China



China

Three factors MNCs can use to evaluate China's risk as a potential foreign investment

Factor-1

China is the final arbiter of the capital distribution. It is not influenced by any foreign or domestic credit inflow because it is not large enough in contrast to the overall capital that china has. And in china the state does not just withdraw its capital unless there is a political or social crisis. So it is safe to say that unlike other countries who had a boom similar to china, and when it collapsed the market forces withdrew their credit and because these countries banking system had a heavy net credit position which forced withdrawal of capital, china's financial system does not have any resemblance to the financial systems in these countries.

Factor-2

China's banks benefit from surplus of deposits which allows it to lend continuously. In china's financial system the stock credit equals 77 percent to the stock deposits. The external and domestic liquidity has shown rapid credit growth and investments and which seems like to go on for some time in the foreseeable future. The foreign direct investments and current surplus inflows, china is flooded with liquidity. Foreign exchange reserves were being pushed to peak in 2003 above 400 billion dollars.

Factor-3

China's population is not consumption based. In fact people in china like to save, which is the reason for such high deposits and why the country will continue having credit growth and investments. Nonperforming loan is considered the country's main tool. There is a substantial nonperforming loan build up in the china banking system which china will consume eventually when it is necessary.

What are currency exchange controls?

Currency exchange controls are the controls that a country/government places so that it could shut or restrict the amount of local or foreign currency which is being ...