Contemporary Issues that Rise Up in Business - Essay Example

CONTEMPORARY BUSINESS ISSUES 2 by Student’s Name       Code+ Course Name Professor’s Name University Name City Date China’s Economic Performance After experiencing significant growth for decades, China’s economy has reached a point where it is slowing down. The growth of GDP after inflation in China has, on average, been almost 9% annually by all records. In a single generation, China has metamorphosed itself from a country with the impoverished economy to world’s second-largest economy (Huang, 2014). This has meant that more than half a billion people have been lifted from poverty. Despite this success and steady economic growth, China is staring at a number of issues, which may ruin its gains (Schreurs, 2014). The impediments are both political and economic and they need to be addressed as soon as possible to put the country back on track. The fact that China has become rich could be an impediment to its growth in itself, given that countries with significant economic growth tend to experience a decline at some point (Schreurs, 2014). One of the factors that obstruct China’s economic growth is its highly unbalanced economic structure, as well as the lower efficiency levels. With a three-decade reform, China remains a substantially statist in its fundamental orientation (Wang, 2015). Therefore, for every percentage point of China’s GDP growth, it needs additional investments and energy, with worrying repercussions for its operating environment and health of the population (Huang, 2014). The factor that impedes on China’s economic growth is the write-off of the bad loans. In February of 2014, there was an increase in the bad loans in the Chinese banks for the 9th consecutive quarter, thus has left them at the peak after the 2008 global recession (Schreurs, 2014). As a matter of fact, non-performing loans increased by $4.8 billion in 2013 last quarter to $97.7 billion. The non-performing loan ratio was increased to 1.0%, after an increase of 0.03% (Schreurs, 2014). The figures are likely to rise and this spells a worrying trend as a result of the costs involved in debt servicing and because the alterations showed that the banks in China had problems with controlling the loans, underscoring the force behind the quality of assets. The attempts by the government to regulate shadow financing imply that those who borrow experience a more difficult time when they repay the debt (Schreurs, 2014). In the event that China will write off the bad loans it currently has and copes with the fact they are losses, it will have a declining GDP. However, as a result, less debt must be serviced; this will result in a healthier Chinese economy. China has engaged in the decision to write off all its bad loans because the largest Chinese banks trebled the sum of written off loans, thus stopping a possible new pool of defaults associated with the bad loans (Schreurs, 2014). The recent trends in bad debts of China have also contributed to Chinese slump. China’s total debt – including corporate, household and government – has increased to almost 250% of the country’s GDP from 100% in 2008 (The Economist, 2015). The debts permitted China to propel its economy through the infamous international financial crisis. China was left with a hefty burden of repayment (The Economist, 2015). Worryingly, the larger volume of the credit ran to developers of property and given the country’s inventory of homes that have not been sold stagnate at the highest record, the trend is a source of worry for the economists because excess debt often takes years to complete (The Economist, 2015). The other factor that impedes China’s economic growth is the new social reforms, including the one-child policy, as well as, the hukou system (Schreurs, 2014). In the long-term, China will experience issues with the implementation of the one-child policy. This will lead to the increased fluidity of labour and freedom, and this will not result in a more successful China, but one that is less successful in the short-term (Huang, 2014). The implications are that the rates of urbanisation will increase, and many people will go to the cities. Probably China is looking towards creating more incomes in the households through increased urbanisation. This is followed by increasing the living standards of the people of China by diverting capital from the political and economic elite to the local households (Magnier, Wei & Talley, 2015). Nevertheless, the government has to play the ‘wait-and-see’ game as to whether these reforms will be successfully implemented. China’s decline in spending on real estate and large projects is the other reason that impedes on China’s economic growth. The government must stop creating incentives for the local officials in terms of borrowing to finance large projects (Segar, 2015). This is because, while these results in a short-term GDP increase, it does not