Introduction
If there still is a dilemma as to whether to consider China as a third-world economy or a land of many opportunities, one must give a close look at the conditions prevailing in the country. China is a land of more than 1.3 billion people and most importantly this heavy population is amongst the most educated in the world. Any industry that has made other nations proud is competing with these eastern champions who are ready to take lead in every sector of life. The most vital contribution that the largest population in the world has made is that it has done enough to draw the most promising investors that exist in the corporate. In the financial sense, the country is one of the hot-spots for mutual fund investment. There are options for so many industries that even if one targets the smaller scale market, he would find the best of returns. Expenses here are as small as 2-2.5% of the investment. This shows the fact that the people of the country have consistent demands and they are simply waiting for companies to come up with their innovations in their respective fields. There are very few countries in the world, where a new venture allows an expense ratio of less than 0.74. China can proudly say that it is one of them attracting FDIs from all over the world. There were a few debates about the interest that foreign investment would fetch from the country. Now that China allows even limited liability partnerships, such a problem no more exists. So, the government has been generous enough to give options to the investors in a variety of ways as per their comfort. Now, if the company wants only a percentage of liability so as to be first trying the existing conditions, it can always be a part of a liability company. Every industry has such options which have made China one of the biggest investment hubs in the world today.(Nelson, 2009)
Investment- A Risk-Return Trade Off
There are many industries in China that are on the upsurge. These industries include telecommunications, IT, food processing, education, construction, minerals and energy. We can see the trade off between return and risk in some of the most promising sectors.
Education
The sole reason for China to be a hot-pot investment in education is the expenses incurred in overseas study. The people o China are now in the developing stage and they prefer education of higher quality having to pay less. This is the reason that much of the institutions in the country are flourishing with local students. Even the very rich prefer their children to study in their home lands so as to be able to understand the riches the country is capable of making. Moreover, the country also welcomes students from abroad to pursue their respective academic degrees. To be a doctor from China is considered to be of high prestige and also with low costs involved comparatively, the students from abroad are making it to the company in large numbers. So, with this belief ruling the country’s academics, investment in the field of education in the country has become one of the best options for those willing to make a mark in the country. The risk involved here is that there has to be a Chinese partner so as to lodge an application for the approval from education authorities. In spite of the fact that Chinese are amongst the most ethical in the world, this involves a certain amount of risk considering the fact that local influence can leave no option in front of the foreign investors.
Processed Food
As per as the recent economic boom in the country, one can see a number of families becoming highly prosperous in chief locations like Shanghai and Beijing. The people are in continuous demand of the most prosperous food and also sophistication in terms of quality and freshness of the food products and services. This shows that there exists a latent demand for food in the country. This leaves a huge opportunity in front of the investors in terms of hotels, bars and other restaurants with a western ambience. Hence all those countries that have a brand image that exists internationally as well have a good chance to grow in the country. There are many options in terms of setting up some hypermarkets or supermarkets in the country. Many multinational companies like Careful and Parkson have made a presence in the country through their supermarkets. So, this is another areas that can be explored further much to the benefit of the shareholders. The risk involved here is that there is little regulation in this field. This can be disadvantageous with respect to foreign investment to some extent. So, before taking a leap in the industry one must do a thorough scrutiny because of it goes well, one can make millions but if it doesn’t, it can lead one to doldrums as well.(Trade and Business Opportunities in China, 2010)
Wine
Another important area of investment in the country is in the form of wine. Good quality wine of French standard is only available in places like Shanghai and Beijing. Once again, as the people of the country are becoming prosperous each day, they would always prefer better quality wine even in other places in the country. The risk involved here is that at present local wine making is at its peak. So, even if a foreign investor makes an investment, he would have to make it through a local name. This can lead to legal discrepancies in the future. But, with the development a mutual trust, this can be prevented.
Mining
Due to high availability of iron ore in Chinese premises along with its huge demand in markets like India, Russia, and China itself, it is not only able to sell this product readily, but also at a significant profit. Gravity of the situation could be understood from the fact that China consumes over 50% of iron ore produced worldwide. Crude steel output of China was about 550 million tons in 2009 as compared to about 500 million tons the preceding year. One of the amazing facets that have lured a number of investors to make investment in this particular industry is that price of iron ore has risen about fivefold since 2001. There also have been certain events that made an intense impact over price of related commodities, but despite of all ups and downs, price of iron ore has always encountered a hike. Another risk aversion factor for investors associated with this industry is that is it can be entirely self dependent over its metal consumption as it is considered to be as largest metal consumer in the world.
