Introduction

Political economy refers to political, economic and legal system. They interact and
influence each other. Political culture guides these systems. Political culture refers to
distinguish beliefs, values, attitudes and behavior patterns that characterize a political
economy. It function as a frame which constraints acceptable political action and
discourse and guide the economic system of any country. The essence of political culture
is not agreement on issues but common perceptions of the rights and obligations of
citizenship and of the rules for participating in the political process. For example in
Ireland more emphasis put on individualism/ capitalism, and in china culture is more
concerned with collective equality/ Communism. Reviewing these political systems we
come to know how differences in political economic influences the benefits, cost and
risks associated with doing business in different countries and how they affect
management practices and strategy.

Political Systems

A number of different political systems affect the way business is conducted in different
environments and influences on market and legal systems. A dictatorship, such as that of
North Korea, is controlled by a single individual or entity. Totalitarian regimes are run by
a single party, refusing additional groups the right to leadership. China is an example of
this political form. Theocratic governments, such as Iran, rule the government using a
religion-based leadership. Monarchies are ruled by an absolute leader chosen by
hereditary means. Examples of this include Jordan and Saudi Arabia. Parliamentary
governments feature representatives of the population operating under a political party.
Israel is an example of this form of government. Republics, such as that of the United
States, feature a number of directly elected representatives chosen by voters. The final
form of government is basically an absence of leadership, known as anarchy. This is
found within many failed states where the government has collapsed. Occasionally, these
systems are merged into hybrid government systems. For example, the United Kingdom
is a parliamentary-monarchy, although the royal family has little power.

Capitalism is an economic system in which the means of production and distribution are
privately or corporately owned and development is proportionate to the accumulation and
reinvestment of profits gained in a free market.

Communism is an economic system characterized by the collective ownership of

property and by the organization of labor for the common advantage of all members.
Under communism by its very nature, because of authoritarian government control,
socialism automatically becomes a byproduct of this system.

Socialism is any of various theories or systems of social organization in which the means
of producing and distributing goods can be privately or collectively owned or dictated by
a centralized government that often plans and controls the economy. Although socialism
does not always co-exist with only communist or fascist governments, the
implementation of socialism in many countries requires that a strong central government
generally impose this philosophy on the people.

Fascism differs from communism in that ownership of the means of production is left in
the hands of private industry but all industry and business activity is heavily regulated by
a strong national government. Therefore, socialistic objectives are achieved by the police
power of the state. Fascist Germany and Italy both operated in this manner. Fascism can
also be defined as a government marked by centralization of authority under a dictator,
stringent socioeconomic controls, and suppression of any opposition through terror and
censorship.

Dictatorship is a form of government in which the ruler is an absolute dictator (not

restricted by a constitution or laws or opposition from the people). Saddam Hussein is a
prime example of a dictatorship wherein he controlled every aspect of Iraqi life without
the people having any say in the running of the country. Any criticism, no matter how
insignificant, was dealt with by torture and/or death.

Democracy is the government by the people, exercised either directly or through elected
representatives.

Republic is slightly different from a democracy and is a government in which supreme

power resides in a body of citizens entitled to vote and is exercised by elected officers
and representatives responsible to them and governed according to law. The United
States of America is a republic.

Anarchy is the absence of government; the state of society where there is no law or
supreme power; a state of lawlessness; political confusion

Understanding Capitalism

The United States and most of the world operate under a system of capitalism wherein
the means of production are privately owned by corporations and individuals.
In capitalism, economists usually put emphasis on 3 things:
1. the market mechanism,
2. degree of government control over markets (laissez faire), and
3. Property rights
In a capitalist nation, businesses decide when and how much they want to invest for the
economy to grow.
Commerce plays an important role in determining the growth rate of the capitalist
economy. An economy grows when the total value of goods and services produced rises.
This growth requires investment in infrastructure, capital and other resources necessary in
production.
Understanding communism
Communism is a political thought that suffer from large-scale public condemnation.
Although countries like North Korea, Cuba and China still continue to practice
communism in its modified forms, it has been widely-accepted all over the world that
state controlled economy is a downright failure. All the means of productions are the
under the control of government.

Communism vs Capitalism

Ownership of Means of Production

The primary point of difference between capitalism and communism is regarding the
ownership of 'means of production' or resources in general. Communism shuns
private/individual ownership of land or any vital resources. Instead, all the 'means of
production' like land and other resources should be owned by the state. By state here, I
mean the whole community of people. All land and resources which enable the
production of goods and services will be owned by one and all. Everything will be
shared! All decisions about production will be made by the whole community by
democratic means. There will be equal wages for all. All the decisions taken will be
according to what is good for all.