have long-term benefits for the Chinese government. Similar sentiments can be made about the Chinese real estate sector, in which there has been a rapid increase in prices, as investors tend to feel relatively safe when they buy real estate properties as opposed to when they invest in stock markets (Magnier, Wei & Talley, 2015). Although the demand for housing within the cities is likely to stay high given the continued urbanisation, real-estate regulating policies could assist to escape a possible shortage of housing (Schreurs, 2014). Going by China’s real estate market downturn, its economic growth has slowed down and this is a key factor. The two-year struggle by Beijing to deflate rising housing bubble has given rise to more feeble sales and damaged incentives needed by developers to begin new construction projects (Orlik & Davis, 2012). Currently, the real estate sector in China is directly responsible for 12% of the country’s GDP going by the International Monetary Fund’s estimates. The sector also propels demand for materials used in construction, appliances and furniture (Orlik & Davis, 2012). It has been clear that the sales of important materials such as cement have been dismal, and volumes of both sales and price have been reducing, partly because of the superfluous capacity and the tightening of property (Orlik & Davis, 2012). In addition, China’s property sector stabilisation is also a significant factor that impedes on its economic growth. In spite of the continuing government’s tough grandiosity, elements of tight regulations on sales that are purposed to ensure that prices are under control have silently been relaxed (Orlik & Davis, 2012). The slowdown in the housing sector accounts for between 25% and 30% of the GDP of China such as industries manufacturing glass, appliances, furniture, glass, cement, and steel (The Economist, 2015). The deep drop in the housing prices has not only been wounding the affluent Chinese whose investments in the industry have been massive, but has also been sparking off defaults by the developers in the real estate. In the domestic front, the country has also been grappling with growth, thus causing further slump of the economy (The Economist, 2015). China’s steel sector has also seen a decline in construction and automobile sectors because the two industries are massive consumers of iron and steel for manufacturing products. Being the world’s largest steel producer, the industry is a major generator of income for China. As a matter of fact, China’s production is seven times better than that of its closest follower, Japan. Therefore, the prices of steel have gone down because there has been a lack of demand for the products or overproduction. This is likely to play a huge part in the slowdown of the Chinese economic growth (The Economist, 2015). The other compelling factor for China’s slump is debt. For decades, China has been leading credit splurge in the emerging market since the financial crisis in 2008, while the crises in developed economies cooled off their borrowing in the advanced world, the emerging economies, led by China, have been speedily increasing debt (Bird, 2015). The mix of lower growth and low inflation is a detrimental recipe for disaster in terms of paying off debt. If one borrows on the premise of a GDP growth of 10% and an inflation rate of 5%, the economy has a lot of jiggling to do and in a five-year period, a country’s economy is likely to increase; thus, it makes one’s debt seem proportionately modest (Bird, 2015).The inflation rate often breaks away the money value one owes (Bird, 2015). In other words, it is worthy for an emerging economy to utilise public debt for rapid industrialisation, but it does not mean the debts may not become unpalatable in case the economy fails to develop as fast as was expected (Bird, 2015). Huge clumps of the debt were directed to unworthy investments made by wasteful governments at the local levels. This is an experience China has been a victim of, as research shows that about $6.9 trillion was wastefully used in investment in the period between 2009 and 2014 (Bird, 2015). The other reason for China’s economic slowdown is the global slowdown of manufacturing, which almost 60% of the Chinese GDP. Nevertheless, the major slowdowns in Japan, South Korea, and EU have resulted in diminished demand. The regions are also considered the largest partners of China on matters of trade (The Economist, 2015). Therefore, since the countries have been hit by their individual slowdown, the effects have had a knock-on impact on China’s demand. This means that these nations’ demand for exports has reduced and there is no likelihood that there will be a resurgence soon enough to help China restore its position globally (Ellyatt, 2015). China’s slowdown is also attributed to its poor institutional structures. The issue with the economy of China is associated with the growth model chosen by China. The