Case Study Example | Topics and Well Written Essays - 750 words - 1

Case Study Example patch this move is anticipated to benefit Chinas trading partners, since they will be in a position to reap the benefit of a flexible currency replacement rate, which includes increasing the value of their exports to China, on that point is some dissent view amongst some economists, that doing that will throw a negative implication on China and consequently on its trading partners (Alfaro and Tella, 7). On the event that China would make its currency exchange rate more flexible, a high rate of deflation will be experienced in China, which would publication to economic decline. This is because making the exchange rate flexible would mean that the Chinese currency will pull away some value relative to other currencies, such as the US dollar. This would mean that the cost of doing argumentation in china will increase, since the multinational corporations and other foreign investments to china will be tug to cater for the cost of increased inflation. This might result to having some of the foreign investments or the multinational companies pitiable out of the Chinese market, and seeking to invest in other countries, where the cost of doing business will be relatively lower (Alfaro and Tella, 18). ... The Chinese miserliness operated under the principles of communism, until reforms were introduced to make it a socialist economy, with private willpower of property and increased reforms in agriculture, state-owned enterprises, banking sector, trade and foreign investment policies, which saw China increase its gross internal product growth by 9.5% annually, and increase its trade from 10% of GDP to 79% of GDP between 1978 to 2004 (Alfaro and Tella, 15). The most significant change was in foreign investment policies, where China pursued policies that allowed for high foreign investment, resulting to having 50% of Chinas exports being produced by foreign investors by 2004 (Alfaro and Tella, 16). China pursued foreign direct investment into its economy more than borrowing loans, an aspect that saw the FDI account for more than 70% of its capital inflow in the early 2000s. However, the pressure of investment into china reached to a position of imbalance with the household consumption, prompting the Chinese government to slow down its pursuit for investment, to encourage household consumptions, so that the pressures of investment and consumption would direct off. Thus, as opposed to focusing on revaluing the exchange rates, the Chinese government started focusing on domestic policies that would enhance consumption starting 2005 (Alfaro and Tella, 22). Both the domestic policy and the exchange rate revaluation have the impact of increasing deflationary pressure, while increasing the cost of doing business for foreign investors. This calls for a just adjustment to such businesses, which may include increasing their sales in China to cover up for the increased costs, or shifting their businesses to other countries which h ave less cost of doing business. Therefore, as much as there