If you invest $20 million in China - Research Paper Example

? Investing $ 20 million in China Supervisor: May 8, Investing $ 20 million in China Introduction Business organizations are established with the prime objective of making profit through entrepreneurial ventures that may identify diversified economic risk. It is therefore necessary to analyze economic environment around a business in order to understand its possible risks and benefits before deciding on establishing a business. Making decisions over which economy to invest in may require analysis of microeconomic and macroeconomic factors of economies of interest for evaluation and comparison of involved risks and benefits. Similarly, an investor who has focused on one economy needs to evaluate the economy’s factors before establishing a venture. I, in this paper, evaluate the potential and risks of investing $ 20 million in China, based on the country’s macro and microeconomic indicators. Analysis of macroeconomic indicators Macroeconomic indicators are good factors for evaluating a country’s economy. The indicators reflect on the level of activity of the economy and the potentials of successful commercial venture. While positive prospects of macroeconomic indicators communicate probability of entrepreneurial success because of good economic environments, negative aspects of the indicators identifies risks towards caution in investing in the economy. Real domestic product is one of the measures of a country’s economic performance and determines the level of the economy’s output after adjustments of possible changes in money value. The measure is therefore an accurate determinant of a country’s production capacity. A review of China’s real gross domestic product indicates a consistently increasing trend over the past decade. The real gross domestic product that was reported at 10.1 in the year 2004 was consistent at remained at 10.4 in 2007 and 2008, and indication that the productivity level of the economy is stable and similar levels can be expected in future. China’s real gross domestic product has also reported growth in the past decade at rates that are higher that other economies. It can therefore be deduced that the economy has high productivity capacity that is likely to continue expanding in the future. The economy’s growth potential therefore identifies room for more investments and capitalizing $ 20 million dollars is not likely to stretch the economy’s resources (Oecd 33). Another significant macroeconomic indicator for determining investment decision in a country is the trend in inflation rate. Inflation defines a steady and significant rise in commodity prices. It can similarly be defined as a continuous decrease in the value of money in an economy. Inflation would therefore induce a loss in invested money because the investment’s value will be lower than the original one and even derived profits might not be able to compensate for the loss from inflation. Inflation trends in China however offer a good indicator because it has conveyed a decreasing trend. The inflation rate was for example reported at 6.9 in the year 2004 and the value had steadily decreased to 2.5 by the year 2008. The steady trend further projects high probability of lower inflation rates in future and this means that an invested amount in the economy is not likely to lose its value. The trend that can be forecasted to persist further shows that an investment in China has high chances of gaining value as the country’s inflation rate continue to decrease (Oecd 33). A review of the past trend of China’s consumer price index also offers a basis for determining prospects of investing the $ 20 million in the economy. The macroeconomic indicator defines percentage change in a group of commodities’ weighted prices and is related to inflation. A fall in consumer price index, as represented by the Chinese economy therefore implies economic stability and improving money’s value with time. The index was for example reported at about four in the year 2004 and registered a steady decrement to about 1.5 in the year 2008. The trend in the index’s decrease also offers confidence for similar projections and this identifies security of investment in the country. Trend in data for China’s foreign direct investment also identifies potentials in the economy. More investors have been channeling their resources into the economy and the increment rate has been high in the past two decades. While the country’s foreign direct investment was less than $ 5 billion in the year 1990, the value rose to about $ 40 billion five years later and was reported at $ about 60 billion a decade later. This trend identifies confidence in China’s economic potentials among global investors. Similarly, the value of foreign direct investment into China is significant and rates among those of major economies such as the United States, “Germany,” “France,” “Canada,” and the United Kingdom (Oecd 33). Unemployment rate is another significant indicator of an economy and China has maintained a constant rate, at about four percent. While the rate is not too high for adverse economic impacts, it is significant to ensuring that organizations access labor (Oecd 33, 34; Uschina 1). Microeconomic indicators China’s economic environment, through its microeconomic indicator in supply and supply growth rate also identifies potential for investing the $ 20 million because the country’s supply has been registering an increasing trend since the year 2000. One segment of the economy realized a rise from less than 1500 in the year 2000 to more than 5000 in the year 2011 while another market segment realized an increment in sales volume from 13461 in the year 2000 to 85159 in the year 2011. The trend that can be assumed with confidence means that the country has a potential market for an investment’s supplies (Uschina 1). Risk factors The country’s major challenges are however its banking system that is strictly regulated by the government and its currency that does not reflect real value against other currencies. The government’s regulation may hinder delivery of quality and unbiased banking services and may allow for government control on investments. Virtual management of the currency against international currencies may also have adverse effects on investors, especially in global transactions that involve other foreign currencies (Morrison 28). Conclusion Trends in China’s macroeconomic indicators identify investment potential in the economy that indicates high probability of further expansion and favorable economic factors. The increasing real gross domestic product, decreasing inflation rate, and falling consumer price index indicates the economy’s trend of increasing stability that is safe for investments. Trend in increasing sales volume also identifies domestic market for investment in the country. Even though government control over banks and the country’s currency are threats to investment in China, the identifiable potentials are more significant. I would therefore invest my $ 20 billion in China because the involved potentials outweigh the risks. Works cited Morrison, Wayne. “China’s economic rise: History, trends, challenges, and implications for the United States.” Congressional Research Service. March 4, 2013. Web. May 8, 2013. < http://www.fas.org/sgp/crs/row/RL33534.pdf >. Oecd. OECD reviews of innovation policy: China 2008. Paris: OECD Publishing, 2008. Print. Uschina. “China’s economic statistics.” The US-China Business Council. 2013. Web. May 8, 2013. < https://www.uschina.org/statistics/economy.html >. Read More