Economic Interchange

The Examination of Financial Data for China

Cheryl Jackson

MBA/591

Global Management Seminars in Problem Solving

Ruth Todd, Instructor

November 27, 2006

University of Phoenix

The Examination of Financial Data for China

Introduction

The purpose of the examination of China's inflation rates regarding consumer price percentage changes, exchange rates concerning the value of the yuan, and the country's interest rates relating to foreign investment is to demonstrate that Riordan Manufacturing can benefit from the growth opportunity of international expansion. The company also will be able to finance its expansion project and still make a profit.

The scope of the study will include the valuation of the balance of trade between the United States and China and how changes in China's industrial production positively affect the balance of trade between the two countries as well as country policy. In a report on the global role of multinationals, the Organization for Economic Co-operation and Development points out that for some countries, production abroad by foreign subsidiaries of national businesses was comparable to total exports from these countries.

Inflation Rates

The country profile and economic data reports indicate that China's retail sales have increased by 13.3% and growth is forecasted to continue throughout 2006 by 12.9%. This growth expansion will be driven by an increase in access to consumer credit, expansion of the retail sector and increases in rural incomes. To this degree China's inflation rates are reflected in its GDP, $15,665,430 in reminbi and $1,908.942 US, which is higher than it has ever been. This has translated to average real GDP per capita growth of "8.3% per year over the same period. In 1990 prices, China's GDP per capita rose from RMB1, 622.3 in 1990 to an estimated RMB5, 659.4 in 2005, which represents a significant increase in the country's prosperity and level of development" (The Dynamics of China's Development, 2006).

The country's growth is due in large part to merchandise exports, which have increased by 20.3% compared to overall average GDP growth of 9.9% in the United States in the same period after that future growth is expected to be strong continuing to the end of 2006 and on to 2015 with average disposable incomes of $1,024 in 2015.

This all comes on the heels of China's growing consumer demand and a reduction in poverty. China's domestic demand is expected to continue growing along with an increase in imports making China a huge market with very strong potential. Riordan's investing in China as a base for its exports will increasingly turn to the vast new market as a source for growth.

Exchange Rate

Global Market Information data reports that China's foreign exchange reserves have gotten as high as $1 trillion in 2006 because of rapid export expansion. This represents an increase from $165,574 million in 2000. Data regarding China's economic information indicates that the country now has the largest holding of foreign exchange reserves in the world, which supports its capacity for strong external payment.

Although China has kept its exchange rate stable at 8.28 since 1994 its central bank announced that "It would be shifting to a managed floating exchange rate regime, with the renminbi allowed to trade within a range of 0.3% against a basket of foreign currencies. The move allows for greater flexibility and effectively strengthens the renminbi to 8.11 against the dollar, an appreciation of 2.1%" (The great revaluation of China, 2005).

Interest Rates

China has become a marketing and manufacturing hub, which has supplied an economic climate to provide multinational companies with the financial flexibility that has come to be expected in the world market. Furthermore, since China is interested in working for American based companies there have been enormous benefits associated with working in China. The advantages are in the amount of value and opportunities China has brought in technology, market share, global positioning, and human resources. The finding emphasizes China's increasing importance to large companies with facilities around the world especially in the world economy.

China also represents a vast new labor market for Riordan where gross output per employee is the measure of its productivity. Furthermore, China has become the world's third largest merchandise trader with thriving investment driven domestic demand, rising oil prices and greater access to markets. This is partly due to a factor of the multinationals being bigger and more geared to operating according to world class levels of efficiency.

It has been reported that in most manufacturing nations like China, productivity tends to be greater in multinational companies than in locally owned companies. Consequently, as a foreign-owned manufacturing company in China, Riordan only stands to gain by utilizing China's labor force, skilled in engineering and technology. This competitive advantage will also reflect the Chinese employees' ability to transfer their thinking in production technologies to an international factory network as well as reflecting greater efficiency.

In the world's most highly developed countries multinational companies like Riordan are generally more productive and pay their workers more than comparable locally owned businesses. Given this, China's workers in the Riordan Manufacturing plants will earn more money than those in the ones owned locally. In view of the fact that one of Riordan's mission goals is to maintain an innovative and team oriented working environment as well as provide a climate focused on the long term viability of the company, China has become a huge labor force market of increasingly strong potential.

Money Stocks

Money stock is the total amount of money available in a particular economy at a particular point in time. "The narrow definition of the money stock M1 includes the paper currency, coins, and travelers' checks in circulation among the public plus the total balances available to depositors in privately held checking accounts" (Johnson,