Risk of China Economic Collapse Overblown

Risk of China Economic Collapse Overblown

Introduction

There has been extensive debate in the economic circles about the overheated economic growth in China that paces the ground for an economic collapse. There are multiple challenges confronted to Chinese economy that can elevate the threats posed to China as a potential foreign investment. The economic uncertainties embedded in the consistently flourishing Chinese economy raise the dangers of an ultimate collapse at the economic forefront. The geopolitical risks, strains in transportation and energy resources, non-performing loans and macroeconomic control system of China are some of the major concerns that assert the potential of economic crisis in China(AME Info).

Three Factors MNCs can Use to Evaluate China's Risks as a Potential Foreign Investment

Geopolitical Situation

The intervention of political influences to manage economic arena enhances the uncertainties of China as a potentially uncertain investment state (Hong, 2004). Hence MNCs have to be acquainted with sufficient information about the implementation of policies affecting the commercial operations of China to equalize the benefits emerging from commercial endeavors in every manner. The disruptions in political quo can also hamper the operational efficiency of investing entities, so the MNCs are required to ensure the adequate evaluation of political stability of China prior to investment. This will facilitate other foreign investors to invest in China through extensive purchase of Chinese investment assets (Bloomberg News, 2012).

Unstable Energy and Transportation Infrastructure

The real credit augmentation in China resulted in expanded investments causing overcapacity in other genres of Chinese economy (AME Info). The ultimate impact of over-capacious economy came out as strain of transportation and energy resources. This might affect the MNCs' execution of corporate operations and can curb down their revenues. So MNCs must determine the economic sectors suffering from over capacity for smooth transition of investments to foreign states to avoid the potential losses (Everard & Chong, 2007). MNCs are highly required to properly assess the transportation infrastructure and energy resources because identification of appropriate solutions for strains of transportation and energy infrastructure would really ease their business activities.

Non-performing Loans

The drastic accumulation of non-performing loans in Chinese economy reveals that there are massive redundant funds in China halting MNCs' investments in Chinese economy (AME Info). If the proper investment of loans in profit-generating areas is not ensured, then there is great potential for the inappropriate exploitation of economic resources and reduction in the revenues earned from international trading operations

(Everard & Chong, 2007). So MNCs should pay substantial attention towards assessing the idle funds lying in Chinese economy as the accumulation of loans would result in massive capital wastage causing foreign firms working in China to bear financial losses.

Currency Exchange Controls

Currency Exchange Controls

The major exchange control system in China restricts the free conversion of Chinese currency renminbi to any other currency (Hong, 2004). The Chinese authorities do not allow the free conversion of Chinese Yuan to American dollars. This restricts Chinese investors from smooth exchange of Yuan to dollar for executing investments in foreign countries (Hong, ...