The Background of Financial Markets

The financial market is a kind of market where people can trade the financial securities like futures at a very low transaction costs. The financial markets refers to those markets which are usually used for raising finance. The financial markets always create a regulated system for the companies in order to achieve a huge amount of capital. Since the financial markets are public, they open a transparent way for setting the prices for trading everything. The financial markets are used for raising finance in the long term which are known as the capital markets and for short term finance, through the money markets (Costich,  Scutchfield and Ingram 2015). The capital markets consists of the stock markets and the bond markets there are also presence of the money markets, future markets, cryptocurrencies, commodity markets and future markets. The stock market is a series of exchanges where the corporations which are successful go to raise huge amount of cash in order to expand. However the mutual funds provides the ability for buying a huge amount of stocks at once. With the help of bond markets, organizations can obtain huge amount of bonds. When the price of stock goes up, the bond prices will be going down. The commodities market is a place where the organizations can offset their future risks while selling or buying the natural resources. One of the significant function of the financial market is opening and regulating the various systems for the organizations in order to get huge amount of capital which will be done through the stock and the bond markets (Rodríguez-Pose and Wilkie 2016). The financial markets usually attracts funds from the investors. Without the presence of the financial market, it would have been difficult for the borrowers to find lenders themselves.

The economy of China is going strong every day. The strong economic system have also brought a strong inflation around. The market is a place where both the buyers and the sellers will be exchanging goods and services. The accessibility of the financial markets of China will be strongly linked to the efficiency and the liquidity. The currency of China is referred with various kinds of names such as yuan, renminbi, CNY and RMB where Yuan is known as the primary unit of the currency (Yi and Liu 2015). The central bank of China is being referred as the People’s Bank of China. The People’s Bank of China will be influencing the financial markets with various kind of instruments. The financial sector of china is divided in to three types of segments which comprises of the banking, insurance and the securities. The China Banking Regulatory Commission, China insurance Regulatory Commission and the China Securities Regulatory Commission controls and regulates the segments. It have been seen that most of the trading of the money market of China is done through the interbank markets. Although most of them takes place in the Shenzhen and Shanghai stock exchanges. The industry of the funds of China ids usually dominated by the domestic institutions. Huge amount of the Chinese funds are invested in the stock exchanges. The secondary markets liquidity should be taken into consideration when the financial market of China is been analysed (Leydesdorff and Zhou 2014).

Capital Allocation in Domestic Economy

The financial markets appears to improve the capital allocation across the countries.  The efficiency of the capital allocation have been negatively correlated to the degree of firm specific movement. Capital allocation is a kind of system of distributing financial resources to the different sectors in order to increase efficiency. Therefore, it can be said that the fundamental nob of the economy to allocate resources efficiently in the market. However, it have been found out that the capita allocation of China is found to be highly inefficient in the market. The credit allocation process of china have changes the overall economic growth for the Chinese consumers and businesses. The equilibrium level of the financial resource allocation of China usually experiences many phases which took place in the recent decade. The narrowing wage gap which is present between the high and the low skilled workers of China suggested government intervention in the economy (Ademola,  Bankole and Adewuyi 2016). The fundamental job of the economy is allocating the capital efficiently. In order to achieve this the capital is supposed to get invested in those sectors from which they can expect to get a huge return. In the financial system, the funds flow to those who have surplus funds for those who have shortage of funds. The finance growth relationship is also quite important in nature. When there is presence of any gap, the financial system is linked to the performance of the economy. The financial system is also significant for allocating the capital and also provide the basis for restructuring the economy. The lack of a well-developed stock market is a serious disadvantage to any kind of the economy. The equity financing is also advantageous for the companies. The bank based finance also have a special role to play in many companies in the need of funds. The banking sector have an important role to play with respect to the allocation of funds in case of some of the most profitable investment opportunities. Banks are therefore known as the financial intermediaries which adds cost for the allocation of capital (Costich,  Scutchfield and Ingram 2015).. For making the banks survive in the market economy, they should be provided with huge benefits. It is however quite difficult to compete with the market of the debt securities.