Chinese model has featured an unprecedented credit-laden investment (Ji, 2010). It reached the highest investment and savings rates that have ever been recorded in the current economic history. The growth model has mainly emphasised on investment; it has also exhausted the country’s engine of growth illustrated by the migration from rural to urban, which cause congestion in the cities; and accumulation of unrestrained leverage in a number of sectors in of the country’s economy (The Economist, 2015). The current issues are testaments to the fact that the institutional structure of China was inadequately constructed and was usurped by the political system in China. Given China’s bureaucratic political power, it makes the country a complex political outfit, whose principles are based on monopolising political power. Structural constraints have also led to China’s economic slump. Lack of efficient institutions has been the reason for the poor economic growth in the recent past (Ji, 2010). Implications of slowed down Economic growth in the world The growing demand for imports by China helps in supporting the world’s economic recovery. Therefore, China’s recent slump in economic growth has elicited global concern. The slowdown has only been compact in China’s industrial sector while the country’s growing service sector has also indicated its strength (The Economist, 2015). Nevertheless, its service sector is comparatively closed and depends only on moderately on imports. Consequently, the growth of China’s service sector is not likely to kick off the unfavourable implications of a country that is slowing down for the international trade (The Economist, 2015). China’s slip in economic growth has had widespread implications throughout the world such as squeezing the Chilean copper mines and Australian government budgets that had become increasingly reliant on the growth of China (Swanson & Sieff, 2014). The slump has come at a vulnerable time for the global economy. For instance, the Eurozone risks experiencing its third recession in a period of six years, and Abenomics policies have not lifted Japan out of its stagnation (Swanson & Sieff, 2014). China has grown to become a huge force in the international economy. Therefore, its problems can unavoidably trickle down to the entire globe. China is the second largest economy globally and also the second largest consumer of exports, particularly of commercial services and commodities makes it a threat to the international economy (Swanson & Sieff, 2014). The prices of numerous commodities have been affected by the Chinese slump. The most notable one is that of the crude oil. This is not about China alone. Though there have been problems with the prices of crude oil, China’s problems have further fuelled the downward pressure of the oil prices (Swanson & Sieff, 2014). China, being a leading buyer of the industrial goods in the world, has a huge impact on the global economy such that, having less than expected sales volume, has affected the prices of aluminium and copper. If the price of Chinese stock falls in the market, there is the likelihood of worry among investors concerning the risks. Some of the likely victims of the fall in the Chinese stocks include the Swiss franc and the dollar (Segar, 2015). Countries that are most affected by the Chinese slowdown are those that excelled in China’s apparently unquenchable appetite for the world’s natural resources. This means that almost every continent is not spared, and both the developing and advanced economies face harsh repercussions (Walker, 2016). When China developed, it constructed the world’s solar panels, iPhones, laptops, iron ore, oil, machinery, and copper. This increased the prices of the commodities it depended on. The end result of investing in such areas means the reverse is the case (Walker, 2016). Indonesia saw a plunge in coal exports after experiencing China’s economic challenges. Other countries such as Venezuela, Peru, and Brazil have all suffered from the collapse of commodity prices too. All these economies hugely depended on China’s growth and its slowed growth has witnessed a fall in the prices (Swanson & Sieff, 2014). China’s reduced growth rate has seen a spillover because of its diminished volume of imports and reduced demand for its commodities. These effects have since become larger than earlier anticipated (Swanson & Sieff, 2014). The other notable country that felt the pain of the slump of Chinese economic growth is the South Africa. For instance, its currency, the Rand reduced by 10% against that of the U.S. dollar, thus, registering a record currency low prior to its recovery later on (Segar, 2015). This was the case because China is the largest trading partner with South Africa; they exchange roughly $20 billion in terms of goods every year. China’s demand for natural mineral resources in South Africa had assisted the latter’s economic growth. South Africa’s