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INTERNATIONAL BANKING & OFFSHORE BANKING GB30503
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QUESTION PART 2
DISCUSS WHAT ARE THE REASONS WHY INTERNATIONAL BANKS MIGHT WANT TO SHIFT
THEIR OPERATIONS TO CHINA. ELABORATE ON THE ECONOMIC POLICIES THAT HAS
TRANSFORMED CHINA ECONOMIC DEVELOPMENT IN RECENT YEARS.
IF YOU ARE MULTINATIONAL COMPANY, WOULD LIKE TO INVEST IN CHINA, GIVE REASONS
FOR YOUR DECISIONS.
TABLE OF CONTENTS
NUM CONTENTS PAGE NUM
1.0 INTRODUCTION 2
2.0 DISCUSS WHAT ARE THE REASONS WHY INTERNATIONAL BANKS
MIGHT WANT TO SHIFT THEIR OPERATIONS TO CHINA 3-4
3.0 ELABORATE ON THE ECONOMIC POLICIES THAT HAS TRANSFORMED
CHINA ECONOMIC DEVELOPMENT IN RECENT YEARS. 5-7
4.0 IF YOU ARE MULTINATIONAL COMPANY, WOULD LIKE TO INVEST IN
CHINA, GIVE REASONS FOR YOUR DECISIONS. 8-10
5.0 CONCLUSION11
6.0 REFERENCES 12
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1.0 INTRODUCTION
China who had over 1.3 billion people and is one of the most popular countries is the world as
in just a few decades, China has gone from one of the poorest countries in the world to a
regional and global leader in the world economy. In world history, China’s economic progress in
the last 30 years was said is bizarre. The Chinese economy has doubled in size and thus making
it the largest country in the world behind Japan and United States. China was more known by
the people in the world as the 2008 Olympic was held at there.
Agriculture and industry was the two most important sectors that contribute in the China’s
economic growth. More than 70% of the labor force and 60% percent of GDP being employ and
produced. By manufacturing consumer goods and industrial products cheaply for the rest of the
world had make China emerged as an export driven economy. It not even help in moving
China’s population from the rural to urban areas but in the same time gaining strong
productivity and increase the export trade to the world.
Millions of China’s citizen that starting who work in agriculture sector are slowly moving their
works to highly productive manufacturing sectors who promises more incomes and at the same
time increase the number of middle class consumer.
China has become more involving in the international issues. Countries such as Korea, Japan,
Taiwan and the ten Asian countries (Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia,Myanmar, the Philippines, Singapore, Thailand and Vietnam)--have felt China's growing
influence. When these countries make policy decisions they now have to take China into
account.
On the future, China will continue to maintain with its self- identity as the “world’s largest
developing country” with the reality of its status as a rising major power. Increasing global
influence and upon which expectations will grow to take on greater responsibility for the
security and stability of the international system.
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2.0 WHAT ARE THE REASONS WHY INTERNATIONAL BANKS MIGHT WANT TO SHIFT
THEIR OPERATIONS TO CHINA
There are a few reasons why international banks might be interested in shifting their operations
to China. For a start, the international banks want to shift their operations to China because the
economic and trade relationship is increasingly close between the home country and China. The
economy of China began to take off since China reformed. Especially after China have joined
into WTO during 2001, China economic construction is further developed and the cooperation
with foreign partners was getting closer and closer through the opening up on different
industries. As a result of the increasing number in international banks entrance, more and more
foreign clients carry on trade and investment in China. The international banks establish
branches in China in order to retain the customer resources that are searching for overseas
investment opportunities.
The second reason for international banks access is to exploit for the giant market opportunities
in China. There are a large number of wealthy residents accompanied by China’s economic
development. Plus, there is more and more people joint into the economic and trade sector.
This will lead to the increased in wealth and the national income is corresponding growing.
