became a party to the convention on 5 January 1993. It later produced a National
Biodiversity Strategy and Action Plan, with one revision that was received by the convention on
21 September 2010.

China is home to at least 551 species of mammals (the third-highest such number in the world),
1,221 species of birds (eighth), 424 species of reptiles (seventh) and 333 species of amphibians
(seventh). China is the most biodiverse country in each category outside the tropics. Wildlife in
China share habitat with and bear acute pressure from the world's largest population of homo
sapiens. At least 840 animal species are threatened, vulnerable or in danger of local extinction in
China, due mainly to human activity such as habitat destruction, pollution and poaching for food,
fur and ingredients for traditional Chinese medicine. Endangered wildlife is protected by law,
and as of 2005, the country has over 2,349 nature reserves, covering a total area of 149.95
million hectares, 15 percent of China's total land area.

China has over 32,000 species of vascular plants, and is home to a variety of forest types. Cold
coniferous forests predominate in the north of the country, supporting animal species such as
moose and Asian black bear, along with over 120 bird species. The understory of moist conifer
forests may contain thickets of bamboo. In higher montane stands of juniper and yew, the
bamboo is replaced by rhododendrons. Subtropical forests, which are predominate in central and
southern China, support as many as 146,000 species of flora. Tropical and seasonal rainforests,
though confined to Yunnan and Hainan Island, contain a quarter of all the animal and plant
species found in China. China has over 10,000 recorded species of fungi, and of them, nearly
6,000 are higher fungi.

Environmental issues

In recent decades, China has suffered from severe environmental deterioration and
pollution.While regulations such as the 1979 Environmental Protection Law are fairly stringent,
they are poorly enforced, as they are frequently disregarded by local communities and
government officials in favor of rapid economic development. Urban air pollution is a severe
health issue in the country; the World Bank estimated in 2013 that 16 of the world's 20 most-
polluted cities are located in China. China is the world's largest carbon dioxide emitter. The
country also has significant water pollution problems: 40% of China's rivers had been polluted
by industrial and agricultural waste by late 2011. In 2014, the internal freshwater resources per
capita of China reduced to 2,062m3, and it was below 500m3 in the North China Plain, while
5,920m3 in the world.

However, China is the world's leading investor in renewable energy and its commercialization,
with $52 billion invested in 2011 alone; it is a major manufacturer of renewable energy
technologies and invests heavily in local-scale renewable energy projects. By 2015, over 24% of
China's energy was derived from renewable sources, while most notably from hydroelectric
power: a total installed capacity of 197 GW makes China the largest hydroelectric power
producer in the world. China also has the largest power capacity of installed solar photovoltaics
system and wind power system in the world. In 2011, the Chinese government announced plans
to invest four trillion yuan (US$619 billion) in water infrastructure and desalination projects over
a ten-year period, and to complete construction of a flood prevention and anti-drought system by
2020. In 2013, China began a five-year, US$277 billion effort to reduce air pollution, particularly
in the north of the country.
Socio-economic information
In the past 60 years, under the leadership of the Central Government, China made much headway
in socio-economic development. A historic jump has been made from a society of having only
adequate food and clothing to a well-off society. With improved socio-economic situation, China
now plays a better role in the international community.

Comprehensive National Strength Becomes Stronger

At the time of it's founding, the People's Republic of China was poor and weak. Thanks to
unremitting efforts made in the past 60 years, however, China's comprehensive national strength
has grown noticeably.

China followed the socialist planned economy. In the 30 years, China has moved from an
agricultural country to an initially industrialized country. China successfully undertook 156 large
industrial projects, and succeeded in producing atomic bomb, hydrogen bomb and artificial
satellite. China's economic and social development has ranked among the highest in the world.
During this period, China's foreign exchange reserves have made a historic change from shortage
to abundance.

Economy Develops at a High Growth Rate

Before the founding of the People's Republic of China in 1949, China's agricultural economic
system featured private feudal land ownership. Landlords and rich peasants, who accounted for
less than 10 percent of the agricultural population, owned more than 70 percent of the arable
land, while the poor and lower and middle peasants, who accounted for 90 percent of the
agricultural population, possessed less than 30 percent of the cultivated land. Under the system,
the agricultural production was at a very low level, resulting in an acute shortage of the main
farm produce. After the founding of the People's Republic of China, the agrarian reform was
undertaken throughout the country from 1950 to 1952 and the feudal land ownership was
abolished. This fired the enthusiasm of the peasants for production, and agricultural production
developed rapidly.

In 1949, China's industrial foundation. In the early days of the People's Republic of China, the
output of steel, crude oil and electric power generation ranked only 26th, 27th and 25th
respectively in the world. From 1949 to 2008, however, the output of cotton yarn increased from
327,000 tons to 21.489 million tons, sugar from 200,000 tons to 14.495 million tons, crude oil
from 120,000 tons to 190 million tons, and raw coal from 32 million tons to 2.793 billion tons
respectively. Nowadays, the output of China's manufacturing industry as a percentage of the
world total had surpassed 9 percent to become the third largest. In 2006, the output of 172
categories of Chinese products ranked first in the world. About 70 percent of DVD and toys, 50
percent of telephone sets and shoes, one-third or more of color TVs and bags and suitcases are
made in China.
Over the past 60 years, a series of breakthroughs have been made in such fields as space
technology, nuclear generation technology, high performance computing technology, and
manufacture technology of complete set of equipment in heavy machinery, numerical control
machine tool and third generation mobile communications technology as well. In the last five
years, the added value of hi-tech industry increased at a rate twice as faster as that of the GDP
growth. From 2000 to 2007, the export volume of hi-tech products increased at an annual
average rate of 38 percent, which account for some 20 percent of international market share. The
output of mobile telephone, antibiotics and bacteria rank first in the world.

From Closed Door to Opening to the Outside World

In the past China conducted economic and cultural exchanges only with the former Soviet Union
and socialist countries in Eastern Europe. Today, however, China is doing so with over 220
countries and regions in the world. China today opens wider to the outside world.

From a Society of having Only Adequate Food and Clothing to a Well-off Society

In the past 60 years of the founding of the People's Republic of China, especially in the past 30
years of the introduction of the reform and opening-up policy, China's national economy
developed rapidly. And with the constantly improved living standards of the people in the urban
and rural areas, remarkable changes have happened in the respect of the consumption level,
pattern and environment.

Poor Social Development Making Way for Coordinated Socio-Economic Development

China has over the past 60 years greatly built up its economic might. In the 21st century, the pace
of socio-economic development quickens pace in China.

