CHAINA ECONOMY REFORM AND EFFECT ON INDIAN ECONOMY.

1. CHAINA ECONOMY REFORM AND EFFECT ON INDIAN ECONOMY. PRESENTED BY- RUPAM MONDAL (PGFA 13 43) PRESENTED TO- PROF. SHIKHA BHATIA

2. NEW CHINA REFORM……………. Beijing announced its boldest economic reforms in decades. Measures unveiled after the Third Plenumof the country's Communist Party leadership are supposed to put the economy on a growth path less reliant on domestic investment and manufacturing, with more emphasis on consumption and services. Most observers have focused on what these plans mean domestically. But there is a significant foreign dimension to the Plenum as well. The new reforms do contain elements that could negatively affect overseas investment in some circumstances. First, capital discipline on state-owned enterprises imposed through higher dividend payments and market-driven interest rates may reduce their outward investment and create volatility, particularly for resource firms, which have been a big driver of China's global investment footprint. After decades of interaction with the world through exports, Chinese firms now have increasing freedom to decide whether they want to invest at home or overseas. If China does not implement the announced reforms aggressively enough, Chinese firms may "vote with their feet" and take their money elsewhere.

3. A major question is how the adjustments will affect China's CHA +0.99% global investment position, in particular outbound foreign direct investment, which has just recently become a source of new-found positivity about China from Australia to Europe and the United States. • Some observers worry that a preoccupation with domestic reform and a general shift to quality rather than quantity growth will keep Chinese money bogged down at home, cutting off this channel of international engagement before it had a chance to get going. • Enlarge Image • The reforms announced at the Third Plenum are likely to bolster China's outbound foreign direct investment stock, which we project to grow from the current $500 billion to $1-2 trillion by 2020. And the relationship between this investment and reforms also goes the other way: Flexibility for Chinese firms to invest globally will be a major driver for reform and growth at home. • After decades of interaction with the world through exports, Chinese firms now have increasing freedom to decide whether they want to invest at home or overseas. If China does not implement the announced reforms aggressively enough, Chinese firms may "vote with their feet" and take their money elsewhere.

4. Here's what you need to know about the main reforms…………………………… • 1) One-childpolicy relaxed: • The policy is to be eased to allow couples to have two children if one the parents is an only child. • Baby-product related stocks such as Good baby International soared in Hong Kong on Monday following the easing of the one-child policy. • 2) Welfare-system reformed: • China said it would relax its system of household registration, known as the hukou system. • They are entitled to when they move to urban areas. Analysts say changing this system is a key step towards liberalizing the labour market, allowing the free movement of labour and encouraging urbanization

5. Continue……………….. • 3) Greater rights for farmers: According to China's official Xinhua news agency farmers will be granted rights to "possess, use, benefit from and transfer their contracted land, as well as the right to use their land ownership as collateral or a guarantee.“ • 4) Stepping up financial reforms • Giving qualified private investors the go ahead to set up banks. • Loosening controls on the pricing of water, electricity and natural resources and revamping the system for Initial Public Offerings (IPOs). • 5) State-Owned Enterprises (SOEs): • SOEs will be required to pay larger dividends to the government. • Private firms, meanwhile, will be encouraged to play a greater role in the economy.

6. But while there is some risk of outbound investment volatility, Beijing's reforms generally expand the rationale for Chinese firms to go global. • The linchpin of President Xi Jinking's new reform program is letting the market allocate resources, which will affect the pricing of almost everything China's firms touch. • With rising costs and a stronger yuan exchange rate vis-à-vis the dollar, Chinese firms must adjust their business models, moving into higher value-added products and down the value chain to capture margins closer to consumers.

7. Going abroad is key to this adjustment. Offshoring low-value-added activities to other countries, acquiring brands and technological capabilities, and serving customers in overseas markets directly all require foreign direct investment. This will particularly boost investments in the services sector, as firms exporting higher-quality goods such as machinery or self-branded electronics necessitate greater on-the-ground presence, significant investments in brands and marketing, sophisticated distribution networks, and the provision of after-sales services. • Going abroad is key to this adjustment. Offshoring low-value-added activities to other countries, acquiring brands and technological capabilities, and serving customers in overseas markets directly all require foreign direct investment. This will particularly boost investments in the services sector, as firms exporting higher-quality goods such as machinery or self-branded electronics necessitate greater on-the-ground presence, significant investments in brands and marketing, sophisticated distribution networks, and the provision of after-sales services.

8. ` • Politically, the announced economic reforms will also make it easier for Chinese enterprises to invest overseas. Private-sector Chinese companies in particular currently face a complicated approval process for outbound investment, which often involves multiple bureaucratic entities with different interests and priorities. This process delays decisions, increases deal risk and puts Chinese firms at a disadvantage in competitive bidding processes. The reforms laid out in Beijing would eliminate some of these hurdles, leaving the decision of whether to make direct investments abroad more squarely in the hands of businesses, which would also allay foreign suspicions about political motives for overseas investments. • The macroeconomic elements of Beijing's Big Bang initiative, including interest-rate and industrial-policy reforms, will also go a long way toward addressing foreign worries about the distortive impact of Chinese companies buying into their back yards. Chinese firms are more likely to be accepted as "normal" players in global markets as a result of these new policies.

9. COMPARISON BETWEEN INDIA AND CHINA ECONOMY…………………………. • India and China are two fastest growing economies, while China is far ahead from India in the figures of Project Management professional. • The numbers in comparison between India and China leave a very sad impression of India’s position in the world of Project Management. • PM and PMA is divided into levels and India’s number of PM professionals is lagging behind on each and every level. While China has 105 certified project directors (IPMA Level A), India only has 12. In IPMA Level B, China has got over thousands of Certified Senior Project Manager in comparison to India’s 17. • The level C is even worse with the figures like more than 18,000 for China and not even close to 2,000 for India. PMA has begun its work to fix this gap and it the dedication remains the same, the gap will be reduced in the coming years.

10. INDIAN ECONOMY……………… • The Indian economy is going through a sluggish period but has great potential for the future, a Chinese economist has said, adding a word of caution that the growth will not be in the same bracket as that of the last decade. • "When the Indian economy was growing fast in the early and mid 2000s, many western economists said by 2015 India would overtake China and compete with the US. Now, they are not giving India any chance," Wen told HT at his office in the university's Institute of South Asian Studies. • "India's economic growth may find it difficult to gain new momentum in the short term but still has credible potential in the long term," Wen wrote in the Institute’s journal. • Talking about India’s market for capital goods, Wen said there is huge demand in developing infrastructure in the railways, energy, power and manufacturing sectors.

11. Here is a small video on china reform…………………….. http://video.cnbc.com/gallery/?video=3000219037

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