International Investment Report (Term Paper Sample)

INTERNATIONAL INVESTMENT REPORT
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Background
In this paper, we explore the possibilities of extending Vodafone services into the big Asian country of China. We start by analyzing the economic opportunities available in China and consider the financial system of the country. By analyzing the economic, financial, population and labour structure we try to find out if there are possibilities of opportunities of investment for the telecommunications sector. We shall therefore explore any information on the telecommunications sector, the competitors in the industry as well as government regulations and any taxation regime if any. Since Vodafone is the company proposed for investment in the country of China, we shall have background information on Vodafone and any of their operations in the recent years.
Introduction
The Chinese government has been planning from 1949 but just of recently as 1978 is when the Deng Xiaoping capitalist market principles came into play and the economy started to exhibit massive growth traits averaging about 10% of their gross domestic product which lasted for three decades, during which period their economy size also grow by approximately 48 times from just below USD$ 168.367 billion in 1981 to over USD$ 8.227 trillion in the early 2000s (CIA.gov, 2015). Besides the government reforms, independence was also granted to businesses and enterprises which were under government ownership which meant officials of government at local levels as well as managers of different plants applied more authority than before. This led the creation of a number of different types of private enterprises in the services sector and light manufacturing sector together with stock markets to develop and or grow as economic reforms took hold.
There are however some challenges which the Chinese government faces in their bid to make reforms in their economy (Economywatch.com, 2015). Some of the challenges include the reduction of the high domestic rates of savings and the correspondingly little domestic demand for their goods, the challenge to sustain their job growth for several millions of migrants as well as the new entrants into their workforce; the challenge to reduce the levels of corruption as well other crimes in the economy and containment of the environment damage together with social strife which is related to their economic rapid transformation.
The Country’s Economic Geography
China is known to be the world’s largest country measuring 9,569,901 square kilometers with an economy which is better understood by their decentralization of collection of multiple regional economies but with huge imbalances existing between the rural and the urban populations (Heritage .org, 2015). The country has three wealthiest, richest and most important regions which are found at the east coast namely the Pearl River Delta which is closer to Hong Kong; the Yangtze River Delta which surrounds Shanghai City and the Bohai Bay region which is found near Beijing. The rapid growth and development of these mentioned areas is also expected to impact heavily and significantly on the Asian regional economies in general and particularly the Chinese government policy is also designed to eliminate any obstacles to accelerate growth of these regions. Over the past two decades, the country has also embarked on very ambitious program of the expressway network and expansion. By the country facilitating their market integration, such a program aims to promoting efficiency at the national level besides contributing to catch – up of the inland regions with the prosperous eastern coast regions. The results of the program have seen major financial centers of Beijing and shanghai experience slow growth in the fiscal year at 7.7% and 7.5% respectively as opposed to growth rates of the regions of Tianjin, Yunnan Chongqing and Guizhou in the impoverished interior at over 13%.
Population and Labour
The population of the country in 2012 was estimated to be over 1.35 billion making China the largest and most populated country in the world (Indexmundi.com, 2015). This also makes China to have the world’s labour force with over 795.4 million people although other estimates indicate that the country’s potential labour force estimated between the working ages between 15 years and 64 years could be higher almost at 1.004 billion people. The country’s unemployment rate according to government statistics was 4.1% in 2012 but analysts also believe this may not be accounting for most of the rural population. This is in the refection of the fact that China has maintained their unemployment rate between 4.0% and 4.3% in the last ten years as seen from some government figures.
Some economists still state that China could face a dwindling pool of very young workers in the future because of the country’s notorious single child policy. In fact some estimates state that the a section of the China’s population especially those above 60 years in their population may account for 28% from the present 11% by the year 2040 (Worldbank.org, 2015) . The country’s labour force also reduced by over 3.45 million for the first time in more than 50 years. In spite of the population growth rate which stands at 0.46% the lowest in the world, the government official reiterated the one – child policy could remain place at least for the next couple of years.
Political Structure
In China, the Chinese communist party (CCP) has been at the political helm for over six decades which is long time and expected to surpass the communist party of the Soviet Union one day. The CCP named the regime as the republic of China (PRC) and in this period political institution as well as political culture has significantly evolved because of the willingness of the CCP to adapt. Presently the CCP is committed to having a permanent power monopoly with its intolerance of opponents and analysts take their political system to either be neither monolithic nor rigidly hierarchical (Scutt, 2015). There is however competition within CCP highest 25 – member politburo, among ministries and provincial governments with some semblance of debate in the national people’s congress with attempts to push back some government policies. As part of a trend of political pluralization, other actors in the country’s politics increasingly attempt to influence policy debates and such actors include state - owned and private media, private corporations, research institutes, university academics, non – governmental organizations, sponsored associations and societies and grassroots.
Business Environment
Under the guidance of the CCP, the country has debated needs to balance economics to shift power and wealth from state – owned businesses and local government to private sectors although real power changes of power are somehow hard to detect. To this extent labor reforms have taken root to the extent that south and east China seas have increased due to Beijing declaration of air defense identification zone as well as deployment of oil rig in the waters of Vietnam. The country has seen impressive performance in the GDP due to economic reforms and greater integrations towards world trading with financial systems.
The president started his first year in power with a campaign against corruption, netting several high – ranking officials although the topic remains largely academic. Cyber espionage was visible in 2014 with deterioration of property rights and the country’s judicial system.
Tax Regime
The tax rate of the top individual income is 45% with corporate tax rate being 25%, other taxes being VAT and real estate tax. It is also given that country’s burden of tax at 19.4% of the GDP is the most recent and expenditures by government account for over 24.*% of the GNP with public debt standing at 22% of GDP.
Business regulations and reforms have gradually and unevenly progressed with the time taken to incorporate a business taking about 30 days. The bureaucracies still contribute to the cost of requirements of licensing. However labour regulations are flexible even if labor law enforcement is not consistent. There are subsidies provided by the Chinese government for business like fossil fuel and electricity besides heavily subsidizing agricultural funds.
Markets
The average tariff rate in the country stands at 4.1% with export taxes, state – owned enterprises subsidies, anti – damping and other measures limiting trade to some extent. The government of China is known to screen investments from abroad and also strictly controls the financial system with enterprises belonging to the government benefiting greatly from access to capital and financing opportunities which is not the case with small and medium companies which continue to suffer from accessing credit problems.
Telecommunications Industry
The telecommunications sector of China has faced challenges in this digital era with tools on the internet like the Weixin, Weibo and Twitter dramatically reducing profits of telecommunications operators for voice calls and short messages (SMS) and the industry strives to avoid becoming just data channels (Deloitte China, 2013). On the past experiences of some telecom operators, the ideal strategy could be to open a platform that attracts participation by hardware providers, final end device suppliers, content developers and users. The telecom operators shall also need to take a lead in the healthy development of the ecosystem as well as gene combination on the internet.
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