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INTERNATIONAL BANKING & OFFSHORE BANKING GB30503

1

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,

http://www.wto.org/

http://www.wto.org/




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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.

http://www.hktdc.com/econforum/tdc/tdc030901.htm







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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

PDF

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




http://repository01.lib.tufts.edu:8080/fedora/get/tufts:UA015.012.DO.00098/bdef:TuftsPDF/getPDF


http://www.stats.govt.nz/




http://www.stats.govt.nz/









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