China Australia Free Trade Agreement Advantages to China - Case Study Example

Economics and Finance Name Course Date Tutor Economics and Finance China Australia Free Trade Agreement advantages to China The trade agreement was made in order to create a better certainty for the exporters in the industry through locking in the zero tariffs on the major resources and products. The tariffs are going to go down for other energy products and resources such as the elimination of 3 percent tariffs on coking coal as well as the 6 percent tariff on thermal coal by January 2017. In the past, the Australian producers and exporters were at a competitive advantage as compared to the other nations within regions that had free trade agreements with China in place because of the significant tariffs that the exporters faced. The new trade agreement provided that Australia and China were to get an advantage over the major agricultural competition. The China Australia Free Trade Agreement is going to come up with important chances for the manufacturers like tariffs which are eliminated or reduced to make the manufacturers more competitive within the growing scene of the market. This agreement is going to see an elimination of tariffs within a number of industry sectors from the manufacturing to pharmaceuticals. Australia is the largest services import market for China with an industry rate that exceeded $8.8 billion in 2014. The China Australia Free Trade Agreement is going to come up with Australia’s best service commitments with the inclusion of provision for definitively improved access to the market that has not been seen in the previous trade agreements done with other nations. Education industry The Chinese Australian Free trade Agreement is going to allow the private higher education providers that have access to Australia’s corresponding higher education market. Australia may list the Chinese private higher education facilities on the Ministry of education website for the region. Health and palliative care The healthcare and palliative care sector is going to be allowed to establish wholly owned Australian hospitals in Shanghai, Tianjin and other well-known provinces. There are also going to be Chinese owned aged care facilities established in Australian urban centers without locational restrictions. Telecommunications This agreement is going to allow for market access of the Chinese corporations that are investing in the value added telecommunications services in Australian cities and free trade zones. This is also going to allow the Australian owned corporations to supply the Chinese domestic multiparty communication services, store and forward sectors, application store services, as well as the call centers. It is also going to give the Chinese telecommunication providers with foreign equity limits and access to participate within joint ventures as concerns the Shanghai Free trade zone in supplying online data and transaction services. The China Australia Free Trade Agreement provides unmatched access when it comes to a restrictive market. Though, the Chinese enterprises are going to need to take advantage of the concessions in the quickest manner to secure the first mover advantages as the counterparts get similar agreements with the other trading partners across the world. The new generation of digital clients in China is an opportunity. The enterprises that understand the trends and consumer behavior have a better competitive edge (Zhen, 2015). Why the Yuan is to be included as an SDR currency According to the SDR which was created during the 70s in support of the Bretton Woods system for non- flexible exchange rates when supplies of dollars and gold were not adequate would add the Yuan currency to the IMF member nations which can count toward their official reserves. Some of the reasons the central bank of China would like this to happen include global prestige. Though China has become the second most significant economy in the world, the currency has lagged behind in international forums. The status of being included within the SDR is going to be an illustration of the rise of China. There are also going to be lower costs of borrowing as a reduction on the regulations for the capital flows that accompany the push of China is going to result in a currency that is internationalized. This could assist the Chinese corporations in venturing abroad and cutting into the borrowing costs. The use Yuan use for multilateral trade and investment has been on the rise, though the exchange is not being used in setting prices for international commodities from iron to oil. This means it would have more influence when it comes to setting the commodity prices on a global scale and it would help remove the volatility of currency from the equation. As such, it would also increase the instances of valuable cross border trade with China. Management of the Yuan volatility as an SDR currency The prospects of an increased rate of demand from the central banks and investors could result in appreciation of the Yuan in the long haul. If the currency does not end up appreciating then it is likely to support the efforts of the government in stabilizing the economy. The government announced plans for it to reduce the dependency of the country upon exports and investments while increasing the contribution of consumption to the steady growth of the economy. A stronger currency is going to make the consumers gravitate toward the foreign foods and shrink the current account surplus. Now that the Yuan is recognized as a reserve currency, it may attract more inflow from other investors and sovereign wealth funds. These foreign inflows are going to strengthen the currency. However, the government would have to overhaul the domestic monetary systems and move from a model that dished capital according to the dictated quotas. A fixed exchange rate may have been the norm during the easily investment and export led stages. However when advancing to the next phase of consumption and innovation led development, the country is going to need a sophisticated model. This currency could no longer be managed in order to achieve export competition at the expense of the purchasing power of the client. Interest rates are going to have to be liberalized in so that the capital would be allocated in a more efficient manner as compared to the old state directed method. Corporate joint ventures They are allowed under the Sino foreign venture project. These would also be referred to as contractual operative enterprises. These had limited organization in two versions. The limited liability one is the same as the Sino-foreign equity joint ventures otherwise known as the EJVs. The investor comes up with the funds and the