On the other hand, capitalism believes in private ownership of land and means of
production. Every man will have to earn his worth. The major share of the profits earned
from a business will go to the person who owns the means of production, while the
workers who are responsible for running the business will get a small share. Every man
will get his wages according to his merit and according to the thinking of the man who
owns the means of production. Naturally the people who own the means of production,
the capitalists, call the shots when it comes to decision making!

This is the major bone of contention between the two ideologies, ownership of means of
production! Both are extreme ideas. While communism can kill the idea of individual
enterprise, which has led to most of the technological innovations we see today,
capitalism has the seeds of exploitation, where too much wealth and therefore power, is
concentrated in the hands of a few people.

Individual Freedom

communism and capitalism are two extreme points of view, which have contrasting
views about individual freedom. Communism asks one to put the society before the
individual, while capitalism puts individual freedom, before society.

So, the polarity between two ideologies is 'Individualism vs Social welfare'. Capitalism
gives more importance to individual aspirations and appeals to the inherent selfish nature,
which is inherent in all human beings. This inherent selfishness, is a result of the instinct
of self preservation.

Communism appeals to our more saintly side, wherein we think about others before
ourselves. It is a noble thought, which goes against the inherent selfish nature of people,
though it is appealing to their generous natures.

Both again are two extreme points of view, which have their advantages and
disadvantages. Some of the greatest advances in human history have happened due to
individual creativity and enterprise, which were self serving, though they ultimately
benefited the society. Communism can kill that individual creative streak, by making a
person do what he is told. In short, it has the danger of killing creativity and original
thinking.
Capitalism, on the other hand, feeding selfish desires can create capitalist autocrats who
can have control of life and death over thousands of people, leading to exploitation.

Society

Communism advocates a classless, egalitarian society, where all men and women are
placed on the same footing. There will be no differences of class, race, religion or even
nationality! This way, there will be nothing to fight for. This is nice as an idea, but trying
to implement this idea is tough and asking people to give up all the things that make them
different, is unfair. Every person is special and different in his own way.

Capitalism promotes class distinction. In fact creates the major class distinction of haves
and have-nots, the rich and the poor. The rich get richer and the poor get poorer under
pure capitalism. The rich class controls the means of production and wields power,
thereby imposing their own class distinction and whims on the society.

Anatomy of Power

Communism appeals to the higher ideal of altruism, while capitalism promotes

selfishness. Let us consider what will happen to power distribution in both these
ideologies. Capitalism naturally concentrates wealth and therefore, power in the hands of
the people who own the means of production. So, it creates the rich elite who control
wealth, resources and power. So, naturally they decide the distribution of power.

In communism, ideally, if all of mankind was of saintly nature, altruistic and selfless, the
distribution of power would be equal. All decisions would be made by democratic means
and there would be no unjust rules favoring a few.

However, that is not the case here, people are inherently selfish and the nature of power is
such that it corrupts minds and absolute power corrupts absolutely. We have the example
of how communism can concentrate absolute power over a whole nation, in the hands of
a single man, in Stalinist Russia! So, both the ideologies can fail and create an unjust
society.

Ultimately what we need is a balanced approach, which is a combination of good points

in both the ideologies. A mixed economy where the state has control over all the vital
resources of a nation provides welfare for the needy, while also promoting free
entrepreneurship. Communism being an extreme form of socialism.

Pros and Cons of Capitalism

Capitalism promotes economic growth by providing an open competition in the market. It

provides individuals with far better opportunities of raising their income and thus
achieving economic growth.

Capitalism results in a decentralized economic system. This is considered as one of the

greatest advantages of capitalism. In a decentralized economy, individuals are open to
more number of options in business. They are exposed to competition and have to face
different challenges and find solutions to them to stay in competition.

It is in a capitalist economy that hard work is rewarded. Capitalism gives rise to an

economy where the consumers regulate the market. Many consider this as one of the
greatest strengths of a capitalist economy. A competitive market provided by capitalism
facilitates the manufacture of a wide variety of products and the formation of a wide
range of services. Consumers are happier in a capitalist economy. It encourages people to
work towards financial freedom.

Some consider the fierce competition brought about by capitalism as its major drawback.
They believe that a capitalist economy can give rise to unfair competition.

Capitalism makes an economy money-oriented. Business corporations look at the

economy with a materialistic point of view. Profitability remains their only primary
business goal. Business giants take over smaller companies. Employment rights are
compensated with the sole aim of higher productivity.

Some economists believe that capitalism may lead to a depletion of the resources on
Earth, as it requires continuous economic growth.