largest exports include gold and iron ore among other minerals (Segar, 2015). Other than imports of commodities, capital goods have fallen too.This has affected countries such as Germany, whose exports to China stand at almost 2% of the GDP. Germany is the leading exporter to China in Europe (Segar, 2015). As a matter of fact, China enjoys excellent trade with the European Union as its largest trading partner, while on the flip side, China comes in second among the largest trading partners of the European Union after the United States. Therefore, a slowdown in China’s economic growth affects the profits these countries make. On the contrary, US exports to China are below 1% of the GDP (Segar, 2015). This contrasts with Japan whose exports account for 3% of the GDP. This does not imply that the American companies cannot suffer. For instance, Apple, the world’s most valuable organisation has a larger market in China than in the US. This means that the Chinese slump may have considerable effects on its market performance and sales (Segar, 2015). When looking at the developed economies, though they dismiss the importance of China in the global market, the effects are directly or indirectly felt when China’s economy slows down. China’s slump has affected trade and exchange rates globally. Despite the growth of import volumes in China, an economy that is weaker than expected cuts directly the growth of exports in countries that are heavily reliant on Chinese demand for metals, machine, oil, and materials in China’s industrial centres (Spiegel, 2015). China’s neighbours with structured supply chains including South Korea and Japan are profoundly affected (Spiegel, 2015). In Europe, Germany is the country most at risk as the chief producer of Chinese capital goods. Specialist countries in a commodity such as Australia also risk being affected (Spiegel, 2015). However, direct effects of trade are rarely prompt game changers. Being the world’s largest exporter of commodities, China depends more on the economy of the world than on China (Giles, 2016). One of the ways to help magnify the trade effects can be through huge depreciation of the Yuan with a view to reviving growth led by exports. The Chinese Yuan dropped by 6% against that of the United States dollar since July 2015, thus disseminating fears of a currency-related battle, but against China’s wider partners’ exchange rates, which marginally appreciated in the previous year. The battle of the currencies still rages on (Giles, 2016). The concerns about the economic strength of China are one of the reasons for the world’s renewed slump in prices of oil (The Economist, 2015). Weakness in the prices of oil and other products has compelled Brazil and Russia into risky recessions and it also affected the finances of states in the Gulf region. China’s economic slump has affected the international investment in extraction of oil, thus sabotaging sections of the US sectors and economy in other nations, which host manufacturers of capital goods (The Economist, 2015). But the low prices of commodity and oil mostly lead to the redistribution of economic prospects throughout the globe as opposed to diminishing them. The producers of oil lose, but those who consume, including those that are in China, benefit from the equal to a cut in tax (The Economist, 2015). The International Monetary Fund (IMF) still observes that the general repercussions of lower prices of the commodity are a positive thing. Under the worst situations, it weakens the otherwise severe impacts of lower-than-expected growth demand by China (Giles, 2016). Whether it is because of a weaker Yuan that makes goods from China more affordable, reduced demand or lower prices of the commodity in the global economy, a slowdown in China weakens the world’s inflationary forces, sparking off fears of an international deflationary debt and spiral defaults (Giles, 2016). In case advanced economies authentically look like they are experiencing flat-lining prices, a low inflation rate also offers policymakers the extra leeway to loosen the monetary policy for a longer period in the UK and US and even add to a quantitative relief in Europe (Giles, 2016). There is an exaggeration of a downward slump. The majority of the lower prices globally increase the consumers’ prosperity throughout the world and ought to boost demand, thus setting off the possible deflationary forces in China (Giles, 2016). The confidence in the world economy has been affected by China’s economic slump. Although all the other effects of China’s economic slowdown can be predicted and possibly have benefits for offsetting, the insidious effect of weakened confidence has the heaviest possibility to shock (Giles, 2016). Whether it is via international financial turmoil in the market, the companies’ willingness to invest or the tendency of households to fasten their belts, the confidence in global economy’s security is both crucial