...China: To Float or Not To Float? International Finance 1 - What are the implications of China’s exchange rate policy on doing business with and “against” China? For years, China’s currency was undervalued. Many analysts and economists estimated that the Chinese currency (Yuan) was undervalued by 35%. So, for years, China kept a higher exchange rate. By doing so, China has some advantages but also some disadvantages. First, by undervaluing its currency, China keeps the Yuan as a weak currency, (because you need more Yuan to buy a US dollar). By doing that, China was able to keep a competitive advantage over other countries such as the US. Their products were sold for a cheaper price compared to the US products. But even if there are advantages, there are also disadvantages to have a high exchange rate. By having an undervalued currency, importations become really expensive. In fact, by having a high exchange rate, due to the price of importations, the deficit of China is also increasing. After several calls, the 21st of July 2005, China revalued its exchange rate from 8.28 Yuan per U.S dollar to 8.11 Yuan per U.S dollar. It implied other consequences on doing business with and “against” China. 2 - How is China’s exchange rate policy linked to its development strategy? How would changes in exchange rate policy impact growth in China as well as the rest of the world? Is the current exchange rate policy sustainable in the long run? China has known a relatively fast...
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...different meanings. Depreciation is defined as the increase or decrease of a currency’s price, in terms of another currency. This happens in the free market due to forces of supply and demand. (Baumol and Blinder). To exemplify this phenomenon, let’s pretend that the supply of US-dollars increases or demand for this currency decreases. The result would be the depreciation of the US-dollar in terms of other currencies like the Euro or the Renminbi. In contrast, the low value of a currency because of undervaluation does not happen because of market forces. This is due to the active manipulation of a currency and is act of government intervention. As a consequence the currency has a value underneath its official exchange rate (Baumol and Blinder). The consequence of undervaluation: Inflation Even though it is important to distinguish between both terms, the effects caused by depreciation help understand the effects caused by undervaluation. Depreciation reduces the value of a currency in relation to another. In our example, a weaker US-dollar leads to cheaper exports. The aggregate demand for these products will increase, because consumers everywhere will buy more of the less expensive products. This is a direct application of the law of demand (Baumol and Blinder). American exports would experience an increased demand in the foreign markets and this would in turn lead to growth in the USA. But as a coin has two sides, so does depreciation. The depreciated US-dollar loses its purchasing...
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...growth, money supply, budget deficits, and exchange rates. The knowledge from this study will indicate the ‘health’ condition of economy in the country. As a business owner, the study of the macroeconomics is very important to make everyday business decisions as they have to focus beyond what is happening in the firm and look into aggregate demand and aggregate supply in economy. Managers always need information or knowledge to make decisions. Example is demand theory. If people get low income, they tend to spend less than when they are getting higher income. As the managers are forecasting the demand for their products and services, anticipation of how consumers’ incomes will grow should be learned. To make decisions, business owner should also know about the current interest rates for loans if they are about to borrow money from the financial institution. They should also be aware about where they stand in the business cycle. Cost of labour is another important reason to study of macroeconomic in order to make better decision. For example, during tight labour supply, the price or salary of the labour will shooting up and this will eventually increase the price of the product in the market. Business owner might consider other option to solve these issues. Examples are outsourcing the production or services to cheaper country or to other specialized company so that they don’t have to hire expertise with high salary and keep maintaining them in the organization. Their...
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...international aspects even though the two are closely related. It is the purpose of this essay to examine the international aspects as China has taken part in the process of world economic globalization, a salient feature of world history today. The Chinese leader Deng Xiaoping who initiated and directed economic reform from a planned to a market economy understood the importance of globalization and adopted what he called an “open-door policy” as an essential part of the reform program. The term globalization refers to the crossing of national boundaries. It means the flow of goods, capital, information/technology and people across national borders. China practiced globalization in the Han dynasty (206BC-220AD) when trade took place between the Han Chinese and neighboring people in the North-west through the Silk Route. During the Tang dynasty (618-901) trade flourished and the Silk Route expanded as Chinese traded with the Romans. However, in the Qing Dynasty and in the period of the PRC up to Deng Xiaoping’s open-door policy China tried to close its doors and resisted globalization. I will survey the accomplishments of globalization for China’s economic development and clarify some controversial issues concerning globalization. 1. Foreign Trade. First consider foreign trade or the flow of goods across national borders. Since 1978 China has encouraged free trade and abolished trade restrictions step by step. The government has changed its policy from the administration...