There are different views about capitalism. Some believe in its strengths, while others
complain about the unfair distribution of wealth it may lead to. A mixed economy can
perhaps serve as the golden mean
.

Pros and Cons of Communism

Advocates of communism claim that capitalist systems exploit the working class by the
people that own the means of production. The monetary condition will also have no value
in this system. People will not have any properties therefore cannot be discriminated
basing on their monetary condition. The whole system is built and developed under the
principle of strict law, which is another advantage of communism. These laws are
maintained by the government. The rate of crime will be relatively low in this situation.
However, communism has a number of disadvantages. For example, the advantages of
communism are mostly theoretical, in practical situation they fail to deliver their
objectives. According to many specialists, no country will ever be able to achieve the true
communism which is stated by its theory. People in a communist society will be
minimum or no right of a number of basic, social and financial needs. Communism made
you fear to even speak to your neighbor. Although there is much truth in that statement,
citizens of a communist country are nothing more than slaves of the state. The only way
to keep Communism alive is to make the citizens afraid to ever organize and protest.
Hence, the government rewards snitches. If you mention something in passing to your
neighbor that is against Communism, you very well might get arrested. While
Communism guaranteed you "free" housing, it was usually some horrible. No civil rights.
No free press. Travel abroad only permitted after rigorous investigation into you and your
family. No right to privacy. If you are gay, you will be ostracized. If you are
handicapped, you will be removed from sight (even in the more compassionate Czech
Republic, they followed this standard Communist practice, that non-productive people
had to be sent somewhere out of sight.

Now the Ireland with capitalism and china with communism are viewed with their
political, economic and legal systems.
 IRELAND

Introduction

In the early 2000s, Ireland was considered one of the most globally competitive
economies in the world. Despite its small size (population of just 4.4 million), Ireland had
emerged as an attractive investment destination. A combination of factors had turned the
Irish economy into a “Celtic Tiger”.

Background: Celtic tribes arrived on the island between 600-150 B.C. Invasions by
Norsemen that began in the late 8th century were finally ended when King Brian BORU
defeated the Danes in 1014. English invasions began in the 12th century and set off more
than seven centuries of Anglo-Irish struggle marked by fierce rebellions and harsh
repressions. A failed 1916 Easter Monday Rebellion touched off several years of guerrilla
warfare that in 1921 resulted in independence from the UK for 26 southern counties; six
northern (Ulster) counties remained part of the UK. In 1949, Ireland withdrew from the
British Commonwealth; it joined the European Community in 1973. Irish governments
have sought the peaceful unification of Ireland and have cooperated with Britain against
terrorist groups. A peace settlement for Northern Ireland is gradually being implemented
despite some difficulties. In 2006, the Irish and British governments developed and began
to implement the St. Andrews Agreement, building on the Good Friday Agreement
approved in 1998.

Political System of Ireland:

In Ireland, there is a republic, parliamentary democracy - a political system in which the

legislature (parliament) selects the government - a prime minister, premier, or chancellor
along with the cabinet ministers - according to party strength as expressed in elections; by
this system, the government acquires a dual responsibility: to the people as well as to the
parliament.

Economic System of Ireland:

Until 2008 Ireland was the open economy/pure free market/capitalist economy in the
world. 1) In period 1990ther was double digit GDP growth. 2) Progressive industrial
policy that boosted large scale FDI and exports. 3) Economic and trade ties with US are
very important, Irish export in US represent approximately 17% of all Irish export and
includes alcoholic beverages , chemicals, electronic data processing equipment, electric
machinery, textile & clothing. 4) Period from 2004-07 was the best performance period
of Ireland among original EU 15 member states.5) Irish economy generated roughly
90,000 new jobs annually and attracted over 200,000 foreign workers.
However, Irish economy began to experience a slowdown in 2008. 1) Revenues
decreased. 2) Widening government budget deficit. 3) Financial institutions were
severely under capitalized. It was the time when Irish economy moved from pure free
market/capitalist economy towards planned/command/regulated capitalist economy.
1) One of the main banks involved in property lending, Anglo Irish Bank was
nationalized. 2) The Irish government also created NAMA, (National Asset Management
Agency) a government run organization. 3) Allied Irish Bank (A.I.B) was transferred
under the control of government. 4) Bank of Ireland is also partially state owned.

Legal System of Ireland:

It is based on English common law substantially modified by indigenous

concepts; judicial review of legislative acts in Supreme Court; has not
accepted compulsory ICJ jurisdiction.

Geography

Location: Western Europe, occupying five-sixths of the island of Ireland in the North
Atlantic Ocean, west of Great Britain.

