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China’s Strengths and Weaknesses

China’s Strengths and Weaknesses. Mapping Business Opportunities in China. Main problem : Wrong model of development model?. GDP = private consumption + gross investment + government spending + (exports − imports ) China is heavily export and investment oriented :.

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China’s Strengths and Weaknesses

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  1. China’sStrengths and Weaknesses MappingBusiness Opportunities in China

  2. Mainproblem: Wrong model ofdevelopment model? • GDP = private consumption + gross investment + government spending + (exports − imports) • Chinaisheavily export and investmentoriented:

  3. China'seconomictransformationVideo 10 min

  4. Producing more competitive products but lackingtrue innovation • The technological products are largely developed incrementally (no disruptiveinnovation). • Thenewinventions are often „only“ refinements of imported pre-existing technologies. • “Import/assimilate/re-innovatemodel” does not foster a climateoforiginalinnovation. • Why?

  5. China has a cheap workforce.But for howlong? • Cheap labor rates were and stillare crucialto the Chinese economic boom. • BUT China’s supply of cheap labor is going to run out soon: • Workersare already becoming more assertivein their demand for higher wages and better benefits. • ThewholeChinese society isageing very fast (onechildpolicy) = reducitonof pool ofnewcheaplabourforce.

  6. Flawedinvestmentpolicy • Long-term plans includeaggresivetargets for economic growth, innovation, and sustainability(forexample 15 percentofenergyfromrenewablestill 2020). • BUT investment policies are plagued by “malinvestment (i.e. can non-market forcesdecide on such a hugeamountofinvestmentefficiently?). Like….

  7. Weak legal system and corruption • Not only cannot protect human rights, but cannot also protect rights of a business. • For example: • Courts are not independent and will in general favor domestic partyor a „friend“. • Properties can be seized arbitrarily. • Governementiscorrupted (15 percentof GDP!) and discriminate on thefriend/no friendbasis. • Intellectual property lights (enforcement still weak) - annual economic loss accounts for eight percent of GDP. • Like…

  8. Weak institutions • Qualityof a country’s institution as important as the development and strength of its market processes. • Tension and opposition necessary to keep market honest. • Non-market institutions include: • Independent courts • Universities • Free press • Welfare systems • Labor unions • These nonmarket institutions keeps markets in check. • China needs them, but don't have them.

  9. Non-privatizedindustries • Communist party still retains the control of most of the state owned companies in strategic industries: • Telecom • Energy • Transportation • Steel production • These companies limited growth of productivity in recent 20 years. • Private owned companies 40 – 70 percent more productive.

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