Financial Markets and Industrialization in China

This assignment provides an in-depth analysis of China's financial market, focusing on its industrialization and trade policies. The report includes a discussion on the real effects of financial markets, emerging economy copycats, and the global strategy of Chinese multinationals. It also covers economic challenges faced by China, such as deflation, corporate loan rates, and over-reliance on investment. The assignment utilizes various references from books, journals, and online sources to support its findings.

INTERNATIONAL TRADE,
FINANCE AND INVESTMENT

EXECUTIVE SUMMARY
A marketplace at where securities of financials, stock, derivatives, commodities etc. are
traded between buyer and seller is referred as financial market. Under this, different kinds of
small markets work which are like money, derivative, stock, capital, OTC etc. The project
consists of major two parts where different things are to be explained properly. The first part
shows about financial markets and ways in which it allocates capital or money among domestic
economy as well as international markets. Apart from this, second project comprises with
evaluation of emerging economy of the world which is China country. Moreover, at time of
industrialisation and preparing trade policies issues faced by China are criticised in the project.
With the help of different markets of financial, capital or required fund is to be allocated at the
national and international both levels. Apart from this, to allocate money at international extent,
stock market is generally considered where shares are issued of one company at global level by
financial markets. When looking at the China economy then GDP rate was declined from 2007 to
2017 with high rate i.e. 14.2% to 6.7%. Further, the selected developing nation faces various
issue which include rate of corporate loan, deflation, over-reliance on investment etc. in terms of
industrialisation and trade policies.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
A. Evaluating financial markets and ways through which these allocate capital within different
markets.............................................................................................................................................1
Background of financial markets............................................................................................1
Capital allocation within domestic economy.........................................................................2
Capital allocation within international markets......................................................................3
B. Critically evaluating challenges faced by developing country....................................................5
Evaluation of one emerging economy....................................................................................5
Critical analysis of challenges which are faced by the emerging economy due to
industrialisation as well as trade policies...............................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9
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ILLUSTRATION INDEX
Illustration 1: Annual GDP growth rate of China economy............................................................5
Illustration 2: Disposable income per capita of China.....................................................................6
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INTRODUCTION
A place where financial securities, shares, commodities, values etc. are exchanged
between seller as well as buyer is considered as financial market. It consists of various small
markets where several numbers of things are bought and sold among purchaser and the seller.
Further, majorly four types of the markets work at there which involve capital, money, stock as
well as derivative market (Amadeo, 2017). The financial markets play a major role in every
economy whether it is of the developed or developing nature. The current project shows
background and detailed analysis of the financial markets. Apart from this, ways in which
financial marketplaces allocate fund or capital in domestic and international markets. Second
part of the report comprises with emerging economy where the nation is to be analysed using
several kinds of aspects. Besides this, various challenges and issues faced by the economy at the
time of industrialisation and trade policies are to be discussed. For completing this specific part,
China is taken into consideration which is an emerging economy in the world.
A. Evaluating financial markets and ways through which these allocate capital
within different markets
Background of financial markets
Finance is considered as blood for every economic and company life. Due to lack of
financial resources a business unable to operate and economy also unable to run as well as grow
properly in the world. Under this financial markets having a pivotal role where securities, stock
or shares of companies, derivatives etc. are traded. Herein, commodities, stock or share, bond,
derivative, Over The Counter (OTC), money, cash and forex markets are involved. The selected
marketplace playing different major roles in an economy which help to trading in beneficial way
and make profitable investment. It plays role in order to mobilisation of savings made by
different investors and shareholders as well as use the fund of them in highly productive manner.
Apart from this, it facilitates to the people in terms of determining demand and supply of
products by which price can be discovered properly. In order to provide liquidity or cash to
financial assets and decline expenses incurred behind transactions of cash, financial markets
playing a major role in the economy (Samiksha, 2016).
The financial markets working in the world economy from last many years where these
help to trade various kinds of aspects within the marketplace. It shows volatility of stock as well
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as commodity markets also as they are basic and key criterias of financial market. On the basis of
this, a company able to raise fund from the market with the help of issuing shares in market.