However, as a result of the non-maturity of the China economy, the CPI is really high and the
inflation rate is higher than the actual saving interest rate which means that the funds are
continuous depreciation in fact. Therefore, the residents will find new investment opportunities
to the purpose of capital appreciation. It will be more diversified investment opportunities by
foreign banks entrance in order to meet customers’ needs. Citibank and HSBC are the
successful example of international banks that enter to China market and seize the China
market.
From the macro perspective, it is an opportunity for international banks since the entrance of
restriction and resistance is reduce in China. The access restrictions usually reduce the degree
of competition, thereby protecting the benefits of domestic banks in some ways. With the
gradual relaxation of access restrictions from semi-open to the process of opening up, China
began to welcome international investment banks to China and domestic banks have begun to
participate in international competition. China’s foreign market openings gradually quicken the
pace of foreign capital into the region, quantity and equity restrictions. The large scale
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international banks include the JP Morgan chase Bank, Germany’s Dresdner Bank and
Germany’s Siemens and Japan Bank of Tokyo-Mitsubishi Toyota.
In addition, foreign banks enter into China also with the purpose of customer service needs.
The development potential of the China market and attract more foreign capital, foreign banksmust quickly enter the China market. Banking is an information sensitive industry, foreign banks
are often lack of information about the customer needs in host country. With follow the
customer to enter the China market, foreign banks able to offer its customer more perfect than
the China-funded bank services in order to safeguard its long-term customer relationships. Also,
given the fact that foreign banks have considerable international exposure and can launch new
products (e.g., Credit Card, ATM, etc.) besides providing better services, they are in
advantageous position to capture China’s banking business. Foreign banks are always in order
to dominate the highly lucrative trade-related businesses.
Foreign banks have advantage in technology, management, service network, asset quality,
financial capacity and as well as adequate power and ability to expand its market share in China
gradually. Foreign banks may not be the most cost –consuming to build a large organization
network, but more through foreign acquisitions in the form of shares in the banks. Only with
that foreign banks can bypass the China’s government restriction policy and seize the China
market.
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While in 1989, economic reform had been made in order to catches up with the world’s
technology, China change into advancing it owns scientific and technological progress,
improving the quality of the labor in China. The direction of China’s development policies such
as extension of the market system, greater economic openness and limitation of population
growth is being confirmed by Chairman Jiang Zemin. China had cooperative relationships not
only with the U.S but also Japan and European Union. An agreement that covers cooperation
such as marine conversation, renewable energy and health had been made between China and
U.S, and this agreement had been extend for 5 years since April 2006.
The 10th Five-Year plan was implemented on 2001 to 2005. The major anticipated objectives of
economic structural adjustments were to optimize and upgrade industrial structures and
strengthen world competitiveness. While on the 11th December of 2001, China became the
member of the World Trade Organization (WTO). In order to opened up more to the rest of the
world and increase its trade with Japan and the Association of South- East Asian Nation
(ASEAN), movements and decision such as lower tariff rate, abolish market impediment. The
importance of further raising living standards, continuing improvement in the market system
and increase overseas trade, foreign investment and international co-operation had been
highlighted by Jiang Zemin in providing further guidance on policies for continuing develop of
China.
Economic Stimulus Plan has been implemented in 2008-2009 year. On the following years,
compare to the 10th Five- Year Plan who proposed more in “relatively rapid development” the
11th Five- Year Economic Program (2006-2010) is proposed on “steady and relatively rapid
development”. China’s 11th Five-Year Plan (2006 –2010) was from “Getting Rich First” to
“Common Prosperity”, focus to the concepts of the “scientific approach to development” and
“constructing a Harmonious Socialist Society”.
The 11
th
Five- Year Program was to balance the wealth distribution, at the same time, increaseagricultural productivity, facilitate development of non-agricultural sectors and the transfer of
rural labor to these sectors, reduce tax and fee burdens on farmers, improve rural infrastructure
and environmental protection, boost health care provision in the countryside, and extend nine-
year mandatory education to poor regions and poor households with support by central and
local governments.