Great progress has been made in educational undertakings, with the educational popularization
rate and the level of education approaching the average of medium-income countries. In the early
1950s, illiterates and semi-illiterates made up over 60 percent o the total population of China,
and the attendance rate of school-age children was 20 percent in the country. In 2007, the gross
attendance rate of schools of higher learning, high schools, middle schools and primary schools
reached 23 percent, 66 percent, 98 percent and 99.5 percent respectively. In addition, polytechnic
and vocational schools develop apace, churning out close to 5 million graduates each year.

Competitive sports see breakthrough and develop apace. The International Olympic Committee
restored China's legal status in the international Olympic family in Nagoya in November 1979.
In 1984 China attended for the first time the LA Olympic Games, wining its first gold medals. In
the 2008 Beijing Olympic Games, China was number one in terms of gold medals won, and
ranked second in terms of total medals won. At the Beijing Paralympic Games, China emerged
as number one in terms of gold medals won and total number of medals won.
Political information
The People's Republic of China is a socialist state with the people's democratic dictatorship led
by the working class and based on the alliance of workers and peasants. It is necessary to
understand this underlying nature of Chinese politics in order to analyze the Chinese political
and regulatory systems as they relate to foreign business. These underlying socialist principles
remain core to the Chinese culture and are not affected by the globalization that the Chinese
government has strongly promoted. China’s leadership is likely to continue the process of
regulating financial and political affairs to meet WTO (World Trade Organization) norms.

China's constitution states that The People's Republic of China "is a socialist state under the
people's democratic dictatorship led by the working class and based on the alliance of workers
and peasants," and that the state organs "apply the principle of democratic centralism." The PRC
is one of the world's few remaining socialist states openly endorsing communism (see Ideology
of the Communist Party of China). The Chinese government has been variously described as
communist and socialist, but also as authoritarian and corporatist, with heavy restrictions in
many areas, most notably against free access to the Internet, freedom of the press, freedom of
assembly, the right to have children, free formation of social organizations and freedom of
religion. Its current political, ideological and economic system has been termed by its leaders as
the "people's democratic dictatorship", "socialism with Chinese characteristics" (which is
Marxism adapted to Chinese circumstances) and the "socialist market economy" respectively.

Communist party

China's constitution declares that the country is ruled "under the leadership" of the Communist
Party of China (CPC). As China is a de facto one-party state, the General Secretary (party leader)
holds ultimate power and authority over state and government serving as the paramount leader.
The electoral system is pyramidal. Local People's Congresses are directly elected, and higher
levels of People's Congresses up to the National People's Congress (NPC) are indirectly elected
by the People's Congress of the level immediately below. The political system is decentralized,
and provincial and sub-provincial leaders have a significant amount of autonomy. Another eight
political parties, have representatives in the NPC and the Chinese People's Political Consultative
Conference (CPPCC). China supports the Leninist principle of "democratic centralism", but
critics describe the elected National People's Congress as a "rubber stamp" body.

Government

The President of China is the titular head of state, serving as the ceremonial figurehead under
National People's Congress. The Premier of China is the head of government, presiding over the
State Council composed of four vice premiers and the heads of ministries and commissions. The
incumbent president is Xi Jinping, who is also the General Secretary of the Communist Party of
China and the Chairman of the Central Military Commission, making him China's paramount
leader. The incumbent premier is Li Keqiang, who is also a senior member of the CPC Politburo
Standing Committee, China's de facto top decision-making body.

There have been some moves toward political liberalization, in that open contested elections are
now held at the village and town levels. However, the Party retains effective control over
government appointments: in the absence of meaningful opposition, the CPC wins by default
most of the time. Political concerns in China include the growing gap between rich and poor and
government corruption. Nonetheless, the level of public support for the government and its
management of the nation is high, with 80–95% of Chinese citizens expressing satisfaction with
the central government, according to a 2011 survey.

Administrative divisions

The People's Republic of China is divided into 22 provinces, five autonomous regions, each with
a designated minority group; four municipalities; and two Special Administrative Regions
(SARs) which enjoy a degree of political autonomy. These 31 provincial-level divisions can be
collectively referred to as "mainland China", a term which usually excludes two SARs of Hong
Kong and Macau. Geographically, all 31 provincial divisions can be grouped into six regions,
including North China, Northeast China, East China, South Central China, Southwest China and
Northwest China.

China considers Taiwan to be its 23rd province, although Taiwan is governed by the Republic of
China, which disputes the PRC's claim. None of the divisions are recognized by the ROC
government, which claims the entirety of the PRC's territory.

Foreign relations

The PRC has diplomatic relations with 175 countries and maintains embassies in 162. Its
legitimacy is disputed by the Republic of China and a few other countries; it is thus the largest
and most populous state with limited recognition. In 1971, the PRC replaced the Republic of
China as the sole representative of China in the United Nations and as one of the five permanent
members of the United Nations Security Council. China was also a former member and leader of
the Non-Aligned Movement, and still considers itself an advocate for developing countries.
Along with Brazil, Russia, India and South Africa, China is a member of the BRICS group of
emerging major economies and hosted the group's third official summit at Sanya, Hainan in
April 2011.

Much of current Chinese foreign policy is reportedly based on Premier Zhou Enlai's Five
Principles of Peaceful Coexistence, and is also driven by the concept of "harmony without
uniformity", which encourages diplomatic relations between states despite ideological
differences. This policy may have led China to support states that are regarded as dangerous or
repressive by Western nations, such as Zimbabwe, North Korea and Iran. China has a close
economic and military relationship with Russia, and the two states often vote in unison in the UN
Security Council.

Trade relations

In recent decades, China has played an increasing role in calling for free trade areas and security
pacts amongst its Asia-Pacific neighbors. China became a member of the World Trade
Organization (WTO) on 11 December 2001. In 2004, it proposed an entirely new East Asia
Summit (EAS) framework as a forum for regional security issues. The EAS, which includes
ASEAN Plus Three, India, Australia and New Zealand, held its inaugural summit in 2005. China
is also a founding member of the Shanghai Cooperation Organization (SCO), along with Russia
and the Central Asian republics.

In 2000, the United States Congress approved "permanent normal trade relations" (PNTR) with
China, allowing Chinese exports in at the same low tariffs as goods from most other countries.
China has a significant trade surplus with the United States, its most important export market. In
the early 2010s, US politicians argued that the Chinese yuan was significantly undervalued,
giving China an unfair trade advantage. In recent decades, China has followed a policy of
engaging with African nations for trade and bilateral co-operation; in 2012, Sino-African trade
totaled over US$160 billion. China has furthermore strengthened its ties with major South
American economies, becoming the largest trading partner of Brazil and building strategic links
with Argentina.

