Putting the current crisis aside, it is obvious that China is one of the emerging giants propelling itself (or being propelled) into the worldwide economic stage. Nevertheless, you may read about how China could have problems if multinationals and advanced economies eventually find a new place with lower wages and slowly leave China behind.
The thing is that low wages is not the only factor keeping China in front of the curve. First, you have the high fixed costs in moving firm operations. Building factories and research facilities takes time and involves high costs. This serves as incentives for a lot of companies to stay in China, unless business conditions deteriorate or there is political turmoil.
Second, while the Chinese government is not a democracy, it has been very stable. Even though there are around 200 protests a day in mainland China ( Page 33, The Elephant and The Dragon by Robyn Meredith), business has been able to go on as usual. Hence, unlike corrupt and unstable governments in places that are more likely to seize foreign assets, the Chinese government has been able to give a sense of safety to investors.
Third, the Chinese government has been catering to foreign investors. They have been focusing on country infrastructure and building roads, bridges, ports, railroads, and other projects that facilitate business and invites investors into China. Additionally, they’ve actively created other incentives such as tax breaks for multinational companies.
Fourth, China has a huge domestic market waiting to be tapped. Around 1.3 billion people to be somewhat exact. Their incomes may not be large enough to buy many Western goods yet, but it is slowly growing and has already started to bring in profits for a lot of companies. Being there when the full potential comes into play sounds like a good idea. Overall, this makes China not only a place to cut cost, but also a great place to increase revenue.
Fifth, there is consistency in Beijing’s policies. Through their 5-year plans where they target where they will spend their next round of billions, companies are able to target production and and offer their services to the Chinese government.
The list above does not include all of the factors that make China a good place to stay, but it is a good starter list.
{ 0 comments… add one now }