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On 2010, China is the world’s second-largest trading nation after the U.S, it total trade had
surpassed $2.97 trillion. While, he Economic Stimulus Plan was implement to deal with the
Global financial crisis, action such as the increasing of affordable housing, easing credit
restriction for mortgage and SMEs, lower taxes such as real estate sales and commodities,
invest more in infrastructure development are being taken.
On 2010 to 2011, China was at a key stage of steering the economic recovery to stable growth
after the influences of 2009’s stimulus policies. Further, China had implemented the 12 th Five-
Year Plan (2011-2015). The 11th five-year plan shows that China had to sustain an annual
growth rate of 8% for the foreseeable future; in order to continue develop its industrial
prowess, raise its citizen’s standard living.
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4.0 IF YOU ARE MULTINATIONAL COMPANY, WOULD LIKE TO INVEST IN CHINA,
GIVE REASONS FOR YOUR DECISIONS.
China is a land of opportunity with a quickly-developing economy and infrastructure. Although
investing in China is slightly problematic due to the country's bureaucracy and cumbersome
legal framework, it is a great value to prospect multinational companies who plan to invest in
China. Basically there are a few reasons that motivate multinational companies to invest in
China.
China is now the world's leading recipient of foreign direct investments (FDI) among developing
countries. Foreign direct investment (FDI) into China increased from US$44.2 billion in 1997 to
US$52.7 billion in 2002. This caused China's share of total FDI into the developing world during
this period to rise from 22.9 percent to 32.5 percent, and its share of total FDI into Asia to soar
from 40.6 percent to 55.5 percent. China is currently the leading FDI recipients in the world,
receiving over $80 billion in 2007 according to the Chinese Ministry of Commerce. The flow of
FDI into China is also a primary reason why many foreign investors and multinational
companies are investing in China. There is also multinational companies that are interested to
setup company in china. In fact, there are waiting lists to set up a company in China in selected
regions. These main regions are Shanghai, Beijing and Nanjing.
Regardless of the difficulties of starting a multinational company in China, many global investors
choose invest in China to tap the huge opportunities offered in one of the world's fastest-
growing economies. China is proved to be one of the fastest growing economies in the world by
China’s GDP level averaging 9.5% since 1978. This continuous vibrant economic growth seems
to be a boost for multinational companies that are interested to invest in china.
Although opening a multinational company in China is difficult, recent changes to Chinese
company law have simplified the procedures required to set up a company in China. License of
Business Company has been open to foreign investors since 11 Dec, 2004. It is quite a new
knowledge and procedure for foreign investors and related government departments.
Since its accession to the World Trade Organization (WTO) in 2001, China has made substantial
legal and regulatory progress. China agreed to lower tariffs and abolishes market impediments.
Chinese and foreign businessmen, for example, gained the right to import and export on their
own, and to sell their products without going through a government middleman. Meanwhile,
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investors starting a company in China now receive better protection for intellectual property
rights.
Increasing numbers of investors are being encouraged to set up a company in China. Business
companies can be set up in major cities such as Shanghai. This is because Shanghai is thefastest growing city in the world, attracting large amounts of foreign investment every year.
Capital growth has increased from 15% in 2002, to 25.5% in 2003. In 2004 it stabilized at
19%. Shanghai is becoming an increasingly cosmopolitan city and due to the strength of the
economy there is a large and increasing amount of local wealth. Large and exclusive
department stores and Gucci, Prada and Armani boutiques line the streets next to Rolls Royce
and Ferrari showrooms. Western multinationals have already marked their presence such as
Starbucks, IKEA and B&Q. Shanghai will receive worldwide attention when it hosts parts of the
Olympics in 2008. The World Expo in 2010 and Disney and Universal Studios open in the city.
Some of you may have also noticed the famous brand new race track which hosts the Chinese
Formula One Grand Prix every year.
China has made significant progress implementing its WTO commitments. China was also one
of the most important markets for U.S. exports in 2008. Export growth continues to be a major
driver of China's rapid economic growth. To increase exports, China has pursued policies such
as fostering the rapid development of foreign-invested factories, which assemble imported
components into consumer goods for export, and liberalizing trading rights.
