Investment Spending in China: Reap What You Sow

Meaning of Investment

• Investment means to place a portion of our money in company shares or banking in order to obtain an increase.

About china’s economy

• China has the world’s second largest economy in terms of nominal GDP, i.e. US$ 9.3253 trillion.

• In 1978 China became the country with thefastest economic development in the world, it isthe second largest exporter and third largestimporter of goods.

An Incredible Growth

• Over the last 20 years China hasgot an extremely high savings rate,averaging around 40 %, Chineseeconomy has enjoyed one of thehighest growth rates in the world.

• At the beginning of the 90s therewas an incredible increase in GDP,from 4% in 1990 to 12.7% in 1994.

• In the ranking of GDP, in 2007China surpassed Germany and in2010 Japan.

Coming to Grips with the Numbers and therefore Potentials

1.3 billion people

0.7 billion peasants

0.2 billion migrant workers

200m aspiring middle class

100m middle class as now

14m engineers

Summary

• This case study is all about China, whom export is goingdown (49% to 39%) but he maintained his economicgrowth.

• Export growth fell to just 2.9 percent year-on-year lastmonth, down from 11.6 percent in October.

• China’s GDP, which grew at 7.4 percent in the thirdquarter and 7.6 percent in the second, to bounce backabove the 8 percent threshold this quarter, withgrowth coming in at 8.2 percent.

• GDP of investment is 44% last year which is greaterthen America, i.e. 18%.

• China’s investment spending surged as a nationpoured money into roads, railways, and powergrids to counter a plunge in exports.

• Urban fixed asset investment climbed a morethan estimated 26.5% January and Februarycombined to 1.03 trillion yuan ($150 billion) froma year earlier.

• China is spending on railways a tripled,agriculture spending is doubled and coal miningexpenditure jumped 59.6%.

• According to National Bureau of Statistics data,the share of fixed investment in China’s grossdomestic product rose to 46.1% in 2012, up from45.6% in 2011.And now it is 47%.

• China’s GDP decelerated to 7.8% growth in 2012,down from 9.3% in 2011 and the slowest since1999. As the firms and local governments turnedto borrowing to finance investment, a ratio ofhousehold, corporate and local government debtto GDP has ballooned from around 123% of GDPin 2008 to about 180% in 2012.

Domestic Investment

Ques:-Do you think that China’s investmentspending could soon be bigger than US?Justify.

Ans. Yes, China’s investment spending shouldsoon be bigger than US because according tostatistics released by Rhodium Group, lastyear China’s investment in the US is doubled,reaching a record high of 14 billion USD. FDIfrom Chinese private enterprise also increasedquickly : before 2011, private companies onlyrepresented 30% of China’s total investment inthe U.S., in 2012 this figure is 54% and in 2013this figure is 76%.

The external environment is also an incentive forChinese enterprises to go abroad.

• Firstly, since the outbreak of the internationalfinancial crisis, the US government is looking tocreate more job opportunities through absorbingforeign capital, providing a favourable situationfor Chinese enterprises. By the end of 2013Chinese enterprises had created more than 70thousand job opportunities in the US.

• Secondly,"reindustrialization" is an important part of U.S. strategy. While the U.S. government improves thebusiness environment to attract investment, China’shigh end manufacturers are seizing the resultingopportunities.

• Thirdly, investing in the US helps Chinese enterprisesto improve their result, research, and design abilityand get closer to American consumers throughdeveloping local logistics and distribution channels.

The rapid increase in China's investments in the U.S.has its internal logic. As the world's

biggest mature market, with the most advancetechnologies and the strongest R&Dcapability, the US will continue to attract Chinese investment. Areas with the greatestinvestment potential include infrastructure, energy, and middle and high end manufacturing.http://www.heritage.org/research/projects/china-global-investment-tracker-interactive-map