Area: total: 70,273 sq km

land: 68,883 sq km
water: 1,390 sq km
Rate of Diseases: Irish people living with HIV/AIDS are 6,900.

Climate: temperate maritime; modified by North Atlantic Current; mild winters, cool
summers; consistently humid; overcast about half the time.

Natural resources: natural gas, peat, copper, lead, zinc, silver, barite, gypsum,
limestone, dolomite

Demographics

Life expectancy at birth: total population: 80.19 years

male: 77.96 years
female: 82.55 years (2011 est.)

Literacy: definition: age 15 and over can read and write

total population: 99%
male: 99%
female: 99% (2003 est.)

Economy - overview: Ireland is a small, modern, trade-dependent economy. Ireland was

among the initial group of 12 EU nations that began circulating the euro on 1 January
2002. GDP growth averaged 6% in 1995-2007, but economic activity has dropped
sharply since the onset of the world financial crisis, with GDP falling by over 3% in
2008, nearly 8% in 2009, and 1% in 2010. Ireland entered into a recession in 2008 for the
first time in more than a decade, with the subsequent collapse of its domestic property
and construction markets. Property prices rose more rapidly in Ireland in the decade up to
2007 than in any other developed economy. Since their 2007 peak, average house prices
have fallen 50%. In the wake of the collapse of the construction sector and the downturn
in consumer spending and business investment, the export sector, dominated by foreign
multinationals, has become a key component of Ireland's economy. Agriculture, once the
most important sector, is now dwarfed by industry and services. In 2008 the COWEN
government moved to guarantee all bank deposits, recapitalize the banking system, and
establish partly-public venture capital funds in response to the country's economic
downturn. In 2009, in continued efforts to stabilize the banking sector, the Irish
Government established the National Asset Management Agency (NAMA) to acquire
problem commercial property and development loans from Irish banks. Faced with
sharply reduced revenues and a burgeoning budget deficit, the Irish Government
introduced the first in a series of draconian budgets in 2009. In addition to across-the-
board cuts in spending, the 2009 budget included wage reductions for all public servants.
These measures were not sufficient. The budget deficit reached nearly 32% of GDP in
2010 because of additional government support for the banking sector. In late 2010, the
COWEN Government agreed to a $112 billion loan package from the EU and IMF to
help Dublin further increase the capitalization of its banking sector and avoid defaulting
on its sovereign debt. The government also initiated a four-year austerity plan to cut an
additional $20 billion from its budget. A return to modest growth is expected in 2011.

Economic Indicator
For Ireland in year 2010 Indicator Value
GDP Growth (Constant Prices, National Currency) -0.273 %
GDP (Current Prices, National Currency) EUR 156.127 Billion.
GDP (Current Prices, US Dollars) US$ 204.144 Billion
GDP Deflator 94.113 (Index, Base Year as per
country's accounts = 100)
GDP Per Capita (Constant Prices, National Currency) EUR 37,090.23 .
GDP Per Capita (Current Prices, National Currency) EUR 34,906.86 .
GDP Per Capita (Current Prices, US Dollars) US$ 45,642.49
Output Gap, Percent of Potential GDP -6.77 %
GDP (PPP), US Dollars US$ 173.614 Billion
GDP Per Capita (PPP), US Dollars US$ 38,816.48
GDP Share of World Total (PPP) 0.237 %
Implied PPP Conversion Rate 0.899
Inflation, Average Consumer Prices (Indexed to Year 2000) 105.353 (Index, Base Year 2000 =
100)
Inflation (Average Consumer Price Change %) -1.601 %
Inflation, End of Year (Indexed to Year 2000) 105.065 (Index, Base Year 2000 =
100)
Inflation (End of Year Change %) -0.6 %

Unemployment Rate (% of Labour Force) 13.5 %

Employment 1.842 Million
Population 4.473 Million
General government revenue (National Currency) EUR 55.209 Billions.
General government revenue (% of GDP) 35.362 %
 For Ireland in year 2010 Indicator Value
General government total expenditure (National Currency) EUR 82.79 Billions.
General government total expenditure (% of GDP) 53.028 %
Total Government Net Lending/ Borrowing (National Currency) EUR -27.581 Billions.
Total Government Net Lending/ Borrowing (% of GDP) -17.666 %
General Government Structural Balance (National Currency) EUR -14.338 Billion.
General Government Structural Balance (% Potential GDP) -8.562 %
General Government Balance (National Currency) EUR -23.476 Billion.
General Government Balance (% of GDP) -15.037 %
Total Government Net Debt (National Currency) EUR 86.184 Billion.
Total Government Net Debt (% of GDP) 55.201 %
Total Government Gross Debt (National Currency) EUR 146.189 Billion.
Total Government Gross Debt (% of GDP) 93.634 %
Fiscal Year Gross Domestic Product, Current Prices EUR 156.127 Billions.
Current Account Balance (US Dollars) US$ -5.582 Billion
Current Account Balance (% GDP) -2.734 %