Territorial disputes

Ever since its establishment after the second Chinese Civil War, the PRC has claimed the
territories governed by the Republic of China (ROC),which is a separate political entity today
commonly known as Taiwan, as a part of its territory. It regards the island of Taiwan as its
Taiwan Province, Kinmen and Matsu as a part of Fujian Province and islands the ROC controls
in the South China Sea as a part of Hainan Province and Guangdong Province. These claims are
controversial because of the complicated Cross-Strait relations, with the PRC treating the One-
China policy as one of its most important diplomatic principles.

In addition to Taiwan, China is also involved in other international territorial disputes. Since the
1990s, China has been involved in negotiations to resolve its disputed land borders, including a
disputed border with India and an undefined border with Bhutan. China is additionally involved
in multilateral disputes over the ownership of several small islands in the East and South China
Seas, such as the Senkaku Islands and the Scarborough Shoal. On 21 May 2014 Xi Jinping,
speaking at a conference in Shanghai, pledged to settle China's territorial disputes peacefully.
"China stays committed to seeking peaceful settlement of disputes with other countries over
territorial sovereignty and maritime rights and interests", he said.
Economic analysis & China’s performance indicators
Purpose of an economic analysis

The performance of the economy is important to all of us. We analyze the macro economy by
primarily looking at national output, unemployment and inflation. Although it is consumers who
ultimately determine the direction of the economy, governments also influence it through fiscal
and monetary policy.

Macro performance

Economic growth soared in the last few decades mainly due to the country’s increasing
integration into the global economy and the government’s bold support for economic activity.
However, the successful economic model that lifted hundreds of millions out of poverty and
fueled the country’s astonishing economic and social development has also brought many
challenges. Severe economic imbalances, mounting environmental issues, rising economic
inequality and an aging population are the key questions that the new administration lead by
President Xi Jinping will have to tackle in the near future in order to ensure the country’s
sustainability.

Fiscal Policy of China

Before 1978, China had a highly centralized fiscal system, which mainly reflected the country’s
planned economic system. The central government collected all revenues and allocated all the
spending of the administration and public institutions. In parallel with the reforms implemented
in the country for Deng Xiaoping, the government started to decentralize the fiscal system.

In 1994, the government launched a bold fiscal reform in order to struggle against a rapid decline
in the tax/GDP ratio, which dampened the government’s ability to conduct macroeconomic and
redistribution policies. The flagship of the reform was a new taxation system and the adoption of
a tax-sharing scheme, where the most lucrative sources of tax revenues, such as the Value-Added
Tax and the Enterprise Income Tax, were administered by the central government.

The result of this reform was a steady increase in revenues, which jumped from 10.8% of GDP
in 1994 to 22.7% of GDP in 2013. While expenditures followed suit and increased at a double-
digit rate in the same period, the fiscal deficit was kept in check. In the 1994-2013 period, the
government’s fiscal deficit averaged 1.4% of GDP.

The new system, however, left local governments with fewer sources of revenue. As a result they
had to rely on land sales and indirect borrowing (mostly so-called “shadow banking”) to finance
their activity. In addition, local governments put in place off-budget local government financing
vehicles to raise funds and finance investment projects.
Although debt is still at manageable levels, an increase in the reliance on shadow banking and
the rapid pace of debt accumulation is worrisome. In an effort to increase revenue sources for
local governments, in August 2014, the National People’s Congress passed amendments to the
budget law, allowing provincial government to issue bonds directly and increase transparency.
This move paves the way for local governments to raise debt in the bond market.

China’s government debt is almost entirely denominated in local currency and owned by
domestic institutions. In addition, the government has cash savings equivalent to 6% of GDP in
the People’s Bank of China. This situation shields the economy against government debt crises.
In 2015, public debt amounted to 15.6% of GDP.

Monetary Policy of China

Under the guidance of the State Council, the People’s Bank of China (PBOC) formulates and
implements monetary policy, prevents and resolves financial risks, and safeguards financial
stability. The PBOC’s main objectives are: ensuring domestic price stability, managing the
exchange rate and promoting economic growth. At the beginning of each year, the State Council
establishes guiding targets for GDP, the Consumer Price Index (CPI), money supply (M2) and
credit growth. The PBOC’s policy rate is the one-year lending rate. The Central Bank recently
vowed to maintain a “prudent” monetary policy while conducting policy fine-tuning at an
appropriate time during the National People’s Congress (NPC) in March of 2016.

The Central Bank manages money supply through Open Market Operations (OMO), which are
conducted with both domestic and foreign currencies and comprise repo and reverse repo,
government securities and PBOC bills. The Bank also uses the reserve requirement ratio to
influence lending and liquidity. Other instruments that the Central Bank uses to manage and
adjust liquidity in the banking system are short-term loans, short-term liquidity and standing
lending facility operations.

The agenda of China’s top authorities include bold reforms on interest rate and monetary policy
management in order to adopt a more market-driven approach.

Exchange rate policy of China

The IMF labels China’s exchange rate regime as a crawl-like arrangement. The speed and
direction of the crawling peg is decided by Chinese authorities according to domestic and
international economic developments. The PBOC classifies its regime as a managed floating
exchange rate regime based on market supply and demand with reference to an undisclosed
basket of currencies. The U.S. dollar is likely to represent a large stake of the basket. The yuan
fluctuates in an intraday trading band around an official midpoint rate. On 15 March 2014, the
PBOC widened the trading band from +/-1 to +/-2.
From 1995 to 2005, China kept its currency fixed versus the U.S. dollar at around 8.28 CNY per
USD. This was the case until 2005, when it switched to a managed float of the currency to

facilitate a controlled appreciation of the CNY. However, in the wake of the global financial
crisis, China pegged its currency to the USD at 6.82 CNY per USD from June 2008 to June
2010.Since then, the PBOC has made a number of revaluations to the currency in order to bring
it closer to it market value.

While the Chinese yuan is freely convertible under the current account, it remains strictly
regulated in the capital account. Chinese authorities expressed their willingness to allow the yuan
to be fully convertible in the near future.

Chinese authorities are gradually enhancing the use of the currency in other parts of the world in
order to promote the yuan as a global reserve currency. Although the process is far from being
completed, China has already established trade settlements with selected countries and launched
a series of currency swap agreements with more than 20 central banks. In addition, China is
rapidly expanding the yuan’s offshore market. The opening up of the country’s capital market
will be a crucial step in the yuan’s journey to becoming a major reserve currency.

Trade performance of China

China has experienced uninterrupted trade surpluses since 1993. Total trade multiplied by nearly
100 to USD 4.2 trillion in only three decades and, in 2013, China surpassed the United States as
the world’s biggest trading nation.