Until and unless, an organisation not completes the listing procedure in stock market then not
become capable for issuing their shares and raise fund which is required. In addition to this, there
are two methods available by which a firm issues its shares which are to be purchased by
shareholders (Grinblatt and Titman, 2016). When shares are issued at the first time then has to go
through Initial Public Offerings (IPO). Once the shares are issued in market and purchased by
various shareholders or investors and then firm goes for issuing the same next time. For
providing shares through stock market at second or more times, then it has to go through Follow-
On Public Offer (FPO).
When looking at the derivatives market then it comprises with basic four aspects.
Furthermore, elements involved in this particular market are like future, forward, option as well
as swap. On the basis of this, an investor able to go for hedging and arbitration positions. When
the shareholder consider this specific procedure then able to get better return of the investment
made initially. Moreover, this market of financial is generally considered by people when they
are going to make investment for long term. In addition to this, it is used for hedging position
across the world where it provides facility of long term capital management to shareholders.
Capital allocation within domestic economy
A fundamental role of every economy is to allocate financial resources in the market in
proper and adequate manner. For completing this particular procedure, financial market of the
country plays a major and key role. Majority of incomes earned within a nation is from financial
markets because it helps to trade among buyer and seller. Further, it associates as well as
bounded with rules and regulations of the government of country. This aspect or framework is
well aware about the return on investment in any alternative available in the market. Apart from
this, it has some better level of predictions about the market that next day whether it will up or
down. Due to this reason, financial markets give suggestions to government of domestic
economy that investment will be either profitable or not (Engelberg and Parsons, 2011). As per
the future market predictions, if investment will provide more return, in that case government
will invest where it able to make more money in the future. Higher the return generated by
government of the country will be supportive for whole nation in order to develop in the world.
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Apart from this, financial market is well aware about the economic trend of a nation in
terms of stock market, GDP rate etc. On the basis of this specific trend, market able to know
efficiency of capital allocation in the country which supports to make better judgement related to
this. Herein, if allocation of fund in domestic market will highly efficient then financial
marketplace will go for providing required capital. On the another side, if has been seen that
allocating money will not provide positive and high return then market will not make decision in
favour to this aspect. In addition to this, past trend of GDP rate is also sign of efficiency of every
domestic economy in the world. If the decision makers of financial market assess that GDP rate
is consistently growing from last many years then they will blindly allocate needed fund in an
adequate manner. The reason behind this is that, they know that nation has capability to generate
better level of return by utilising the provided fund. While, fluctuations and declining trend of
GDP rate of country cannot get adequate capital from financial markets easily (Arezki, Candelon
and Sy, 2011).
In an economy trading is done between buyer and seller on the basis of several
parameters as well as aspects. When a person or company wants to either purchase or sell any
commodity or share then consider different aspects like share price, past trend of firm or
particular commodity etc. In this term, only financial markets playing a major and key role.
Basic reason behind this is that, it shows return of share of the companies of last many years
along with commodities. On the basis of this, buyer and seller easily able to determine that
specific share will be beneficial for them or not. Therefore, decision of trading in the market is
properly and beneficially taken by them. In such specific ways, required fund or capital is to be
allocated within domestic economy. Further, an economy easily able to make decisions for
making investments and develop in the world.
Capital allocation within international markets
A method through which amount available in the country or nation is divided among
small parts is considered as capital allocation. There are several ways through which an economy
allocates fund at the national and international both. The present case study focuses on financial
markets which playing major role for allocating capital at national as well as international level.
The financial markets have presence at the global level where securities, bonds, shares,
derivatives, commodities etc. are traded at international level also along with domestic (Saunders
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and Cornett, 2012). When an investor wants to purchase share of a company which operates at
international extent then financial markets support in this. Due to this, a shareholder easily able
to make profitable investment in any of the business of world level. On the basis of financial
markets an investor able to assess that, in which manner a share or commodity provides return
from last some years. If the trend is to be seen positively and increasing from last fiscal periods
then decision for making investment will be taken by the people.
Apart from this, financial markets having global presence where they contact with
national and international both level of the businesses. Due to this particular condition, when
multinational firm requires money or fund then such markets issue shares of seeking firm in the
world. Once the shares are issued then global customers and local community will try to
purchase such securities. It is an indirect manner by which financial markets support to
international firms for allocating capital which is needed for several business projects and
intentions (Challet, Marsili and Zhang, 2013). When the firms are going to raise fund then
financial markets take briefing of the reasons and causes behind fund raising intention. If the
reason of this thing are in favour of world economy then and only they provide required capital.