Irish Government's Attitude to Foreign Direct Investment (FDI)

Being a small Island of 4.4 million people Ireland is economically dependent on external
investment. Government have shown in the past their commitment to their aim of
securing FDI by various incentives. Through the government sponsored body, Industrial
Development Agency (IDA) they attract and develop Foreign Investment in Ireland.

The signs are that the current level of FDI still seems to be very healthy and even more
importantly the level of world confidence in 'Ireland inc.' appears not to have abated the
IDA’s success in attracting cutting edge Foreign Direct Investment to Ireland continues
apace. US, European and Asia/Pacific companies demonstrate continued confidence in
Ireland’s capability to house their overseas operations'.

1. The success of IDA and others in securing FDI can be seen as a result of
government's various incentives. In 1956, tax free status was granted to export
oriented firms.
2. Ireland's taxation system, in attracting overseas Investment to Ireland, contains
Corporate Taxation, Personal Taxation, Double Taxation Treaties with Ireland,
Employment Taxes, Value Added Tax (VAT), Dividend & Interest Withholding
Tax, Capital Gains Tax (CGT), Research & Development Tax Credit, which make
it easier to do business here.
3. They have removed the requirement that each company must have an Irish
resident director by widening this definition to EEA resident director (European
Economic Area which includes EEC countries plus Norway, Liechtenstein and
Iceland).
4. Introduced a 0% corporate tax rate on companies with trading profits up to €
320,000 per annum provided they are new companies incorporated and started
trading in 2009.
 5. Ireland had also developed a solid reputation for its quality of life.
6. They fostered cooperative industrial relations, and financial support from
European Union (EU).
7. In 1980, the Irish government pursued a cautious fiscal policy to ensure
compliance with the criteria for Economic and Monetary Union prescribed the
Maastricht Treaty. By lowering the annual budget deficit and the level of national
debt, the government tempted to create a macroeconomic climate favorable to
foreign direct investment (FDI) and private sector growth.
8. Ireland's IP structure is considered to be one of the strongest in Europe. The main
legislation seeks to protect patents, trade marks, copyrights and designs.

Future Outlook:

Ireland had been highly successful in attracting foreign investments. Overseas companies
continued to play a critical role in Irish economic development. Ireland had a good mix of
high quality global businesses in various sectors. However, future investment were linked
to how well the country handled key infrastructural issues such as telecommunications,
electricity supply and education.

China

Introduction

China is believed to have the oldest continuous civilization. China has over 4,000 years
of verifiable history. Beijing is the capital of China and is the focal point for the country.
The official language is standard Chinese, which is derived from the Mandarin dialect.
Most business people speak English. There are many dialects in China however there is
only one written language.

Background: For centuries China stood as a leading civilization, outpacing the rest of
the world in the arts and sciences, but in the 19th and early 20th centuries, the country
was beset by civil unrest, major famines, military defeats, and foreign occupation. After
World War II, the Communists under MAO Zedong established an autocratic socialist
system that, while ensuring China's sovereignty, imposed strict controls over everyday
life and cost the lives of tens of millions of people. After 1978, MAO's successor DENG
Xiaoping and other leaders focused on market-oriented economic development and by
2000 output had quadrupled. For much of the population, living standards have improved
dramatically and the room for personal choice has expanded, yet political controls remain
tight. China since the early 1990s has increased its global outreach and participation in
international organizations.

Political System of China:

A Communist form of government rules China. Communist state-a system of

government in which the state plans and controls the economy and a single - often
authoritarian - party holds power; state controls are imposed with the elimination of
private ownership of property or capital while claiming to make progress toward a higher
social order in which all goods are equally shared by the people (i.e., a classless society).