The opening of the country and the government’s massive investment programs have prompted
the country to become a major manufacturing hub. This situation fostered trade growth,
particularly after China joined the World Trade Organization in 2001. As an economy highly
integrated into the global trade system, the country benefited from a steady improvement in its
terms of trade since 2000. However, the global economic downturn in 2008-2009 led the country
to reduce manufacturing output, thus dragging on China’s trading sector.

Moreover, the country has engaged in several bilateral and multilateral trade agreements that
have opened new markets for its products. In 2003, China signed the Closer Economic
Partnership Arrangement with Hong Kong and Macau. A Free Trade Agreement (FTA) between
China and the ASEAN nations came into effect on January 2010, which created the world’s third
largest free trade area in terms of nominal GDP. China also established, among others, FTA with
countries such as, Australia, Chile, Costa Rica, Korea, Pakistan, Peru, New Zealand, and
Singapore. Moreover, there are other FTAs under negotiation with the Gulf Cooperation
Council, Japan, Norway and Sri Lanka.
Exports from China

Electronics and machinery make up around 55% of total exports, garments account for 13% and
construction material and equipment represent 7%. Sales to Asia represent over 40% of total
shipments, while North America and Europe have an export share of 24% and 23%, respectively.
Although exports to Africa and South America expanded rapidly, they only account for 8% of
total shipments.

Due to favorable global trade conditions and China’s accession to the World Trade Organization
in December 2001, the country has experienced an astonishing growth of 26.9% annually in real
goods and services exports during the 2002-2008 period. Imports to China

Imports of China

In order to supply factories and support China’s rapid development, the country’s imports are
mostly dominated by intermediate goods and a wide range of commodities, including oil, iron
ore, copper and cereals. China’s soaring demand for raw materials pushed global commodity
prices up leading up to 2015, thereby boosting the coffers of many developing nations and
commodity-exporting economies. However, since the end of the commodities super cycle at the
end of 2014, global commodities prices have fallen partially due to a decrease in demand from
China. The acceleration that many of those same developing and commodity-exporting
economies experienced has dramatically decreased since the end of 2015.

Supply of imports into China is mostly dominated by Asian countries, with a combined share of
around 30% of total imports. Purchases from Europe and the U.S. account for 12% and 8%,
respectively. As a major global buyer of commodities, imports from Africa, Australia, the
Middle East and South America have increased strongly in the last decade to represent a
combined share of around 50%.

As the construction boom fades in China, fewer natural resources are demanded. This has pulled
down global prices for base metals, energy products, as well as other resources. Imports
contracted a sharp 14.3% in 2015 as the Chinese economy adjusted to its new growth dynamics.

Investment

Investment (annual variation in percentage)

Years 2012 2013 2014 2015 2016

Investment 20.6 19.6 15.7 10.0 8.1
Production and resource structure
Major Resources

 Land resources

China’s land resources exhibit the following basic features: The land resources are large in
absolute terms but small on a per-capita basis. There are more mountains than plains, with
cultivated land and forests constituting small proportions. Various types of land resources are
unevenly distributed among different regions. The cultivated land is mainly in plains and basins
in the monsoon regions of east China, while forests are mostly found in the remote mountainous
areas in the northeast and the southwest. Grasslands are chiefly distributed on inland plateaus
and in mountains.

 Cultivated land

According to the Agricultural Census in 1996, China has 130.04 million hectares of cultivated
land and 35.35 million hectares of land suitable for agricultural uses. The cultivated land is
mainly distributed in the Northeast China, North China and Middle-Lower Yangtze plains, the
Pearl River Delta and the Sichuan Basin.

 Forests

The sixth national enumeration of forest resources (1999-2003) showed that China’s total forest
area was 175 million hectares, and its forest coverage rate was 18.21 percent. The total standing
stock volume of China was 13.62 billion cubic meters. The stock volume of its forests stood at
12.46 billion cubic meters. Natural forests are concentrated in the northeast and the southwest,
but scarce in the densely inhabited and economically developed eastern plains and the vast
northwestern region. The forests in China are rich in tree species, with the number of arbor
species alone exceeding 2,800. Rare and peculiar species include ginkgo and metasequoia (dawn
redwood). In order to conserve environment and meet the needs of economic development,
China has launched large-scale afforestation campaigns. The area of planted forests has reached
33.79 million hectares, accounting for 31.86 percent of the nation’s total forest area, making
China a country with the largest area of planted forests in the world.

 Grasslands

China has 400 million hectares of grassland, with those of economic value accounting for 313.33
million hectares. China is one of the countries with the largest area of grassland in the world.
Natural grassland is mainly distributed in areas west and north of the Greater Hinggan
Mountains, the Yinshan Mountain and the eastern foot of the Qinghai-Tibet Plateau, while
artificial grassland is concentrated in southeast China where it lies amid cultivated land and
forests.
  Water resources

China ranks in the forefront worldwide in terms of the number of rivers and lakes.Because most
of the main rivers originate from the Qinghai-Tibet Plateau with big falls, China has abundant
waterpower resources, with its total reserves amounting to 680 million kw, ranking first in the
world. However, the waterpower resources are unevenly distributed, with 70 percent found in
southwest China. The Yangtze River system has the most waterpower resources, which account
for nearly 40 percent of the national total, followed by the Yarlung Zangbo River system. The
Yellow and Pearl river systems also abound in waterpower resources.

 Mineral resources

China has abundant mineral resources. A total of 171 kinds of minerals have so far been
discovered, of which 158 have proven reserves. These include 10 kinds of energy mineral
resources such as petroleum, natural gas, coal and uranium; 54 kinds of metallic mineral
resources such as iron, manganese, copper, aluminum, lead and zinc; 91 kinds of nonmetallic
mineral resources such as graphite, phosphorus, sulfur and sylvine; and three kinds of water and
gas mineral resources such as underground water and mineral water. Currently, the supply of
over 92 percent of China’s primary energy, 80 percent of its industrial raw materials and more
than 70 percent of its agricultural means of production come from mineral resources.

Energy Mineral Resources: China boasts rich energy mineral resources, but the structure of these
types of resources is not ideal, with coal making up a large proportion while petroleum and
natural gas constituting relatively small proportions.

Coal resources demonstrate such features as: huge reserves and complete varieties but uneven
distribution among different grades, with small reserves of high-quality coking coal and
anthracite coal; wide distribution but a great disparity in abundance for different deposit
locations, with large reserves in western and northern regions and small reserves in eastern and
southern regions; a small number of surface coalmines, most of which are lignite mines; and
great varieties of associated minerals existing in coal seams.