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...company makes in a foreign country. On the contrary, FII or Foreign Institutional Investor is an investment made by an investor in the markets of a foreign nation. In FII, the companies only need to get registered in the stock exchange to make investments. But FDI is quite different from it as they invest in a foreign nation. The Foreign Institutional Investor is also known as hot money as the investors have the liberty to sell it and take it back. But in Foreign Direct Investment, this is not possible. In simple words, FII can enter the stock market easily and also withdraw from it easily. But FDI cannot enter and exit that easily. This difference is what makes nations to choose FDI’s more than then FIIs. FDI is more preferred to the FII as they are considered to be the most beneficial kind of foreign investment for the whole economy. Foreign Direct Investment only targets a specific enterprise. It aims to increase the enterprises capacity or productivity or change its management control. In an FDI, the capital inflow is translated into additional production. The FII investment flows only into the secondary market. It helps in increasing capital availability in general rather than enhancing the capital of a specific enterprise. The Foreign Direct Investment is considered to be more stable than Foreign Institutional Investor. FDI not only brings in capital but also helps in good governance practises and better management skills and even technology transfer. Though the Foreign Institutional...
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...talk about and elaborate on China business field. In the article “Bringing a Taste of Louisiana to China While Stimulating Business Back Home” by Gordon Curry we can identify the purpose, mission and services this company provides. This business is about a company with headquarters in Louisiana specializing in the seafood industry, while at the same time searching and exploring for new economic opportunities abroad. TEDA has a great opportunity to establish quality relationship with China, which will be beneficial and convenient since China is a rising economic country and we have to take advantage of that increasing our connections. The main idea is to bring the attention of the Chinese to work on a number of projects, in other word bringing foreign investment. Creating a reciprocal relationship with them so that they can benefit as well as the company itself. Projects include exporting Louisiana seafood to high-end Chinese restaurants, hotels and grocery stores. TEDA is an organization with straightforward goals, which can be found in their online website www.tpeda.org/Goals. The main focus of TEDA is the seafood industry but they are open to other industries to expand, become a big business and enhance competitive advantage with the local community as well as internationally. TEDA wants to increase sales and exportation, they will have to look for a way were they could reach the maximum amount of possible consumers, different target markets. Not only that, they look forward...
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...2. Dealing with China: An Insider Unmasks the New Economic Superpower As President George W.Bush’s Treasury secretary from July 2006 through January 2009, Henry Paulson was the president’s leading policy adviser on both domestic and international issues. He is well know to the world at the time of the financial crisis in US. Henry Paulson has made over 100 trips to China and developed intimate relationships with China’s political elite, including Presidents Hu Jintao and Xi Jinging as well as its banking giants, most notably the industrial and Commercial Bank of China’s chairman Jiang Jianqing. Therefore, he has a depth knowledge about China’s economy and still been watching China’s emerging economy until now. In his new book, he describes China’s recent rise to global supremacy and the challenges that lie ahead. He also points out that China is American’s most important economic partner and that how to corporate intelligently to make both nations benefit in the future. In the United States, banks and capital markets are more stable and better capitalized than they were in the financial crisis 2008. As changing in government regulators and American banking system, US still the largest and richest economy, with a normal GDP more than twice the size of China. But according to Paulson, he warns “It’s not a question of it, but when, China’s financial system, particularly the trust companies, will face a reckoning and have to content with a wave of credit losses and debt restructuring”...