Economic System of China:

Since 1949 the government under socialist economic system, has been responsible for
planning and managing national.1) In the early 1950, the foreign trade system was
monopolized by the state.2) Nearly all the domestic enterprises were state owned. 3)
Government had set the prices for key commodities. 4) Controlled the level and general
distribution of investment funds, 5) Determined output targets for major enterprises and
branches. 6) Allocated energy resources. 7) Set wage levels and employment targets.8)
Operated the whole sale and retail networks. 8) Steered the financial policy and banking
system.
Since 1978, there was the emergence of mixed idea when economic reforms were
instituted, the government intervention has lessened to great degree. Industrial output by
state enterprises slowly declined, although a few strategic industries such as Aerospace
industry have today remained predominantly state-owned. While the role of the
government in maintaining the economy has been reduced and role of both private
enterprise and market forces increased, the government maintains a major role in the
unban economy.
Before introduction of economic reforms, private ownership of firms hardly existed.
Private firms today account for about 60% of total production today. In fact, China is a
type of mixed economy with a number of specific features.
The pattern has basically been formed in which the public sector plays the main role
alongside non-public sector such as individual and private companies to achieve common
development. According to this plan, China is forecasted to have a relatively complete
socialist market economy in place by 2010 and this will become mature by 2020.

Legal System of China:

The legal system of the People’s Republic of China (PRC) is defined by the government
as a “socialist legal system.” Despite the official definition, however, China’s legal
system is based primarily on the model of Civil Law. The Constitution of the People’s
Republic of China is the highest law within China. Judicial precedents are not
enforceable in China. The Supreme People’s Court (SPC), however, bears the authority
to issue Judicial Interpretations (sifa jieshi) as guidelines to the trials, which are
nationally enforceable.
Geography:
Location: Eastern Asia, bordering the East China Sea, Korea Bay, Yellow Sea, and
South China Sea, between North Korea and Vietnam.
Area: total: 9,596,961 sq km
land: 9,569,901 sq km
water: 27,060 sq km
Rate of Disease: Chinese people living with HIV/AIDS are 740,000 (2009 est.).
Climate: extremely diverse; tropical in south to sub arctic in north.

Natural resources: coal, iron ore, petroleum, natural gas, mercury, tin, tungsten,
antimony, manganese, molybdenum, vanadium, magnetite, aluminum, lead, zinc, rare
earth elements, uranium, hydropower potential (world's largest)

Demographics

Life expectancy at birth: total population: 74.68 years

male: 72.68 years
female: 76.94 years (2011 est.)

Literacy: definition: age 15 and over can read and write

total population: 91.6%
male: 95.7%
female: 87.6% (2007)

Economy - overview: Since the late 1970s China has moved from a closed, centrally
planned economic system to a more market-oriented one that plays a major role in the
global economy - in 2010 China became the world's largest exporter. Reforms began with
the phasing out of collectivized agriculture, and expanded to include the gradual
liberalization of prices, fiscal decentralization, increased autonomy for state enterprises,
creation of a diversified banking system, development of stock markets, rapid growth of
the private sector, and opening to foreign trade and investment. China generally has
implemented reforms in a gradualist fashion. In recent years, China has renewed its
support for state-owned enterprises in sectors it considers important to "economic
security," explicitly looking to foster globally competitive national champions. After
keeping its currency tightly linked to the US dollar for years, in July 2005 China revalued
its currency by 2.1% against the US dollar and moved to an exchange rate system that
references a basket of currencies. From mid 2005 to late 2008 cumulative appreciation of
the renminbi against the US dollar was more than 20%, but the exchange rate remained
virtually pegged to the dollar from the onset of the global financial crisis until June 2010,
when Beijing allowed resumption of a gradual appreciation. The restructuring of the
economy and resulting efficiency gains have contributed to a more than tenfold increase
in GDP since 1978. Measured on a purchasing power parity (PPP) basis that adjusts for
price differences, China in 2010 stood as the second-largest economy in the world after
the US, having surpassed Japan in 2001. The dollar values of China's agricultural and
industrial output each exceeded those of the US; China was second to the US in the value
of services it produced. Still, per capita income is below the world average. The Chinese
government faces numerous economic development challenges, including: (a) reducing
its high domestic savings rate and correspondingly low domestic demand; (b) sustaining
adequate job growth for tens of millions of migrants and new entrants to the work force;
(c) reducing corruption and other economic crimes; and (d) containing environmental
damage and social strife related to the economy's rapid transformation. Economic
development has progressed further in coastal provinces than in the interior, and
approximately 200 million rural laborers and their dependents have relocated to urban
areas to find work. One demographic consequence of the "one child" policy is that China
is now one of the most rapidly aging countries in the world. Deterioration in the
environment - notably air pollution, soil erosion, and the steady fall of the water table,
especially in the north - is another long-term problem. China continues to lose arable land
because of erosion and economic development. The Chinese government is seeking to
add energy production capacity from sources other than coal and oil, focusing on nuclear
and alternative energy development. In 2009, the global economic downturn reduced
foreign demand for Chinese exports for the first time in many years, but China rebounded
quickly, outperforming all other major economies in 2010 with GDP growth around 10%.
The economy appears set to remain on a strong growth trajectory in 2011, lending
credibility to the stimulus policies the regime rolled out during the global financial crisis.
The government vows to continue reforming the economy and emphasizes the need to
increase domestic consumption in order to make the economy less dependent on exports
for GDP growth in the future, but China likely will make only marginal progress toward
these rebalancing goals in 2011. Two economic problems China currently faces are
inflation - which, late in 2010, surpassed the government's target of 3% - and local
government debt, which swelled as a esult of stimulus policies, and is largely off-the-
books and potentially low-quality.