for success and virtually exclusively unpredictable (Giles, 2016). There can be a quick return of confidence without great effect on the international economic outlook as it happened in the previous summer’s slowdown (Giles, 2016). From the lessons gathered from the financial crisis in 2008, once the confidence is gone, the impact on the international economy can always be huge, and can bring down organisations, financial systems, banks, and markets (Giles, 2016). This is probably the reason other scholars think that the notion of emerging markets could be the third financial crisis in waiting. The larger impacts of China’s fresh troubles rely heavily on whether companies and people chose to wait before they take decisions to invest and spend – or continue irrespective of the prevailing situations (Giles, 2016). The other evidence of China’s slump is explained by the fact that in past decade, China has been the provider of sunny skies for the automakers in the world such as Mercedes-Benz, Audi, BMW, and Porsche (Gordon, 2016). However, there was a change in 2015, when the impacts of China’s slowdown were felt throughout the pricing spectrum. A crackdown on pompousness normally associated with the likes of Rolls-Royce and Bentley saw their sales fall in 2015 (Gordon, 2016). Huge fluctuations in the Chinese stock market redirected money far from purchases of cars, according to the association of the local industry. The marques of overseas vehicles were battered by a change in consumer tastes towards purchasing domestic brands because they are cheaper and considered more cheerful sport utility vehicles. In the meantime, the slowdown in the larger economy stops all the car sales (Gordon, 2016). A slowdown in China’s economy means that credit profiles a good number of global companies, particularly those that are commodity-reliant in the mining, steel, and oil and gas. In addition, the shipping companies would also be victims as commodities take up a huge portion of the entire freight volume (Ellyatt, 2015). The international technology, automotive and manufacturing sector may also feel that there is increased credit pressure because of the slowdown in the demand from China (Ellyatt, 2015). References Bird, M. 2014. China’s economy is hitting a wall – and it’s going to affect everyone, Business Insider UK, retrieved from http://uk.businessinsider.com/data-and-statistics-on-the-china-economy-and-the-chinese-stock-bubble-2015-6 [Accessed March 1, 2016]. Ellyatt, H. 2015. China’s ‘shock’ growth scenario: Fitch warns of ripple effects, CNBC, http://www.cnbc.com/2015/12/15/china-gdp-slowdown-global-growth.html [Accessed March 1, 2016]. Giles, C. 2016. World economic feels the impact when China takes a knock, Financial Times, retrieved from http://www.ft.com/intl/cms/s/0/30441208-b548-11e5-b147-e5e5bba42e51.html [Accessed March 1, 2016]. Gordon, S. 2016. Global groups pay a heavy price for China’s slowdown, Financial Times, retrieved from http://www.ft.com/intl/cms/s/2/75f1f276-bdda-11e5-846f-79b0e3d20eaf.html [Accessed March 1, 2016]. Huang, Y. 2014. What’s Next for the Chinese Economy? MIT Sloan Management Review, Retrieved from http://sloanreview.mit.edu/article/whats-next-for-the-chinese-economy/ [Accessed March 1, 2016]. Ji, B. 2010. China’s economic recovery and the China model. Journal of Chinese Economic and Business Studies, 8(3), pp.215-226. Magnier, M., Wei, L., and Talley, I. 2015. China Economic Growth Is Slowest in Decades, The Wall Street Journal, retrieved from http://www.wsj.com/articles/china-gdp-growth-is-slowest-in-24-years-1421719453 [Accessed March 1, 2016]. Orlik, T. and Davis, B. 2012. China’s economic growth slows amid global turmoil, The Wall Street Journal, retrieved from http://www.wsj.com/articles/SB10001424052702303740704577523202849328184 [Accessed March 1, 2016]. Schreurs, M. 2014. 3 factors that will affect China’s GDP growth rate this year, Global Risks Insights, retrieved from http://globalriskinsights.com/2014/03/3-factors-that-will-affect-chinas-gdp-growth-rate-this-year/ [Accessed March 1, 2016]. Segar, M. 2015. How a Chinese slowdown will hit global growth, retrieved from http://theconversation.com/how-a-chinese-slowdown-will-hit-global-growth-46655 [Accessed March 1, 2016]. Spiegel, M. 2015. Global fallout from China’s Industrial Slowdown, FRBSF Economic Letter, retrieved from http://www.frbsf.org/economic-research/publications/economic-letter/2015/november/global-fallout-from-china-industrial-slowdown/ [Accessed March 1, 2016]. Swanson, A. & Sieff, K. 2014. China’s slowdown, financial mayhem cast long shadow across world, The Washington Post, Retrieved from https://www.washingtonpost.com/news/wonk/wp/2016/01/11/chinas-slowdown-financial-mayhem-cast-long-shadow-across-world/ [Accessed March 1, 2016]. The Economist, 2015. Why China’s economy is slowing, retrieved from http://www.economist.com/blogs/economist-explains/2015/03/economist-explains-8 [Accessed