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...What Is Globalization? Globalization is a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international tradeand investment and aided by information technology. This process has effects on theenvironment, on culture, on political systems, on economic development and prosperity, and on human physical well-being in societies around the world. Globalization is not new, though. For thousands of years, people—and, later, corporations—have been buying from and selling to each other in lands at great distances, such as through the famed Silk Road across Central Asia that connected China and Europe during the Middle Ages. Likewise, for centuries, people and corporations have invested in enterprises in other countries. In fact, many of the features of the current wave of globalization are similar to those prevailing before the outbreak of the First World War in 1914. But policy and technological developments of the past few decades have spurred increases in cross-border trade, investment, and migration so large that many observers believe the world has entered a qualitatively new phase in its economic development. Since 1950, for example, the volume of world trade has increased by 20 times, and from just 1997 to 1999 flows of foreign investment nearly doubled, from $468 billion to $827 billion. Distinguishing this current wave of globalization from earlier ones, author Thomas Friedman has said that today...
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...and stability of Australia’s financial system. However, other oppositions might say that we just lost a great opportunity to access global capital markets. They believed that we have to move towards globalisation to be more open-minded. It is undeniable that one government decision could be attracted two different views by the members, like everything else; it has its own benefits and harms. As Mr Swan said that the deal was not right enough to grow Australia’s role as a financial services hub in Asia and therefore it was only be justified if there were very substantial benefits to our nation. He treated the deal as a takeover by SGX, not a merger exchange group as well as the Australia’s financial sector would have become a subsidiary to a competitor in Asia. The consequence of this merger would have breached our principal in maximizing our national interest. He believed that the deal would not provide a gateway to Asian capital flows as SGX has limited flows to the rest of Asia, which is not necessary to enter into SGX financial market at the moment. According to the rank of the World’s stock Exchanges, the ASX ranks 11th in size in the world with $1.5 trillion worth of listed companies, whereas the SGX ranks 21st at $0.672 trillion – no doubt that is a more than double in trillion dollars. Australia was worried about the capital would have mostly gone to Singapore thereby directly improve their economy and nation interests....
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...first wave of globalisation, grain prices fell in Britain and many parts of Western Europe. This was bad for both landowners and the manufacturing workers in Britain and Europe. (1 mark) NO, bad for landowners but good for manufacturing workers (as consumers) 3. During the First wave of globalisation, unlike at present, international movements of goods and capital increased rapidly but labour did not move internationally on a large scale. (1 mark) The period known as the age of mass migration from Europe to the new world. International capital movements (FDI) was also arising. 4. During the first wave of globalisation, there was not much international integration of commodity markets. (1 mark) The period for great international commodity integration [total 4 marks for Q1] 2. Consider a ‘small’ country that produces garments and computers. Garments are relatively more labour-intensive, while computers are relatively more capital intensive. The country is relatively labour-abundant. It opens up for international trade. Referring to the relevant model or theorem, briefly explain what would happen to; 1. real wages of garment workers (1 mark) Based on the HO theorem, the labour-abundant country (eg, Australia) will export the labour-intensive goods...
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...With the rise of China, following the enhanced economic and trade relationship between China and Asian economies, and China’s increasing importance in the world economy, China’s national currency, the renminbi (RMB) will be getting global from Asia. As regional internationalization of RMB is doubleedged, in order to eliminate the financial risks brought by this process, maximize the benefits, it is necessary for China to consider the trade off between costs and benefits of RMB internationalization. RMB internationalization is a dynamic process, in accordance with the different level of the process, the phased strategy should be implemented, and the corresponding policies should be pursued too. Key word: RMB internationalization Cost and benefit Roadmap Introduction If you travel in the Asian region, you will notice that the Chinese renminbi is appearing more often in shops and restaurants, driven by the rapid growth in mainland tourist volumes. Will Chinese Renminbi be the next world currency? Since 2000, RMB internationalization has attracted great attention from the policymakers and the academics both at home and abroad. There is sizable RMB circulation in China’s neighboring countries and economies, even RMB can be fully convertible in some developed countries, some of neighboring countries and economies treated RMB as a reserve currency. This is a new economic phenomenon for both China and the world. Because in economic development history...