Economic Indicator
For China in year 2010 Indicator Value
GDP Growth (Constant Prices, National Currency) 10.456 %
GDP (Current Prices, National Currency) RMB 38,945.83 Billion.
GDP (Current Prices, US Dollars) US$ 5,745.13 Billion
GDP Deflator 275.696 (Index, Base Year as per
country's accounts = 100)
GDP Per Capita (Constant Prices, National Currency) RMB 10,530.97 .
GDP Per Capita (Current Prices, National Currency) RMB 29,033.43 .
GDP Per Capita (Current Prices, US Dollars) US$ 4,282.89

GDP (PPP), US Dollars US$ 10,084.37 Billion

GDP Per Capita (PPP), US Dollars US$ 7,517.72
GDP Share of World Total (PPP) 13.267 %
Implied PPP Conversion Rate 3.862
Inflation, Average Consumer Prices (Indexed to Year 2000) 248.214 (Index, Base Year 2000 =
100)
Inflation (Average Consumer Price Change %) 3.524 %
Inflation, End of Year (Indexed to Year 2000) 131.864 (Index, Base Year 2000 =
100)
Inflation (End of Year Change %) 3.524 %
Unemployment Rate (% of Labour Force) 4.1 %
Population 1,341.41 Million
General government revenue (National Currency) RMB 7,560.49 Billions.
General government revenue (% of GDP) 19.413 %
General government total expenditure (National Currency) RMB 8,686.38 Billions.
General government total expenditure (% of GDP) 22.304 %
 For China in year 2010 Indicator Value
Total Government Net Lending/ Borrowing (National Currency) RMB -1,125.89 Billions.
Total Government Net Lending/ Borrowing (% of GDP) -2.891 %
Total Government Gross Debt (National Currency) RMB 7,457.45 Billion.
Total Government Gross Debt (% of GDP) 19.148 %
Fiscal Year Gross Domestic Product, Current Prices RMB 38,945.83 Billions.
Current Account Balance (US Dollars) US$ 269.87 Billion
Current Account Balance (% GDP) 4.697 %

Encouraging FDI the Chinese way

In the formative years of the reform process, China followed a selective approach
towards FDI. While the sectors in which investments were sought received incentives
like tariff exemptions and fiscal reductions, other sectors were subjected to severe
constraints. Chinese companies, which involved higher end work, such as hardware
manufacturing, telecommunication and broadband infrastructure building. China opened
up its economy in late 1978 and FDI was authorized in 1979. FDI was considered as one
of the best ways to introduced foreign capital and bring in modern technology and
management skills.
1. Since the mid-90s the level of protection has been progressively lowered. The
average tariff rate came down from 43 percent in 1992 to 23 percent in 1996. In
1997, the average tariff on industrial products was reduced to 17 percent and the
country had plans to bring it down to 10 percent in 2005.
2. Also China established foreign exchange centers in the late 1980s and currency
convertibility for current account operations in 1996, which made it easier for
foreign firms to handle their operations in foreign currencies.
3. China had focused on foreign investments in technology development and
innovation aimed at transforming industries from low high-tech.
4. Several tax incentives have been offered to lure foreign investors. Foreign
companies that transferred adverse technology to China were exempted from both
business and income tax. Foreign firms that increased their technology spending
in China by more than 10 percent over the previous year were allowed to deduct
50 percent of the funds actually spent on technological development from their
income tax dues. On the one hand, China provided incentives for export
promotion and on the other hand it introduced strong import protection measures.
5. In china, while the large state owned companies enjoyed protection, the private
sector was subjected to strong market forces. China's labor markets were highly
flexible in the private sector while workers in the state sector were accorded
generous job guarantees, workers in the non-state sector did not receivess
guaranteed employment. Employment in china grew at a rapid pace as firms could
hire workers with out fear of being stuck with unwanted labor in the future.