March 2, 2016]. Walker, A. 2016. China share turmoil: How it affects the rest of the world, BBC News, retrieved from http://www.bbc.com/news/business-34040679 [Accessed March 1, 2016]. Wang, X.S., 2015. The Chinese economy in crisis: state capacity and tax reform. Routledge. CONTEMPORARY BUSINESS ISSUES 2 – TUTORIAL PRESENTATION Review 1 During the first week, I learnt about the decision by the Chinese government to abolish the one-child policy and adopt the two-child policy instead. The topic was interesting, in that, China had noticed that with the one-child policy, the future meant that there were going many old people to take care of. The government noticed that there was going to be a huge labour shortage in future. For that reason, they thought of adopting a two-child policy as a way of assuring the future of labour. When presenting this kind of tutorial, it can be made more appealing by using more diagrams. Review 2 The second presentation was about whether China should join the trans-Pacific partnership agreement. It used a conclusive presentation based on facts and figures to provide evidence of the need for Chinese involvement in the partnerships. The use of diagrams was an interesting evidence of accurate articulation of the most important data. The presentation should have applied the theory of internationalisation and why it was important for China to enter into an agreement with other regions. However, the presentation could have been improved by giving an in-depth introduction to the topic and a convincing conclusion to highlight the benefits and disadvantages of the move. Review 3 The third presentation presents China’s internet economy. The presentation begins by defining what an internet economy is and how China has benefitted from it. In this presentation, I learnt that I had improved on by articulation skills and was more confident with the contents having researched thoroughly. The presentation should have applied the theory of consumption and the most suitable business models that suit the internet economy. Lastly, I showed my critical analysis of issues such as internet economy. However, this can be improved by ensuring that my arguments are balanced throughout the presentation in terms of pros and cons. Review 4 The presentation is about the benefits accrued from migration. The introduction defines what migration is, the background and the strengths and weaknesses. The presentation provides important statistics of refugees in Europe and migration resulting from increased refugees in different nations. I also learnt that using the right colour for the background creates a beautiful presentation. Theories of migration should have been applied in the presentation to make it more understandable in context. The presentation can be improved in terms of the key elements related to migration. These have not been presented in an articulate manner. The poor use of diagrams has to be improved as well to show the flow of information. Review 5 This presentation was about Xi Jinping’s visit to Britain. The use of graphics has shown the pomp and colour that characterised the visit of the Chinese leader. The presentation is introduced in terms of why the trip was made and why it was significant for the two nations. The presentation highlights some of the most economically important ‘reasons for the visit and the companies involved. My use of pictures and graphics was overdone and this distorted the message conveyed by the presenter. I should improve on the use of pictures and graphics in my presentation by using them strategically where appropriate. Review 6 This presentation was meant to highlight the target of Euro central bank and the extent to which the European Central Bank has achieved the targets. The presentation shows objective of the European Central Bank. During the presentation, I learnt that presenting a good report is about putting in short and clearly understandable elements with the right flow of factual information. No theory has been applied in the presentation, but it would have been presented using financial theories. However, it is difficult to find the reasons to recommend improvement because this presentation hits everything right from the introduction to conclusion. Review 7 This presentation was about whether generous billionaires can help close the gap in the world’s poverty. The presentation uses figures and graphs and examples of billionaires who have been philanthropic. The topic is interesting given that not all billionaires can be as generous with their money just to bridge the gap between the two extremes. I learnt that when presenting such topics requires the need for concrete explanation and the practicality associated with it. The presentation could have been made better by using better colours for the slides and larger fonts. In addition, the presentations lacked introduction and conclusion, which are key in any presentation. Read More