Macroeconomic Factors Affecting Investment in China Essay

2565 Words Oct 22nd, 2011 11 Pages
Abstract
China launched its economic reforms and open door policy in 1978. A country having largest population, it attracts a pool of foreign investors towards its economy. Since then the economy went through a series of regulatory and political changes, global and domestic factors surrounded the economy, and it emerged as the second largest economy in the world registering a positive growth in its GDP consecutively for almost two decades. The economic situation prevailing globally requires the investors today to assess the opportunities across the globe and China looks to have favourable macroeconomic factors towards being a good investment opportunity.

Background of China’s Phenomenal Growth
Though China was proclaimed communist
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Whilst Chinese inflation rates have been consistently, year on year, been higher than those of the developed nations, they have been lower than what most experts opined. This has possible, in part, because of more and more goods being available for domestic consumption as well. While China has recently become the largest exporter in the world, it has also become the world’s second largest importer. It is this balance, which has enabled China to succeed where India has failed to tame inflation.

Macroeconomic Factors Affecting Investments in China

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[SAPM TERM PAPER] September 28, 2011

From 1994-2010, average inflation has been 4.25% with a high of 27.70% in October, 1994 and a low of 2.2% in March, 1999. Recent trends in China point to the government trying to reduce the inflation rate, which has consistently been hovering around 6% for the past 20 months. China succeeded in finally bringing down the inflation to 6.2% in August this year. The government thus managed to successfully decouple growth and inflation. Fears that stricter monetary regulations would stifle growth have thus been unfounded.

Source: TradingEconomics.com, China Economic Information Net

Unemployment
The unemployment rate in the country stands at around 4.1 percent today, which in reality is understated by a few percentage points because of the reason that the figure does not include workers laid off by the state-owned firms and also it only includes the

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