Electronics
Manufacturing is an important segment of Chinese GDP (Gross Domestic Product) as a little less than 50% of GDP comes from manufacturing section which is significantly high as compared to that US where this proportion is about 18%. Also a major segment of this manufacturing segment comes from electronics industry, which has seen tremendous growth in past few years. All these aspects are made from certain basis that has made it inevitable for Chinese economy extremely concrete. These features are cost efficiency, maximizing local value, and global innovation. Success of the Chinese electronics industry can be credited to the business model that has been followed by most of the organizations working in this domain. Some of the key aspects of those approaches are:
- Production centric collaboration
- Innovation centric collaboration
- Customer centric collaboration
It has also given high emphasis over product designing which makes sales to go considerably up based over high echelon of customers satisfaction that companies are able to achieve. Domain of this industry has widened itself to the internet technology also, and by making highly apposite use of web 2.0, it has been able to generate revenues that were far beyond the scope industry would have imagined a few years back. This has made electronics market to be one of the favourite markets for investors despite of high volatility that has sustained its identity since its beginning. (Cho, 2009)
Automobile
Automobile market is another one of the high returning market in present scenario. This could be intensified from the fact that auto sales in China were more than that of US in first quarter of 2009. Though due to unfavourable economic conditions in 2008, its auto sales faced a downward inclination, but it has again picked up a pace that it has never seen before. Also in order to maintain proper synchronization with the environmental conditions, companies operating in this industry are initiating towards usage of green energy. If absolute figures are to be taken into account, auto sales of China were 2.65 million as compared to that of 2.2 million during first quarter of 2009. Other major factors that have added up in the progress of auto industry are consolidated economy and preferential policies formulated by the government agencies in order to promote its industrial development and attract more and more foreign investors. This could further be clarified from the shown figure,
These characteristics have also increased profitability for other industries that are dependent over this industry like auto part makers, and service providers. All these segments of the industry operate in an inter-related manner. If one of the segments goes down, it is certain that others will also go down at some point of time. But at present time, investors are highly willing to invest in this industry due to the fact that they are foreseeing it as one of the top performers for future years. (YU Hong, 2010)
Transportation
Transportation industry is considered to be as heart for a nation as it is one of those inevitable services that will be utilized by all the citizens on a regular basis. Also for a nation making progress at such a high rate, it is extremely important for transportation sector to maintain appropriate pace as transportation of raw material and finished goods at faster rate will be required in near future. For this purpose a number if new projects have been initiated to fulfil the demands like execution of plan to have 3 million new busses, along with 19000 miles of newly constructed subways and rail tracks will be ready by 2025 to serve its people. Also the fact that no matter how bad external conditions are people will not be able to reduce their travelling makes investors quite relaxed that this particular segment of industry is quite safe in terms of risk as compared to that of other segments due to the factor of inevitability associated with it.
Conclusion
We can conclude from the above China has made a remarkable growth in the field of economic development. The most important thing to appreciate is that this country is continuously maintaining a growth rate of 9 percent, no matter, recession is there. It has also lifted more than 400 million people in the country from poverty level. In the upcoming years, china is going to grow much faster than it is right now. In this scenario investment in the country plays a major role. Investment in China will not only mitigate risk whereas it will also help in improving its corporate behavior and its performance in ESG. The investment league in the country is underdeveloped. There might be several reasons behind the fact, like mainstream population of this country is unaware of the issues related to investment. Most of the people, who have been lifted from the poverty status, have not improved their thinking ability and still working on what and who and not on “how”. In spite of lesser participation from the domestic people in investment opportunities, there are various encouraging cases that show that investment in China is going high. Rather the foreign direct investment in the country is the main story for the past ten years.
Transportation sector is considered as the sector providing high return to investors in long run with considerably low risk. Electronics industry to be the one with high return but also composed of high risk that investors have to bear in case something inadequate occur and investment goes down. Due to its remarkable returns and low risk and fluctuations, mining industry has attracted number of investors from all over the world and made vital contribution in Chinese economic development.
Recommendations
In spite of such a good growth in the investment opportunities for almost all the sectors of China, there are some recommendations needed so as to further improve the present scenario of investment:
Ø China is a socialist country. There are several restriction put by the government over various issues. Investment restriction over foreign direct investment is also affected by the same. In order to further improve the situation of Chinese investment opportunities, it is needed that government should remove restriction on foreign investment in the country
Ø There are several companies like for example mobile communication companies ready to take part in the market of china but the problem is that there is one product market because of which none of the foreign companies can investment in the market and there is almost no competition.
Ø One more problem with investment in China is wit short term preference. People prefer short term investment over the long term investment. Hence there is a need for the government to change the value measurement system and it is also required that government should alter incentive structure
Ø There is limited ESG information for the public, hence there has to be an increase in the ESG disclosures. It is required that government start linking the research with information
Ø Because there is very less participation from the foreign companies, there is lack of funding for the investment as well. Hence is required for the government to increase the quota for QFII.
Ø There are some ceilings or the restriction put by the government over the institutional investor. It is required to remove such restriction in order to seek future business and investment prospective in the country.
Ø Another problem with the investment opportunities with China is that there is a lack of investors; therefore it is required by the Chinese government to help in the educational financial analysis.