Future Outlook:
World Bank chief economist said, China economy will probably become the world
biggest by 2030 when it will be twice the size of the United States, if measured in terms
of purchasing power parity.
Mr Justin Lin senior vice president and chief economist at the bank said "China could
maintain GDP growth of 8% over the next 20 years which will make it the world biggest
economy. He added that by 2030 the Chinese economy may be approximately the same
size as that of the US at market exchange rates in terms of nominal GDP."
He added that "It is imperative for China to address structural imbalances, by removing
the remaining distortions in the financial, natural resources and service sectors to
complete the transition to a well-functioning market economy."
He also said the concentration of income in the corporate sector and the wealthier section
of society is contributing to the rising disparity in incomes and other imbalances in the
economy.
Mr. Zheng Xinli vice president of the China Center for International Economic
Exchanges said "China still has huge potential to maintain strong growth, as the country
urbanization rate is likely to reach 70 percent by 2030 from the current 47%."
Mr. Yi Gang deputy governor of the People Bank of China, the central bank, said in
Hong Kong on Wednesday that he was confident the government will be able to keep
consumer price inflation at or below, 4% this year.
He said that "The inflation figure will rise to as high as 5 percent in May or June this
year, but because of the higher base figure of the second half of 2010, inflation in the
second half of this year will cool. So throughout the whole year, we will be able to meet
the government's 4% target."
Mr. Yi said he is comfortable with the current level of interest rates and that raising them
excessively would attract hot money inflows.
China consumer price inflation rose to 4.9% in January and February from 4.6% in
December. It hit 5.1% in November a 28 month high. A drought in some major grain
producing areas, together with increases in international grain and oil prices has led to
growing concerns about rising inflation.
China’s Success over Ireland
China was able to search ahead of Ireland in attracting FDI, considered to be a prime
input for the progress of developing economies, as it embraced reforms much earlier and
eventually established itself as "workshop of the world". Following are the reasons for
higher FDI of China (i.e. $574 billion) as compare to that of Ireland (i.e. $228 billion):
1. China's success in attracting FDI was attributed by many to its authoritarian
political structure that allowed it to make policy changes more easily than the
democratic setup that prevailed in Ireland.
2. China could easily create policy framework that was investor friendly. Export
processing zones setup with the sole purpose of facilitating production by
multinationals for export from China in to their home markets met with huge
success.
3. Being a big market and a source of skilled manpower, gave China an edge over
other developing economies. If a country’s population is growing very fast, this
may serve as a catalyst for FDI inflows. Besides, larger countries also have higher
levels of physical and intangible assets to invest overseas. As, China’s market
size is larger in terms of consumers i.e. 1,341.41 Million as compare to that of
Ireland i.e. 4.473 Million, the FDI inflow is also higher.
4. No matter what the political system is, because some totalitarian regimes have
fostered strong IPRs protections and have experienced rapid economic growth.
In addition, IPRs protection can preserve R&D incentives. China is a good
destination country in this view because it provides cheaper labors to MNCs. At
the same time, Irish democratic government does not have strong IPRs protections
and thus have sluggish economic growth as compare to China. In 1992, Lee Kaun
Yew, Singapore,s leader for many years, told an audience, “I do not believe that
democracy necessarily leads to development. I believe that a country needs to
develop discipline more than democracy.
5. Many transnational companies (TNCs), evaluating investment opportunities and
locations, typically looked for the stability of the domestic currency because any
depreciation of the currency increased their cost of debt servicing. China, because
of its limited integration with global markets, could provide a stable currency and
resisted the depreciation of its currency, the Yuan, against currencies like the US
dollar. On the other hand, the sharp deterioration in the Irish Government’s
finances and the strength of the euro - - also didn’t help, another inimical to
development,”
6. Another favorable factor for china was the existence of more than 100,000 state
owned undertakings, which were earmarked for privatization. For many of these
units, China looked for foreign capital that was expected to bring credibility to the
venture and help them to secure loans from international agencies. These state
owned units were for sale at a low price and so were able to attract foreign capital.
7. China built the required infrastructure to attract FDI for export production.
8. The difference in composition of GDP of the two economies was also considered
to be a critical factor in determining the FDI flows.

9. The particularly sharp fall in investment in Ireland is largely due to the rapid
increase in unemployment (i.e. 13.5 % in Ireland as compare to that of China i.e.
 4.1%)

Conclusion
Although political system of country influences the attractiveness of that country as a
market and or investment site. As well as, it also requires balancing the benefits cost and
risk associated with doing business in that country. As we have analyzed that China
attract more FDI as compare to that of the Ireland, therefore the belief that only
democratic nations lead to the economic growth, is wrong. Some totalitarian regimes,
such as China has fostered property right protection and has experienced rapid economic
growth, therefore country needs to develop discipline more than democracy.