China, an ideal place to invest or not?

   Devro-to-invest-in-50m-China-factory_strict_xxl

By Author and Contributor

Guo Li

Since 1978, when the previous Chinese prime minister – Deng Xiaoping initiated and leaded an economic reform, which is called an “open door” policy, from a planned economy to a market economy, China has begun a series of reforms and changes and has made miracle achievements in economic development. Ever since 2013, China has already become the world’s largest trading country and today “Made in China” products can be easily spotted in every corner of the world. China is playing more and more an important role in the global economy.

It has been reported by International Monetary Fund (IMF) that China has overtaken the US to become world’s largest economy based on purchasing power parity (PPP).[1] Still on-going reform, powerful government, big labor market and largest domain market based on a huge population appear to be stable forces for the further economic development of China and the very reason that most investors choose China as their favorite investment destination.

However, in my opinion, when it comes to developing an Asian business strategy today, China might not be the most ideal place due to its economic problems. Despite the tremendous achievements, there have been many economic problems resulting from China’s economic growth. Firstly, China has been taking advantages of the demographic advantages for more than 30 years. In the past, it was very easy to find a lot of supply of cheap labor force in China. But now, it is becoming more and more difficult. China is about to lose demographic bonus within a few years and turn to labor shortages into long-term trends, what is worse is that this effect will be accelerated due to the “one-child” policy that has been conducted in China. The second, the large population is not only a driving force, but also a limitation of the economic development because the resource per capita is limited. This shortage has been reflected in many fields: China needs to import tens of millions tons of beans, corn and wheat from the US, Canada and other countries because the farm land is not enough to plant enough agricultural products. Huge consumption of water has made many rivers to be redirected. The leaders of China have to travel from Africa, Middle East, Australia and Russia for mineral and energy. After receiving these goods, the governor has to deal with transportation of them, because most cities of China with millions of people are in-land. Third but not the last, the corruption, which is the result of centralised government structure in China, hurts the economy seriously and prevents the investment from many western countries. Investors have to deal with the relationship with various departments in China. Furthermore, the counterfeit goods also lower the credit of “Made in China”.[2]

Reference:

Picture source: GlobalMeatnews.com

[1] Report for Selected Countries and Subjects (PPP valuation of country GDP). IMF. October 2014.

[2] China Briefing, 2014.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s