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...transnational corporations. d. MNEs are often managed from a global perspective rather than from the perspective of any single country. e. The term enterprise is used rather than corporation because as business move into many emerging markets, they will enter into business arrangements with various types of enterprises that are not corporations such as joint ventures, strategic alliances, or simply operating agreements with enterprises that may not be publicly traded or even privately owned, but are actually extensions of the government. Domestic firms may export their products or not. Domestic firms may license foreign firms to conduct the domestic firm’s foreign business. Domestic firms are not protected from international competition. Purely domestic firms must understand the multinational nature of business today. Globalization and Creating Value in the Multinational Enterprise To become a successful multinational enterprise requires (1) an open marketplace, (2) high quality strategic management (the ability to manage people and see profitably productive opportunities) and (3) access to capital. (See Exhibit 1.1). An Open Marketplace is another term for Free Trade or free movement of labor, capital, technology, innovation and entrepreneurship. Strategic Management is the ability to see business opportunities and attract the...
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...of their people itself toward development of their country can coping this democratizing issue in globalization. Keywords : Involuntary, globalization, democratizing 1.0 Introduction Globalization has been given many meanings in different contexts. One frequently encountered meaning is that globalization is the homogenization of peoples’ tastes and demand patterns around the world due to increased access to international communication of information about products and services as well as increased access to transportation of products and people across the borders (Carol Hammond and Robert Grosse). Globalization means that events in one part of the world have ripple effects elsewhere, as ideas and knowledge, goods and services and capital and people move more easily across border. Communication tools which play a big role in the world development such like television at the first place had spread out almost throughout the entire world, the images shown in this medium have really permeated societies around the world. Globalization derives from conscious policy decision which may serve to enhance or even erode the capacity of a country to become part of the globalization process....
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...NOTTINGHAM Centre for Risk & Insurance Studies Privatization of the Insurance Market in India: From the British Raj to Monopoly Raj to Swaraj Tapen Sinha CRIS Discussion Paper Series – 2002.X Privatization of the Insurance Market in India: From the British Raj to Monopoly Raj to Swaraj by Tapen Sinha, Ph.D. ING Comercial America Chair Professor Instituto Tecnológico Autónomo de México Mexico City, Mexico and Professor, School of Business University of Nottingham, UK tapen@itam.mx, tapen@nottingham.ac.uk Abstract We examine the institution of insurance in India. Over the past century, Indian insurance industry has gone through big changes. It started as a fully private system with no restriction on foreign participation. After the independence, the industry went to the other extreme. It became a state-owned monopoly. In 1991, when rapid changes took place in many parts of the Indian economy, nothing happened to the institutional structure of insurance: it remained a monopoly. Only in 1999, a new legislation came into effect signaling a change in the insurance industry structure. We examine what might happen in the future when the domestic private insurance companies are allowed to compete with some foreign participation. Because of the time dependence of insurance contracts, it is highly unlikely that these erstwhile monopolies are going to disappear. Acknowledgement: I would like to thank Rebecca Benedict and Samik Dasgupta for their input in this article without...
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...Gordon Orr What might happen in China in 2016? Strategy January 2016 Millions of people being relocated from cities, fewer jobs, greater centralization, and more movie blockbusters are just some of the author’s predictions for the year. In debates about whether growth is a percentage point up or down, we too often lose sight of the absolute scale of China’s economy. No matter what rate the country grows at in 2016, its share of the global economy, and of many specific sectors, will be larger than ever. My snapshot of China in 2016? An increasingly diverse, volatile, $11 trillion economy whose performance is becoming more and more difficult to describe as one dimensional. The reality is that China’s economy is today made up of multiple subeconomies, each more than a trillion dollars in size. Some are booming, some declining. Some are globally competitive, others fit for the scrap heap. How you feel about China depends more than ever on the parts of the economy where you compete. In 2015, selling kit to movie theaters has been great business, selling kit to steel mills less so. In your China, are you dealing with a tiger or a tortoise? Your performance in 2016 will depend on knowing the answer to this question and shaping your plans accordingly. Many well-established secular trends in China will continue in 2016. The service economy’s expansion is perhaps most prominent among them. In this piece, as usual, I won’t spend much time on the most familiar things...
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