Entrepreneurship in China Samples for Students †MyAssignmenthelp.com

Question: Discuss about the Entrepreneurship in China. Answer: Since the last few decades, China has risen from poor developing nation to a great economic power. Till the year 1978, China was under the scrutiny of Chairman Mao Zedong and directed a planned economy (Gan, Hernandez, and Shuang 2016). Majority of the countrys share output was controlled and directed by the state. During the period of 1950s, all Chinese individual household were taken together as large communes. Within the period 1960 and 70s, the central government has undertaken large-scale investments both in human and physical capital to support the increasing trend of industrialization. Foreign invested firms and private enterprises were usually barred. The major of the government was to make the economy of the country relatively self-sufficient. The foreign trade policy was only limited to such goods that could not be generated or obtained in China. According to Liu et al. (2014) such kinds of policies were the major cause of distortions in the economy. Most of the economical aspects were managed by the central government and hence there was no mechanism in market to allocate the resources. Chinas reform and urbanization was initiated after 1978 due to the practice of dual- track price liberalization. According to Zhao (2016), the rise of village enterprises, township and opening to various international trades was very major step taken by China. The dual track price liberalization and rise of township enterprises made the state-owned enterprises to face major competition. On the other hand, according to Hong and Jinfeng (2016) the development of international trade made the domestic firms to face major competition. With the rise in competition after the reform, the firms incentives for adopting modern technologies also increased at a rapid pace. The political system of China is centralized in nature, which allows the country for regional competition and experimentation. During the period of reformation, various technologies were imported by China from the western countries rather than from Soviet Union. As per the Chinese government statistics, the real GDP of China grew at an average annual rate of 6.7% from the year 1953 to 1978 (Cho and Candy 2014). Earlier in the year 1979, China started launching various economic reforms methods. The central government started initiating ownership and price incentives for the farmers. These practices enabled the farmers to sell their portion of crops in the free market. Moreover, the government also established four major SEZ (special economic zones) for attracting investment from foreign countries, importing high-tech products and boosting exports of China. The local middle income citizens were also encouraged to initiate their own businesses. Various additional reforms were made in several sectors with the main motive to decentralize the economic policy making. Economic controls related to various enterprises were given to local and provincial governments. This was usually allowed to compete and operate on free market principles instead of gu idance and direction of state planning. Moreover the state price controls on various products range were slowly eliminated. According to Mitchell, Marie and Allen (2014) a country may be identified as middle-income status for a prolonged period unable to transform itself to a high income status. This phase is usually called the middle income trap. A middle income country cannot easily be able to compete with a low income country as the wage rate is too high in middle income country. On the other hand, according to Newell et al. (2016) middle income country is unable to compete with high income countries as the development and research capacity of a middle income country is too low. For a period of more than 30 years of high growth China is currently considered to be upper middle income nation. As per the World Bank, in the year 2016 Chinas per capita GDP was ascertained to be 8,123.2 dollars. Chinas growth process is a major process of integration involved into a greatest economy in the world. China has a population size of over 1.3 billion; therefore the level of nations integration into the world is very unprecedented in history. Feldman (2016) commented that nations with high income status usually avoids the middle-income trap. Large countries are unable to rely on only service sector. Therefore it becomes necessary to develop and adapt innovative technologies that are vital for the growth of manufacturing sector. This would help the country to avoid the middle- income trap. As per Yen, Dorothy Ai-wan and Abosag (2016), China avoids the middle-income trap by the development of technological capacities and manufacturing sectors. The opposition of Industrialization by the various land owners in China was quiet impossible due to land reforms in 1950. Before 1978, huge capitals were accumulated due to the sacrifices made by the citizens. After 1978, due to adequate development in the manufacturing sector resulted china in becoming a middle-income country. In the recent times, China has huge income inequality. China will be able to avoid the middle-income trap by providing free resources access, reducing income i nequalities, opportunities to its citizen and building crucial innovative capacities. On the other hand, Macve (2015) has argued that by the development of interest group can harm the economic growth in a stable society. Interest groups such as landowners can deliberately harm the manufacturing sector development in various countries. The government of the country if proved to be weak would be unable to implement significant policies related to industrialization. The countrys manufacturing sector would therefore be easily captured by the interest groups. Though the concept of middle income trap could be considered to be controversial but there is a high rise in the theory of middle income trap (Wang, Rong and Yanhong 2014). For China, technological improvement is highly essential to avoid the middle income trap as mentioned by Feng, Johansson, and Zhang (2015). Building of infrastructures, financial development and industrial upgrading are highly important for China to avoid the middle income trap. Industrial upgrading mostly depends on the countrys technological progress. As mentioned by Wang et al. (2016), developing infrastructure and technological capabilities are generally complementary in nature. Moreover, financial development will help