Next, China and Hong Kong signed a Free Trade Agreement in year 2004, called the Closer
Economic Partnership Agreement (CEPA). The agreement has opened the Chinese market to
Hong Kong-based businesses, as well as encouraging manufacturers to set up companies in
China since Hong Kong services are now available to Chinese manufacturing facilities. This
agreement was also boost for multinational companies looking to profit from a Hong
Kong/Mainland China strategy, Hong Kong is the ideal base. The city’s infrastructure, business
and cultural links with the China, as well as its institutions, regulatory environment and peopleprovide an excellent entry platform.
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From the political view, China’s political stability is another core reason for multinational
companies to invest in China. China's political and social landscape is stable because of three
decades of reform and opening-up. The Communist Party of China (CPC) has been committed
to transforming the country's leadership, improving governance according to the needs of the
people at the time ever since launching reform and opening-up. Political stability is still priority
number one for the Chinese central government which views continued and regionally-balanced
economic growth as the key to such stability. Managing economic growth while curtailing
inflation as well as implementing elements within the 12th Five-Year-Plan is likely to take center
stage on the policy front. Localized unrest over various social issues such as corruption,
environmental hazards and pollution, land seizers, wages, working conditions, are likely to
continue, but highly unlikely to pose credible threats to the CCP in the near-term.
Another final reason for a multinational company to look forward for investing in china is the
rapid development of the transportation and infrastructure around the nationwide. A good
transportation and systematic infrastructure is definitely needed if a country would like to
progress forward. Therefore, China has just spent $586 billion on a stimulus package and most
of this money is heading towards highways, railroads, and airports.
According to the Malaysian Insider, “China’s Infrastructure spending has been increasing an
average of 20% annually for the past 30 years. This spending has eventually resulted in
Chinese economy’s explosive growth. As an example, today it only takes two hours to board a
fast train from Shanghai to Nanjing.
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5.0 CONCLUSION
From the topic, we can conclude that there are many reasons that motivate an international
bank to china. These reasons are very attractive that many banks have already shifted their
operations to China.
Meanwhile, China economic transformation has been successful in boosting the economic
growth in the country. The transformation which took nearly thirty years have has resulted in a
great outcome. The outcome is that China has become a economy leader in the world.
Many multinational companies have also invested in China and also set up branches in China.
This due to reasons that have been good grounds for the operations and also profit generating
to this companies.
In future, it is believed that in this current pace, china will be the number one leader of
economy in the world. Therefore, all Asian countries such as Malaysia should take China as a an
example an strive forward to improve economic growth for the well – being of the citizens
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6.0 REFERENCES
Drysdale, P. (2010). China's economic policy strategies-weekly editorial . Retrieved from
http://www.eastasiaforum.org/2010/04/19/chinas-economic-policy-strategies-weekly-editorial/
Economy of the people’s republic of China. (2011). msnbc in profile 2011.
http://www.msnbc.msn.com/id/35018963/ns/business/
Fan, C. C. (2006) China’s Eleventh Five-Year Plan (2006 –2010): From “Getting Rich First” to
“Common Prosperity”. Eurasian Geography and Economics, 47(16), 708-723.
Hu, Z., Khan, M.S. (1997) Why is China growing so fast?. Retrieved from
http://www.imf.org/external/pubs/ft/issues8/index.htm
McGeehan, K. (2005) China’s Banking System and How Citibank can capitalize on Its
Liberalization (Master’s thesis, Tufts University, Medford, United State). Retrieved from
http://repository01.lib.tufts.edu:8080/fedora/get/tufts:UA015.012.DO.00098/bdef:TuftsPDF/get
Statistics New Zealand. (2007). New Zealand in profile 2007. Retrieved from
http://www.stats.govt.nz
Zhao, L. (2009) The motivation and impact on the foreign banks entrance in China ( Master’s
thesis, Lund University, Scania, Swedan). Retrieved from
http://biblioteket.ehl.lu.se/olle/papers/0003555.pdf
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