Cause behind doing this specific analysis is that, whether the world economy will develop or not.
In addition to this, financial markets allocate financial resources from derivative and
Over The Counter markets as well. In the second aspect, securities and commodities are
exchanged hand to hand among buyer and seller. This specific concept is to be completed from
the auction procedure where shares are traded. Apart from this, under the derivate markets
shares, commodities and currencies are purchased in present times and then sold in the future.
This specific position referred as hedging and arbitration strategy. These provide opportunities to
people or investors for generating return in more proportion. When the fund or sum of money is
to be allocated at the international level then financial markets consider the process of issuing
shares at global level. This is one of the best and highly adopted way through which financial
markets allocate capital in the international as well as global markets. Further, behind each and
every economic growth there are basic roles played by financial markets. The reason is that,
these help to analyse all the financials resources and utilise them in an appropriate direction.
Along with this, some decisions like making investment at globally and earning return from
money invested are also easily taken by financial markets (Edmans, Goldstein and Jiang, 2012).
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Cause followed under this is that, higher level of proper predictions are made by the selected
markets appropriately.
B. Critically evaluating challenges faced by developing country
Evaluation of one emerging economy
In the world economy there are list of nations having presence among them some are
developed and some are developing. When looking at the emerging economies only then these
are like Hungary, Zambia, Mexico, China, Morocco, South Africa, India, Brazil etc. In order to
evaluate a developing economy, China country is taken into account in the present report. There
are some aspects and elements available which are taken as a base for making evaluation of an
economy in the world. Key concept considered for such analysis is Gross Domestic Product
(GDP) rate. This was fluctuated over the period of last 10 years in the world which directly
create impact on economic growth (Meyer and Thaijongrak, 2013). The changes or fluctuations
in GDP rate of China economy can be seen from the below stated graph:
Illustration 1: Annual GDP growth rate of China economy
(Source: China GDP Annual Growth Rate, 2017)
It can be observed from the above chart that, at the end of fiscal year 2007, GDP rate was
14.2% which was declined consistently up to FY 2009 and closed at approximate 2%. After that
up to one year only the same rate was improved. Further, it can be visualised that, after fiscal
year 2010 GDP rate was reduced on continuous basis which is indication of reducing economic
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growth. As of now of in financial year 2017, GDP rate of China economy is 6.7% only which is
highly low as compared to last ten years (China GDP Annual Growth Rate, 2017). On the basis
of this, it can be critically evaluated that economic condition of China was strong as well as
better in before the past 10 fiscal periods. Furthermore, due to declining in GDP rate the
economic growth of China is poor in the world.
Illustration 2: Disposable income per capita of China
(Source: China Disposable Income per Capita, 2017)
Sum of money which remained with people after paying taxation and security charges is
referred as disposable income. Further, this reflects capability of people for disposing or making
expenses. When looking at the above graph then it can be pertained that, from FY 2006 to 2016,
amount of disposable income was improved from 13785.8 to 33616. This data clearly reflects
that per capita income of China was enhanced which create positive impact on economic growth
rate (China Disposable Income per Capita, 2017).
Furthermore, in order to assess evaluation of an economy only GDP rate is considered by
the analyst at mots of times. As per the GDP rate it can be evaluated that, China is unable to
grow properly and with increasing trend from last 10 years in the world.
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Critical analysis of challenges which are faced by the emerging economy due to industrialisation
as well as trade policies
At the time of operating a firm and an economy in market and world respectively, several
kinds of issues and challenges faced. In the current case, problems incurred in front of China
which is an emerging economy, are presented. Such challenges are discussed with reference to
basically two aspects i.e. industrialisation as well as trade policies. For completing the first term
the first term, economy needs huge level of financial resources. Due to lack of availability of
capital in an adequate manner, government of China unable to industrialisation of the economy
in the world. Herein, issue faced by it is related to corporate loan which was enhanced with the
highest rate at the first quarter of 2015. In between the one year period i.e. from 2014 to 2015,
rate of corporate loan was reached at the highest position. From first quarter of 2014 to third
quarter of 2015, corporate loan rate was improved by 73%. Due to this specific term, financial
burden of China economy was increased which directly create negative impact on GDP rate as
well as economic growth (Economic challenges China faces, 2016). This is one of the higher and
key challenge faced by the selected emerging nation of the world.