in reducing the technological cost related to the manufacturing firms. Though the development of technological capabilities is necessary for the growth of middle-income country, it is not necessary for the low-income country. Technological improvement is highly essential to avoid the middle-income trap. As mentioned by Ahlstrom and Zhujun (2014) prominent amount of per capita income is usually related with the high level of labor productivity that can only be achieved through effective and improved technologies. Development of Chinese technological capabilities is also greatly influenced by the policies of the government. During the early 1990s, Chinas investment and trade reforms as well as incentives led to a major surge in the foreign direct investments (FDI). This resulted in major productivity gain of the country and rapid trade and economic growth. As per Shou et al. (2014), China has currently become a major recipient of FDI in the global level. Moreover also provides great FDI outflow globally. In 2016, The FDI outflows of China were resulted to be $183 billion, which makes it the second- largest FDI provider in the world. As per Barnes et al. (2015) the sharp rise in Chinas FDI outflow globally in the recent few years was driven by various numbers of factors. These included the government policies of China and their significant initiatives to motivate and support firms to go-global. The Chinese government uses FDI to gain major access to various technology, know-how, IPR and famous brands. This strategy was used to move the value of Chinese firms in services and manufacturing sectors. This resulted in boosting the countrys domestic innovation and Chinese brands development, which further helped the firms in becoming global competitors. Moreover, the rising labor costs and slow economical condition of China has led major Chinese overseas FDI. This was done in order to help the business firm in expanding the business opportunities as well as diversifying risks beyond the Chinese market. In few cases, it is done to relocate the lower competitive firms from the country to other low-cost countries. As per the reports of Chinas Ministry of Foreign Trade (MOFCOM) for the year 2016, the non-financial FDI of China in BRI countries were totaled to $14.5 billion and were signed with such countries. On the other hand as suggested by Macve (2015) the increased outflows of FDI may also be the result of the government of China making an attempt to diversify its reserves holdings in foreign exchange. Moreover, recently it has been ascertained that the large share of Chinas reserves had been moved to portfolio investments, such as in U.S. treasury securities. These securities are comparatively safe and liquid in nature though small returns are availed. As per the government data on non- financial FDI of China, the greatest sources of FDI in China for the period 1979-2016 were Macau and Hong Kong. They were followed by British Virgin Island (BVI), Japan, Singapore and the United States. The new go-global strategy encouraged the Chinese business entities especially SOEs to make major investment in overseas. The key element responsible for the huge investments was Chinas great accumulation of the various foreign exchange reserves. In the year 2007, the government of China officially launched China Investment Corporation (CIC) to gain more profitable returns from its foreign exchange reserves. Moreover, this will help in diversifying it away from its U.S. dollar holdings. As per Newell et al. (2016) another major relevant factor related to the governments drive for encouraging more outward flow of FDI was to obtain maximum natural resources like, minerals and oils. Ultimately, the government of China has indicated its major goal of gen erating its own globally competitive business entities with their very own brands. According to Feldman (2016), acquiring the foreign entities or investing in them is currently ascertained to be the biggest techniques of Chinese firms to obtainmanagement skills, technology and also international recognized brands. This helps China to become more competitive in the global business environment. In the year 2005, a Chinese computer company better known as Lenovo Group Limited purchased the computer division of IBM Corporation for more than $1.75 billion. In the same manner, as per Wang et al. (2016) overseas FDI in new businesses and plants that is viewed as growing international Chinese entities with major research and development operations and production facilities all around the world. In the current scenario, China is now regarded as an upper middle- income nation. As per Newell et al. (2016), due to the rise in wage rates, the comparative advantage related to the labor intensive goods has diminished. It is important for China to switch from the factor based to innovation or efficiency based growth. The Chinese government and business needs to properly rationalize their behavior for being more effective and efficient. Moreover, as mentioned by Liu et al. (2014) better technologies will also lead to reducing the demands for all the natural resources. Advent of better technological advances as well as creating fair and equal opportunities enables development of the society. The economic growth of China would not only be proved to be beneficial for the Chinese but even for the rest of the world. The manufacturing sector faces major challenges related to diversion of resources and rising costs. The medium and small-sized manufacturing entities help in lowering the concentration of unequal distribution while playing a major emphasis in innovations. The State Owned Enterprises (SOE) is occupied in various infrastructures, resources and financial sectors in China have generally high monopoly power. According to Macve (2015) the manufacturing sector of Chinese business is big but not strong. The automobile industry of China is still dominated by foreign entities and monopolizing technologies. The technological capabilities needed to be improved for the Chinese firms to become strong in the global business environment. The ultimate development of all the technological capabilities is completely dependent on the domestic firms that unbundles the foreign technologies as well as developing indigenous technologies. Therefore it can be concluded that maintaining equal-access society and through proper development of innovative and technological capabilities, China would be able to avoid the middle-income trap. 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