Oil and gas resources have the following features: large oil reserves, which make China one of
the 10 countries in the world with more than 15 billion tons of exploitable oil reserves; low
proven rate, with verified onshore reserves accounting for only one fifth of the total and the
proven rate for offshore reserves being even lower; and concentrated distribution, with 73
percent of the total oil resources distributed in 14 basins each covering an area of 100,000 square
km and more than 50 percent of the nation’s total natural gas resources distributed in central and
western regions.
Metallic Mineral Resources: China is among the countries with rich metallic mineral resources.
It has proven reserves, more or less, of all kinds of metallic mineral resources that have so far
been discovered worldwide. Of these, the proven reserves of tungsten, tin, antimony, rare earth,
tantalum and titanium rank first in the world; those of vanadium, molybdenum, niobium,
beryllium and lithium rank second; those of zinc rank fourth; and those of iron, lead, gold and
silver rank fifth.

Metallic mineral resources feature wide distribution with relatively concentrated deposits in
several regions. For instance, iron deposits are mainly found in three areas—Anshan-Benxi (in
Liaoning Province), north Hebei Province and Shanxi Province. Bauxite reserves are mainly
distributed in Shanxi, Henan and Guizhou provinces and Guangxi Zhuang Autonomous Region.
Tungsten deposits are chiefly distributed in provinces of Jiangxi, Hunan and Guangdong, and tin
deposits in Yunnan, Guangdong and Hunan provinces and Guangxi Zhuang Autonomous
Region.

Some of China’s metallic minerals such as tungsten, tin, molybdenum, antimony and rare earth
have large reserves, and are of high quality and competitive in world markets. However, many
important metallic minerals such as iron, manganese, aluminum and copper are of poor quality,
with ores lean and difficult to smelt. Most of the metallic mineral deposits are small or medium-
sized, whereas large and super-large deposits account for a small proportion.

Nonmetallic Mineral Resources: China is one of the few countries in the world that have a
relatively complete range of nonmetallic mineral resources. Currently, there are more than 5,000
nonmetallic mineral ore production bases with proven reserves in China.

Most of the nonmetallic mineral resources in China have large proven reserves. Of them, the
proven reserves of magnesite, graphite, fluorite, talc, asbestos, gypsum, barite, wollastonite,
alunite, bentonite and rock salt (halite) are among the largest in the world, while those of
phosphorus, kaolin, pyrite, mirabilite, tripolite, zeolite, pearlite and cement limestone hold major
positions. Some natural stone materials such as marble and granite in China are of high quality,
with rich reserves. However, China is relatively deficient in reserves of sylvine and boron. Water
and Gas Mineral Resources: Proven natural underground water resources in China amount to 870
billion cubic meters per year, of which 290 billion cubic meters are exploitable. The natural
underground brackish water resources in China stand at 20 billion cubic meters per year.
However, China’s underground water resources are not evenly distributed, with the southern
region rich, and northern and western regions poor. Underground water aquifer types vary from
region to region. North China has a wide distribution of underground water resources via pore
aquifers, while its southwestern region sees wide distribution of Karst water resources.

 Marine Sources

China boasts abundant marine resources. Scattered in the offshore waters are sedimentation
basins, with a total area of nearly 700,000 square km, estimated to contain about 24 billion tons
of oil reserves and 14 trillion cubic meters of natural gas. Fishing grounds in China’s territorial
seas cover 2.8 million square km. There are 2.6 million hectares of shallow seas, with a depth of
20 meters or below, suitable for aquaculture, of which 710,000 hectares have already been used
for this purpose. Of the 2.42 million hectares of tidal lands suitable for aquaculture, 550,000
hectares have been used for the purpose. China has obtained a poly-metallic nodule deposit area
of 75,000 square km in the international seabed region, with poly-metallic nodule reserves
exceeding 500 million tons.

 Salt fields

China has more than 50 salt fields along its coast, with a combined area of 337,000 hectares. Sea
salt constitutes over 70 percent of China’s total production of crude salt.

Major Companies

The major companies in China are given on the next page.

Competitive Advantages

There are many factors why many companies and/or investors are interested in the seemingly
limitless potential of the China market. Today, China has distinct competitive advantages that
edges its rival countries in the global market. Among the BRICS economies, China accounted for
a majority of the foreign direct investment (FDI) inflows in 2013, at a hefty 46%. This figure is
expected to increase further as the tireless economy of China continues to surge forward. This
article will explore some of the reasons to invest in China and their interest in gaining entry into
the world largest market.

 Reforms

The ruling government, the Communist Party of China (CPC) has sought improvements through
market-oriented reforms that started back in 1978. These economic reforms was spearheaded by
the Chinese leader Deng Xiaoping and several leaders. The changes were very successful and
introduced market principles and policies that resulted in remarkable economic growth for
decades to come.

 Political stability

Despite having suffered from much political instability in the past, political risk in China now is
comparatively low due to the single party political system. Research have shown that the
Chinese are generally happy and satisfied with the country. As China continues to push forward
in the global market, it is undoubted that the ruling CPC will introduce favorable measures to
reinforce its political and social stability.

 Market size

According to statistics by the World Bank, the population of China stands at 1.351 billion in
2012, firmly holding the top spot. China is also ranked number four in terms of land mass. A
large population with the availability of land means a potentially large market. In addition, China
has a rapidly rising middle class that already exceeds the entire population of the United States,
and expected to hit more than 800 million within the next 15 years, China presents a huge
potential for would-be investors.

 Economy

Mentioned earlier, reforms that began in 1978 have led to unprecedented economic growth in
China. Since then, the economy of China has grown more than 90 times and surpassed Japan as
the world second largest economy in 2010. The robust economy has also managed to weather
through global economic downturns, witnessing consistent growth instead. Analysts predicts that
China will overtake U.S as the largest economy in the world by 2027.
  Lifestyle

In a Confucian society like China, there are consumers willing to pay for premium product or
service, especially with an improving lifestyle. Investors should take note on the market potential
as the spending power of the Chinese continues to increase. Quartz reported that Chinese tourists
will be spending more on luxury goods than the entire world combined by 2015. In fact, it has
been reported a majority of Chinese are actually unsatisfied with the service received when
travelling. The Chinese are also getting richer, with the middle class population projected to
increase to 51% from 6% in a decade.

 Internet

Leveraging the use of the Internet can remove barriers in gaining access to the China market. In
recent years, there has been a surge in the Internet population of China, which is set to reach 800
million users by 2015. Weibo, the largest social networking platform in China, has an astounding
600 million user base with more than 60 million active users daily as of 2013. Social media has
undoubtedly become an effective and necessary marketing entry tool in this increasingly
globalized but ‘smaller’ world.

