Macroeconomic Factors Affecting Investment in China

2561 Words11 Pages
Abstract
China launched its economic reforms and open door policy in 1978. A country having largest population, it attracts a pool of foreign investors towards its economy. Since then the economy went through a series of regulatory and political changes, global and domestic factors surrounded the economy, and it emerged as the second largest economy in the world registering a positive growth in its GDP consecutively for almost two decades. The economic situation prevailing globally requires the investors today to assess the opportunities across the globe and China looks to have favourable macroeconomic factors towards being a good investment opportunity.

Background of China’s Phenomenal Growth
Though China was proclaimed communist
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The sizable local market makes China very attractive for FDIs.



We have looked at FDI as the first major in our paper because FDI inflows point to a lot of factors that are right (or wrong) with the economy. In our opinion China remains an attractive FDI destination based purely on the fact that the extent of development possible is still large and the development thus far has been highly skewed, both in terms of demography and geography. Thus China’s capacity to absorb funds remains as high as ever, despite questions being raised about the undervalued currency.

Gross Domestic Product (GDP)
The GDP of the country stands at $US 5.9 trillion contributing to 9.84 % of the world’s economy. China being the second largest economy in the world and growing at a whopping rate of 9.5 percent appears to be the safest investment option for the investors today. The GDP has been increasing for the past two decades justifying the growth potential the country enjoys because of its natural resources and human capital.

Macroeconomic Factors Affecting Investments in China

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[SAPM TERM PAPER] September 28, 2011

The GDP is expected to grow in the range of 6-8 percent for the next few years to come, and is expected to cross that of US by 2018.

Inflation
Traditional thinking would lead us to believe that China’s breathtaking pace of development would also lead to a phenomenal increase in the demand for
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