group comes up with the buildings and land. On the other hand, there is not a limit to the foreign partner that would allow them to have small shares. the structure of the joint venture is comparable to partnering where the groups arrive the liability for debts of the business which does not have separated legal institution being formed. In both scenarios, the form of the businesses is the one of legal Chinese entity that can hire directly from a Chinese contractor. Previously, China has approved joint ventures worth $1.26 billion transacted between Renault, manufacturing firm and Dongfeng motor group which is its second largest car maker. This new project is a plan to construct hundreds of thousands of vehicles and car parts annually. At the present, the country is the largest car manufacturer, whereas Renault has been one of the biggest manufacturers that are not yet invested in the market. This would be a 50-50 venture that would be known as the Dongfeng Renault Automotive firm. Dongfeng is owned by the government and has partnerships ongoing with Nissan and Honda among others. The joint venture with Renault is going to see the company enter a crowded market place that is filled with local or regional brands that are quite competitive. However, considering the size of the market and growing appetite for other tastes, there is enough to go around figuratively speaking. Though the automotive sales in the western states seem to be waning the sales in China seem to be growing probably due to an emerging economy with a growing middle class. The figures show that the figures on sales go up by almost 5 percent. Under the Chinese laws, the auto manufacturers are looking to come up with manufacturing activities in the country which would have local partnerships. The other company to form a partnership with a Chinese firm in a joint venture would be Tesco. It finalized a deal with the government operated China Resources Enterprise or (CRE) in creating biggest options in the country. The biggest corporations are going to combine the company’s outlets for the CRE’s nationwide 3000 store network known as vanguard. As such, the CRE was to own majority of new venture while Tesco was to own the remainder. The grouping allows for a platform within the biggest markets on the globe. According to the chief executive of Tesco, they are now able to combine strengths in order to come up with a profitable multichannel enterprise which offers the clients the best of modern retail so to speak. How the Chinese government is reducing tensions of foreign firms China’s growing economy has been because of cooperation within the global economy which is not going to be assisted by protectionism. In 2013, in recognition to the changes in the trading patterns on a global scale, the government set up the Free trade zone in Shanghai. In the current market components from one nation can be assembled in another and sold in another, as the global trade continues to get more significant, so does the advantages of the free trade zone. Here, the goods can be landed, assembled and used within the production process and re-exported without intervention from customs. The free trade zone in Shanghai focuses on financial services including shipping, logistics. In the past years, there were three more free trade zones which were created in league with the overall objective to make things easier for foreign firms. There is also the aspect of the globalization of the currency. One of the recent steps which are aimed at freeing the flows of funds means allowing the Chinese corporations registered in places including the free trade zone in Shanghai to borrow overseas for the case of domestic expansion which is a move that would lower the funding costs. At the present, China allows cross border flow of currency for the purposes of foreign trade and investment in factories. Moving from low-value, labor intensive to high value innovative manufacturing For the companies that are reliant on innovation the rising costs, competitive pressure shows the old methods of developing products on the mainland is a liability. Staying in the competitive means the domestic and multinationals will have to change. The domestic Chinese firms, with the endorsement of the government are getting beyond the fixation with cheaper and faster which characterized approaches to research and development. As it works at the present to boost the research and development capabilities and generation of market insights, the harder tasks considering the absence of the necessary skills of the copying mind set are still strong. Wages have also increased significantly since 2011 as part of the initiative to improve the innovation intensive measures and downplay quantitative measures. The increase of sourcing costs form a major reason for relocation as cited by cited by some firms. The demand for global consumerism is frail; the products are not able to pass in higher pricing hence, focus on the costs on production. According to Song Hong who is an executive at the international trade department at the Chinese Academy for social sciences, the semi-permanent cities relying on labor intensive production are. The option available for China is to move Factories away as well as upgrading the industries (Wei, 2015). China enjoys a competitive advantage over regionally in regard to efficiency in the manufacturing arena. Companies meeting the definition of operating as a successful ‘high-value, value added innovator’ Nano leaf is a Chinese startup innovator which invented a new light bulb that saves 88 percent of electricity as compared to the current light bulbs and lasts up to 20 times longer as compared to the existing LED ones. It comes with 133 lumens per watts which double the efficiency of a 22 watt Phillips bulb. With more efficiency, the bulb also emits less heat as well. The Hong Kong based Nanoleaf originally saw the light through a campaign on Kickstarter. There was a lot of support and funding to turn the idea into mass production. Some of the clients claim they find the light a bit blue and so the firm is preparing for an introduction of a warmer colored light bulb. This is one of the firms that respond to the need for better innovation and less labor intensive requirements due to value addition of the product. References Wei, L. (2015). China to Ease Limits on Overseas Investments. The Wall Street Journal. retrieved from http://www.wsj.com/articles/china-to-ease-limits-on-overseas-investments-1432841526 Zhen, S. (2015). Manufacturers step up search for low cost alternative to China. South China Morning Post. retrieved from http://www.scmp.com/business/companies/article/1863709/manufacturers-step-search- low-cost-alternative-china Read More