 Labor

Many companies choose to relocate operations to China due to the comparatively cheaper and
readily available labour. For example, the infamous Foxconn has more than a dozen factories in
China, churning out products for global brands such as Apple, Blackberry and Sony. Despite
being a sought-after destination for cheap labour, the literacy rate of China is also improving as
well. Millions of students graduate from universities countrywide annually and are beginning to
embrace English as their second language of choice. This diminishes the language barrier and
increases the pool of an educated workforce to tap into.

 Transportation

China has developed their transportation and infrastructure since late 1970s. Improved
transportation has led to a booming travel and air cargo industry in the country. According to
Boeing in 2012, air traffic is expected to grow rapidly, doubling over the next 20 years and with
China leading the industry. Improved transportation has spurred travel within China and
encouraged outbound tourism. In addition to air transportation, China has an extensive and
highly connected network of roads, highways and railways (more than 98,000 km!). According
to the Rail Journal, the Chinese government is targeting a massive increase of the rail network to
120,000 kilometers by 2020.

Location Advantages

The geography of Ancient China shaped the way the civilization and culture developed. The
large land was isolated from much of the rest of the world by dry deserts to the north and west,
the Pacific Ocean to the east, and impassable mountains to the south. This enabled the Chinese to
develop independently from other world civilizations.

 Rivers

Perhaps the two most important geographical features of Ancient China were the two major
rivers that flowed through central China: the Yellow River to the north and the Yangtze River to
the south. These major rivers were a great source of fresh water, food, fertile soil, and
transportation. They also were the subjects of Chinese poetry, art, literature, and folklore.

Yellow River

The Yellow River is often called the "cradle of Chinese civilization". It was along the banks of
the Yellow river where the Chinese civilization first formed. The Yellow River is 3,395 miles
long making it the sixth longest river in the world. It is also called the Huang He River. Early
Chinese farmers built small villages along the Yellow River. The rich yellow colored soil was
good for growing a grain called millet. The farmers of this area also raised sheep and cattle.

Yangtze River

The Yangtze River is south of the Yellow River and flows in the same direction (west to east). It
is 3,988 miles long and is the third longest river in the world. Just like the Yellow River, the
Yangtze played an important role in the development of the culture and civilization of Ancient
China. Farmers that lived along the Yangtze River took advantage of the warm climate and rainy
weather to grow rice. Eventually the land along the Yangtze became some of the most important
and wealthy land in all of Ancient China. The Yangtze also served as a boundary between
northern and southern China. It is very wide and difficult to cross. The famous Battle of Red
Cliffs took place along the river.

 Mountains

To the south and southeast of China are the Himalaya Mountains. These are the highest
mountains in the world. They provided a nearly impassable border for Ancient China, keeping
the area isolated from many other civilizations. They were also important to Chinese religion and
were considered sacred.

 Deserts

To the north and west of Ancient China were two of the world's largest deserts: the Gobi Desert
and the Taklamakan Desert. These deserts also provided borders that kept the Chinese isolated
from the rest of the world. The Mongols, however, lived in the Gobi Desert and were constantly
raiding cities of northern China. This is why the Great Wall of China was built to protect the
Chinese from these northern invaders.
Interesting Facts about the Geography of Ancient China

 Today the Three Gorges Dam on the Yangtze River serves as the world's largest hydro-
electric power source.
 The Yellow River also has the name "China's Sorrow" because of the terrible floods that
have occurred throughout history when its banks overflowed.
 The Taklamakan Desert has the nickname of the "Sea of Death" because of its
temperature extremes and poisonous snakes.
 Much of the Silk Road traveled along the deserts to the north and west of China.
 The religion of Buddhism is closely associated with the Himalaya Mountains.

Bordering nations

China is at the core of a cultural sphere or region known as East Asia. Looking at the map of
bordering nations, it is possible to identify China's neighbors, some of which received substantial
cultural influence from China. China, Korea, Japan, and Vietnam historically form the East
Asian or Sinitic cultural sphere.

The large number of countries with which China shares borders makes Chinese foreign policy
especially complex (unlike the U.S., for example which shares borders only with Canada and
Mexico).

Human Capital Advantages

In thirty years of reform and opening up, China’s economy has achieved to sustain a nearly
double-digit growth on average, and increase the GDP per capita from $190 in 1978 to $5,432 in
2011. In three decades, China has entered the group of middle income countries, and in 2010,
surpassed Japan as the world’s second largest economy.

China’s economic success is largely due to reforms that created favourable incentives and
unleashed productive forces. A favourable demographic structure and adequate labour supply
also contributed, as did a high level of capital accumulation and the implementation of an
exportoriented economic strategy.

However, some of the factors that have been supporting China’s rapid economic growth are
changing. China is now facing a rapid population ageing, overinvestment is creating excess
production capacity and the demand from world markets is becoming sluggish. Can China’s
growth miracle still continue? Can China successfully enter the ranks of high income countries?
The answer lies in China’s current and future ability to have higher and more equitable
investments in human capital.

In the past thirty years, China’s level of human capital has improved sharply, but there is still a
big gap with developed countries. One of the particularly acute challenges China faces is that of
early childhood development. For example, between 1980 and 2010, China’s average life
expectancy rose from 66 years to 73.5 years, and the average number of years of schooling
increased from 3.78 to 7.55 years. Between 1990 and 2010 the prevalence of stunting growth
among children under age 5 declined from 33.1% to 9.9%, and the rate of anemia among rural
children between under 24 months decreased from 38.7% to 20.8%. These achievements are very
significant, but still insufficient to support the need for upgrading the industrial structure and
economic restructuring in China’s future.

Moreover, these national average data obliterate the gap existing between urban and rural areas,
yet this gap is difficult to ignore. A survey conducted by the China Development Research
Foundation found that in 2009, the prevalence of stunting among 6 to 11 months of age children
in poor rural areas was 3.3 times the national average; in Yunnan province’s Xundian County,
children of the same age showed a stunting rate 5.7 times higher than the national average; In
both Qinghai province’s Ledu County and Yunnan province’s Xundian County, the rate of
anemia of the children 12 to 23 months of age were respectively 3.9 and 3.2 times higher than
the national average. The Chinese government has in recent years recognised the importance of
human capital investment, leading to a substantial increase in investments in education, health
care, student nutrition and early childhood development. But for China, a country with
significant different regional disparities, more funding does not suffice to improve human capital
substantially and equitably. What is needed even more are innovative practices in supporting
systems and policies. For example, the Chinese government has committed to ensure that 70% of
children have access to three years of early childhood education by 2020. But a large number of
children in remote and poor areas will be blocked outside the doors of regular kindergartens.

