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Discussion of THI Invest in China

China has become a global economic phenomenon due to its stable and remarkable growth. The THI requires data on whether this market is suitable for investment and business development, and this paper will present an analysis of the microeconomic indicators that highlight some important aspects to consider. THI should invest in the Chinese economy due to its stable exchange rates and expansionary policies for the monetary sector.

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In general, the Chinese economy has been in a good state in the previous years. According to WorldBank’s (n.d.) data, the state’s GDP reached 14.28 trillion in 2019. However, the IMF’s (n.d.) data shows that in 2020 the nominal GDP decreased to $16.64 trillion, and real GDP has been estimated at $26.66 trillion; the per capita nominal GDP is $11,819. Notably, the unemployment rates have been estimated at 3.6%, although youth unemployment has reached over 10% in 2020 (IMF, n.d.). The current rate of inflation is 2.9%, which is normal for this type of economy. This country has a floating exchange rate; hence, the currency’s value fluctuates based on foreign market events. Notably, like any other state, China’s economy has been affected by COVID-19, but as sown by the GDP data from 2019 and 2020, the state’s economy has been growing. The information about a state’s economy affects the analysis since it allows to evaluate the state of the economy and whether the country has favorable conditions for a business. Additionally, it is helpful to compare the economic characteristics of different states when making business relates decisions.

Currently, China is in the recessionary gap state of the Business Cycle. This aids the analysis since a recessionary gap shows that China’s GDP is lower than it would be at full employment. Similarly, the inflationary gap is a measure of the gap between the real and full-employment GDP. Moreover, these indicators may hint at the policies that the government can choose to implement to address the economic issues. For example, during a recessionary gap, measures should be taken to ensure that the real GDP increases, which requires stabilizing policies. The recessionary gap of China is linked primarily to the decrease in economic activity during the COVID-19. According to He (2021), China has experienced a recession, on par with other developed nations in 2020, but its government has set a target of 6% for economic growth during the next year. Hence, when analyzing this state for potential business opportunities, one may conclude that although China has been in recession recently, the government has voiced its

In terms of fiscal and monetary policies, China has been supporting the economy, which was seriously affected by the pandemic, and adhered to a loose fiscal policy. For example, Li (2021) states that the government has kept the interest rates for the MLF loans at 2.9% for eight months. The state’s government will adhere to the same loose regulations of the monetary policies in the following year since the goal is to help businesses restore their operations and the economy to grow to the 2019 GDP indicators. Based on this, one can assume that China adheres to expansionary monetary policies. Hence, the goal is to decrease taxes for the businesses, aid their growth and development and increase the number of funds in the economy. From this perspective, this policy is beneficial for THI since it targets the support of businesses’ development.

As was previously mentioned, the Chinese economy has floating exchange rates, which means that the value of an exchanged currency is determined by the events within the global market. However, during the recent time, the exchange rates have remained stable, which is part o China’s economic development strategy. Exchange rates and their stability are important for China because they are linked to foreign trade and economic growth. A stable currency is a benefit for foreign investors since it implies minimal losses during the exchange process and allows businesses to predict their financial gains more efficiently. The stability of the exchange rates in China was beneficial for businesses and foreign investors. However, they might have affected the inflation rates negatively.

Since the Chinese economy is closely regulated by the government and state-owned banks are the dominant financial institutes, fund transferability within this country is moderate. The banks have to report the major fund transfers to the government agencies. Regardless, considering China’s expansionary monetary policy, it is recommended that THI enters this market because the government is in support of the business development, and despite regulatory barriers and recession, the recent policies target economic growth.

Overall, this report evaluated the Chinese economy and the state environment’s suitability for a business. China’s nominal GDP has decreased between 2019 and 2020, and the state’s economy has been in a state of recession. However, the government’s fiscal policy has been expansionary. Although the current state of the economy in China is not ideal for a business, it is recommended for THI to enter this market because of the government’s strong support for business development and stable exchange rates.

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References

He, C. (2021). China sets growth target of more than 6% in 2021. CNN. Web.

IMF. (n.d.). World economic outlook database. Web.

Li, X. (2020). China to show a continuance of monetary and fiscal policy next year: analysts. Global Times. Web.

The World Bank. (n.d.). China. Web.

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