The Competitive Advantage of China

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China's buoyant growth rates coupled with low inflation, very high savings rates and manageable levels of public debt have boosted China's macroeconomy. However, a number of structural weaknesses need to be addressed. These are the main issues that emerge from the case study.


The country is ranked very low on considerations of favoritism in government decision making (Rank 43rd), ethical behavior (47th) Intellectual property protection (58th) and auditing and accounting standards (95th). These are artificial constraints and businesses have to be more innovative (manipulative) to succeed.
The extent of sophistication of China's competitive advantage was quite poor, the country being ranked at 59th on this factor. Its competitiveness is based more on providing cheap labor and natural resources rather than unique and sophisticated products, technologies and processes.
The country's state owned enterprises and the banking sector are still in deep trouble, government intervention to protect these lead to skewed decisions. Levels of financial intermediation are low and the state has had to intervene from time to time to mitigate the adverse effects of a large, non-performing loan portfolio. Added to this is the artificially fixed exchange rate that has remained unchanged at 8.28 Rmb/US$ in the period under review. Floating of the Yuan to see its market driven level shall have major repercussions on the economy as it likely to appreciate considerably making Chinese products more expensive and allow competition from other countries.
In terms of consumer sophistication China ranked 42nd; and only 64th in terms of the extent to which its domestic consumers actively de ...
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