That is why, in poor and remote areas of the western region, the China Development Research
Foundation has been conducting a policy experiment that aims at providing affordable preschool
education through innovative practices, which were partly inspired by discussions around
OECD’s “Starting Strong” series. This “Go Teach” experiment involves teachers that rotate from
one village to another during a week of school to provide pre-school education for poor children
who live in the vicinity. This mobile education system has allowed the local young pupils to
develop cognitive and language skills close to those of children who have access to the regular
kindergartens in China’s cities and towns. It will help to close the gap in early childhood
education, which if not addressed, will affect the development of China’s future human capital
and fuel existing inequalities.

Social Capital Advantages

The key to a country’s successful reform lies in whether it can design a more efficient
institutional supply. When China’s capital formation efficiency gets worse and its debt ratio
grows fast, it should activate the market through a deep reform to boost capital formation and
allocation efficiency and promote China’s quality growth.
In 2015, China’s central bank lowered financing costs to reduce the debt burden of enterprises,
and its monetary policy went through “two cuts” (interest rate cut and reserve requirement ratio
cut) for three times. However, capital efficiency has shown no fundamental change and
investment rate has declined. In fact, the macro environment that a high investment model
depends on has taken a big change. The trend tells that the changing population age structure has
caused the labor supply change; policy and population structure have changed the saving rate;
the total factor productivity caused by the labor reallocation pattern will also change.

For most manufacturing enterprises, “demographic dividend” will fade. Labor supply has rapidly
declined while labor cost has increased. The whole economy has stepped into the period of
increasing production factor cost. The scissors difference between industrial and agricultural
products has narrowed driven by the imbalanced demand and supply. Thus, the industrial sectors
will likely earn smaller profits.

When the profits of the enterprises drop sharply, some large enterprises hope to engage in capital
arbitrage through borrowing. Standard & Poor’s report released in June 2014 estimated that the
Chinese corporate bond market surpassed the US one year ahead of the market expectation. Its
scale reached $14.2 trillion at the end of 2013, more than the $13.1 trillion of the US. The private
debt in foreign exchange borrowed by the business sector through irregular channels could have
reached a considerable scale (for example, the enterprises raised funds overseas and transferred
them to China through currency-swap deals with domestic enterprises’ overseas institutions).
The ratio of debts and profits of the manufacturing enterprises is increasingly high. The RMB
has gradually appreciated (especially in the past three years) and the US dollar lending rate was
even lower than the RMB deposit rate because of its relatively low interest rate. So, liabilities in
foreign currency can easily bring enterprises significant gains, the main reason why enterprises
now love borrowing so much.

Besides, since the global financial crisis, because of the investment expansion led by the local
governments, those local governments hungry for capital have received the capital in the forms
of off-balance-sheet loans and inter-bank debt financing. A large amount of capital has flowed to
the local financing platforms and the industries in which local governments have invested, large
state-owned enterprises in particular.

It then caused the big increase of asset-liability ratio of the government and the large state-owned
enterprises to a large extent. Their balance sheets apparently deteriorated. Meanwhile, “soft
budget constraint” also caused an over support of financial resources and a continuous
misallocation to the large state-owned enterprises with an excessive production capacity.
Because the relationship between the government and the state-owned enterprises has remained
unclear, even after the policy of responsibility for one’s own profits and losses was implemented,
the enterprises can still enjoy the invisible government guarantee, which greatly increases the
asset-liability ratio of these enterprises.
Coming to grips with China’s high investment and high savings rate will determine China’s
future development road. Over the past 35 years, China’s GDP growth rate averaged at 9.8%
with the biggest contribution from capital accumulation, accounting for about 60%. The rate and
structure of investment and savings can be said to be decided by the specific phase of China’s
economy and demographic structure. With the enhancement of China’s economic development
and the change of per capita income as well as the change of demographic structure, the rate and
structure of investment and savings will become more reasonable. They cannot be deliberately
adjusted, nor directly judged by the index of the developed countries that have long entered the
stage of post industrialization and high income.

At present, there is no trade-off relationship between China’s economic reform and economic
growth. China’s reform should be interpreted as growth-containing. China must strengthen the
supply front to substitute the old supply with the new supply and can really create new supply
and efficiency dividends through reform. The reform on the supply front requires the
improvement of capital formation efficiency as the core in pushing the reform of the related
areas for the next five years.

It is now more urgent to further deepen the reform of investment system, breaking the barriers
between different departments and regions, breaking the market segregation, in order to
guarantee the power over investment decisions by the enterprises and individuals. That means
transforming the formation mechanism of the factor price, eliminating the multi-track system” of
the factor price, quickening the formation of a “unified, open, competitive and orderly” market
system and releasing the vigor of the principal market investors.

Besides, government investment efficiency should be improved, allowing the government to play
an important driving role in technological innovation and R&D investment. Through the
macroscopic guidance role of government investment, strengthen the financial support to the
R&D activities in the common technological areas of basic research and industrial development.
Encourage the government, industry, education, research and finance to jointly establish an
innovation alliance. Promote the technological innovation and human resource accumulation as
well as the investment in the equipment modifications by the enterprises.

It is more important to comprehensively deepen the negative list system to activate the private
investment. In the future, a sharing economy, the Long Tail economy and a zero-cost economy
will emerge. A new generation of information technologies such as big data, cloud computing,
mobile internet, internet of things and artificial intelligence should comprehensively and deeply
integrate with economy, industry and technology, constantly producing new industrial format,
new products and new models. To further adapt to the new situation, the already approved
negative list system should also strengthen the institutional supply, modify in time the Catalog of
the Guidance of Industrial Structure Adjustment and upgrade the new projects in the restricted
category and those in the eliminated category in line with the principle of encouraging
innovation and lowering the threshold of entrepreneurship.
Strengths & Weaknesses
Generally speaking, China has a very competitive economy with a good national infrastructure,
especially for such a vast country. The government is also committed to upgrading the
infrastructure (e.g. for China's long-distance transportation) even further.

The country also has a hard-working labor force with upwardly mobile aspirations. The growing
middle-class and its considerable personal savings could create a positive climate for increased
domestic consumption.

On a less than positive note, China needs to reform its big state-controlled enterprises, reduce
public debt, and decrease overcapacities in several sectors (particularly the steel industry). Both
the economy and the public administration require greater transparency, for example, with regard
to tenders for government projects.

Threats

 Education and skills

The Chinese education system as well as vocational training, should be improved to avoid skill
mismatches on the labor market. Unskilled laborers will gradually become less important, while
university graduates might benefit from a more business-oriented skillset or practical experience.
There is also a noticeable demand for skilled labor with hands-on experience in their field.

An improved education for China’s workforce is all the more important as the country is no
longer a resource of cheap labor. Due to rising wages and production costs, some companies
consider outsourcing to other South and Southeast Asian countries, such as Bangladesh,
Cambodia, or Vietnam.