Apart from this, another big issue faced by China country is deflation in the market. For
preventing the economy from huge corporate loan rate, government made some targets and
objectives which are cannot be achieved properly and effectively. As per the policies of Chinese
government, aggregate demand of products and services within China will be increased. Due to
occurring deflation economy of China unable to boost up GDP rate. Further, for making central
currency to Yuan in the world, government of China starts to devaluation of its own currency.
Under this, it unable to achieve objective along with this, growth rate of economy in world
hampers up to a greater level. Moreover, government and companies of China does over-reliance
on investment made by several firms as well as investors (Peng, 2012). Due to this condition,
interest rate of the China country affected up to higher level in negative direction.
China economy prepared or framed various kinds of policies as well as rules and
regulations in order to trade at national and international both levels. At the time of preparing the
rules of trading, China unable to make strong as well as effectual kinds of regulations. Due to
this specific reason, companies of the emerging economy are unable to complete procedure of
trading the products and services in effectual direction (Luo, Sun and Wang, 2011). Therefore,
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some rules of international trade are being rewritten considering situations. This is also a major
issue faced by the developing economy related to trading policies.
CONCLUSION
It can be concluded from the above analysis that, financial considers as a backbone for
each and every economy along with the business. Due to this it is very essential to allocate
financial resources in proper and adequate manner. Financial markets help to people in order to
exchange securities, shares, commodities, bonds etc. In order to do allocations of capital or fund
at domestic and international markets, financial markets having a key role. To complete this
specific thing, several small marketplaces of financial are taken into consideration which are like
stock, derivative, OTC, forex, money, capital etc. From the second part it can be assessed that,
GDP growth rate of China i.e. emerging economy is very low and has negative trend from last
many years. At the end of fiscal period 2017 GDP rate of China was 14.2% which is as of now
6.7% only. In addition to this, China faces various challenges which involve deflation, corporate
loan rate, over-reliance on investment etc. in terms of industrialisation and trade policies.
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REFERENCES
Books and Journals
Arezki, R., Candelon, B. and Sy, A.N.R., 2011. Sovereign rating news and financial markets
spillovers: Evidence from the European debt crisis.
Challet, D., Marsili, M. and Zhang, Y. C., 2013. Minority games: interacting agents in financial
markets. OUP Catalogue.
Edmans, A., Goldstein, I. and Jiang, W., 2012. The real effects of financial markets: The impact
of prices on takeovers. The Journal of Finance. 67(3). pp .933-971.
Engelberg, J. E. and Parsons, C. A., 2011. The causal impact of media in financial markets. The
Journal of Finance. 66(1). pp .67-97.
Grinblatt, M. and Titman, S., 2016. Financial markets & corporate strategy.
Luo, Y., Sun, J. and Wang, S. L., 2011. Emerging economy copycats: Capability, environment,
and strategy. The Academy of Management Perspectives. 25(2). pp .37-56.
Meyer, K. E. and Thaijongrak, O., 2013. The dynamics of emerging economy MNEs: How the
internationalization process model can guide future research. Asia Pacific Journal of
Management. 30(4). pp .1125-1153.
Peng, M. W., 2012. The global strategy of emerging multinationals from China. Global Strategy
Journal. 2(2). pp .97-107.
Saunders, A. and Cornett, M. M., 2012. Financial markets and institutions. McGraw-Hill/Irwin.
Online
Amadeo, K., 2017. An Introduction to the Financial Markets. [Online]. Available through:
<https://www.thebalance.com/an-introduction-to-the-financial-markets-3306233>.
China Disposable Income per Capita. 2017. [Online]. Available through:
<https://tradingeconomics.com/china/disposable-personal-income>.
China GDP Annual Growth Rate. 2017. [Online]. Available through:
<https://tradingeconomics.com/china/gdp-growth-annual>.
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Economic challenges China faces. 2016. [Online] Available Through:
<https://www.investopedia.com/articles/investing/011316/4-economic-challenges-china-
faces.asp>.
Samiksha, S., 2016. 4 Important Functions of Financial Market. [Online]. Available through:
<http://www.yourarticlelibrary.com/stock-exchange/4-important-functions-of-financial-
market/1052>.
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