 Social inequality

Education could also be one way of helping to reduce the glaring social inequalities. China is one
of the most unequal societies in the world, as measured by the Gini coefficient. Higher
qualifications, better job opportunities, and a comprehensive social security network would go a
long way to redress this. The urban middle-class is steadily getting bigger, though,

In terms of internal development, there’s a strong regional component to the lack of social
equality, too: coast vs. hinterland, east vs. west, city vs. countryside. The coastal provinces on
the eastern and southern seaboard, with their booming mega-cities, are far more affluent than the
rural areas of central and western China.

 Demographics

There’s yet another issue tied up with demographics. China’s population is aging. The workforce
started shrinking in 2012, and it will decrease further. However, the country has a low retirement
age, and lots of people stop working in their mid-50s. Changing this would be an easy measure
to stop the labor force from shrinking rapidly.

Moreover, as mentioned before, productivity in the agricultural sector is rather low. Even a
moderate increase would set free lots of workers for other parts of the economy.

 Environmental issues

The unprecedented growth of China’s economy comes at a price. The country is struggling with
a number of environmental problems.

The massive air pollution, which has repeatedly made the headlines in international media, is
only one of these side-effects. Water pollutions, deforestation, soil erosion, desertification, and
high carbon emissions (due to the widespread use of fossil fuel) pose a serious challenge.

Opportunities

The need to take better care of the environment offers a variety of business opportunities, too.
Creating a sustainable high-tech economy requires more innovation through cutting-edge
research and development. It also calls for investment in green technology, renewable energy,
and other improvements (e.g. automated "smart grids") for large-scale energy distribution).

These fields have a lot of potential for the Chinese economy. Other booming sectors include
food-processing, as the higher urbanization quota changes the eating habits of many residents, as
well as healthcare and medical technology: Greater access to health insurance plans, more
demand for high quality healthcare, and the challenges of an aging populace account for this
trend.

Finally, the telecommunications sector will grow even more. For instance, mobile devices for the
next-generation 4G network, as well as the respective infrastructure, may benefit from the ever
increasing number of smart phone users and tablet owners.
How China is an emerging market
When you think about emerging markets, you may think first of the People’s Republic of China,
if only because it’s so big. Still officially a Communist nation, the Chinese government
maintains a tight control over the people’s lives, while promoting private ownership,
international investment, and entrepreneurial ventures.

Some basics about China:

 Type of government:

Communist state

Major industries:

 Aluminum
 Armaments
 Cement
 Chemicals
 Coal
 Commercial space launch vehicles
 Consumer products (including footwear, toys, and electronics)
 Fertilizers
 Food processing
 Iron
 Machine building
 Mining and ore processing
 Petroleum
 Satellites
 Steel
 Telecommunications equipment
 Textiles and apparel
 Transportation equipment (including motor vehicles, rail cars, locomotives, ships, and
aircraft)

Currency: Yuan, also known as the renminbi (“people’s currency”) or RMB

English-language newspaper: China Daily

THE PROS OF DOING BUSINESS IN CHINA

China is the world’s workshop, with the people manufacturing or assembling a wide range of
products in demand around the globe. Already an emerging-market success, the country has
plenty of room to grow before it’s considered a developed economy:

 A strong financial-services sector:

The country’s financial sector has evolved to meet the needs of a modern economy with global
trade. In addition, the Chinese are savers, the national government has no debt, the banks have a
good track record for responsible lending, and consumers keep saving money so the banks have
funds to lend out to new businesses.

 One billion consumers:

China’s large population is its greatest opportunity. Most Chinese have a decent income by
emerging-market standards. The Chinese have been making money and saving it, waiting for the
day when consumer products are easy to get.

 Privatization:

Many of China’s largest industries have been privatized, and the government is working hard to
convert more companies to private ownership structures. As that happens, China likely will see
more growth and innovation. And international investors will have more access to securities in
order to get exposure to China.

RISKS OF DOING BUSINESS IN CHINA

China’s transition to a market economy has been huge and mostly trouble-free, but that may not
continue. Possible risks include:

 Demographic imbalances:

The government’s controversial one-child program has kept the population’s growth rate in
check, and the preference for sons contributes to a growing gender imbalance. The policy has
also contributed to an aging of the population — the average age is 35. As the population starts
to skew older and male, it will shrink, and that may cause the economy to shrink, too as jobs are
unfilled and the population of single men grows.

 Environmental damage:

China’s economic miracle has come at a high cost to the land, the air, and the water. The country
is losing agricultural soil to erosion and to industrialization. The water table is dropping, access
to clean water is limited, and the air quality is terrible.
Increased production and consumption is likely to tax China’s resources further. If the
government and the people don’t commit to improving the environment, China’s progress could
dry up — literally.

 Potential for unrest:

Communism is theoretically a workers’ party, but many workers are unhappy, feeling underpaid
for the long hours the work producing goods that sell for high prices overseas — some
companies have experienced strikes. A shortage of skilled workers is pushing some wage rates
up, which makes other sources of cheap labor more appealing.

And how long the Chinese people accept restrictions on speech and tight government control
over their lives remains a question. As China does more trade with the world and has access to
more ideas, the people may want more freedom.

Summary:

China in a way is a, kind of a, is a universe in and of itself, and if it’s going to be growing
officially seven percent, unofficially probably nearer four or five percent, four, five, six percent
for a few more years, that sort of difference is just going to become bigger. So, you know, I tend
to tend to think we need to think about the U.S., Europe, China and EM. And obviously EM is a
very varied thing. Brazil is very different from Indonesia, it’s very different from India. But just
in terms of scale and the, kind of the broader global impacts that these countries have, you know,
China is very, much more like the U.S. than it is like Brazil.

When the U.S. grows today it encourages global growth. When Europe grows today, it doesn’t
really have much of an impact on many other countries. When China grows today, it doesn’t
really have a global impact, but it has a huge impact upon commodity exporters. So that’s in,
that’s Brazil and Indonesia, the Middle East.

In that respect it makes much more sense to think about China as a, an economy with its own
cycle, with its own dynamics that we need to really be, understand in a lot more detail than
thinking about China as part of a broader EM universe. And all those countries have investment
opportunities. There are great companies in Indonesia and Brazil and India, but those economies
don’t have the global impact that China is having today.

So China is probably an emerging market, but it’s a very special emerging market, and I think
we have to spend a lot more time trying to understand what’s going on there.
Conclusion
We can say that China is one of the biggest emerging markets of the world as well as one of the
big game players when it comes to economical, social, political or any other perspective. China
also has a well geo-political importance which helps it to be sustainable in the global competitive
environment.

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