 Financial markets appears to change the allocation of capital. The efficiency of the capital allocation is indirectly related with the state ownership in the economy and is directly correlated with the firm specific information.  The fundamental job of the economy is allocating the scarce capital efficiently.  The capital is usually allocated in sectors in order to gain high returns. The global financial system increases economic growth with the help of creating money, promoting trade, facilitating risk management and by mobilizing resources.  globally. The global financial system is also known to be highly connected to each other.  The firms also use the financial markets globally for raising the capital. The global financial system will also increase the global trade with the help of financing mechanism outside the banking system. The capital market globally involves stocks around $54 trillion. The international financial system will be promoting the economic growth by creating more money and facilitating the risk management. The capital allocation can be stated a system which will be used for distributing the financial resources in various sectors for increasing efficiency and maximizing profits. Allocation of capital is quit a complicated process which requires a complicated process. The first phase which experienced the resource allocation is before 1990 where the financial resources are known to be allocated equally among the provinces. From the year 1991 to 2000, there had been unequal allocation of the resource which led to expanding gaps. After the year 2000, there had been present of slow adjustment in as of equilibrium allocation.

Capital Allocation within International Economy

  The gross domestic product of China increased to 45% from 2013 to 2017. China also ranks 91 for the ease of doing business. When China entered the world trade organizations, it has become one of the most powerful engines in the world. The emergence of China in the economy have provided huge benefits to the global economy. The economy of china is known to be now slowing down and are also in the process of moving towards the different models of growth and development. China also continue to attract a high level of inward foreign direct investment. Although China have known to achieve prominent success in the economic sphere. The slowdown of the Chinese economy is mainly due to both factors. One is the eternal factor and the other is the internal factor. The external factor which is behind the slowdown of China is due to the worldwide economic slowdown.  The Chinese economy is also known to be the socialist market economy. China is also known to be the world’s second largest economy in terms of gross domestic product. The economy of china have enjoyed thirty years of the explosive growth which makes China the world’s largest economy. The success of China therefore was based on the mixed economy which was incorporated with capitalism and command economy. The growth of the gross domestic products in the year 2017 was $23.12 trillion. However, the growth rate of this country have started to decline since 2013. With the help of massive spending by the government, China has become one of the industrialized economy. The massive growth of china have reduced the rate of poverty where only 3.3 percent of the population lives below the poverty line. According to the research twenty percent of the population lives below the line of poverty. China is also known to be the world’s biggest producer of the aluminium and steel. One of the main reason for the high rate of growth of the economy of China is the massive rate of capital accumulation as a result of the advancement of the technological structure.  The improvement of the gross domestic along with the national income have increased the domestic demand which will also help in promoting the development of the tourism industry. The recent economic situation of China is a downward trend  of the growth of the economy. Both the import and export growth remained at the low levels.  The rapidly developing economy of china is mainly due to the socio economic culture which comprises of industrial structure, exchange structure, consumption structure and the technical structure. The improvement of the gross domestic product of China have increased the demand which will promote the development of the tourism industry. The reform of China is one of the most fundamental, motivation for the economy development of China. The current economic situation of China will a downward trend of the economic growth rate. Both the import and export growth remained at much low levels. The shrinking of the external demand, sluggishness of the foreign trade and the economic growth constraints are some of the major hindrance of the economic growth. The market based economic system of China have made a huge change in the economy of china. The trade agreements with China and the other countries which will change the structure of the foreign trade (Gaur, Kumar and Singh 2014). China have also transferred from closed and a semi closed society to a market based economic system. An emerging economy is the one which has low to middle per capita income. As the income is quite low, it is known as the emerging economy.  The economy of china have an explosive growth for the past thirty years. The success of china was mainly because of the capitalism resent within the command economy. The government sending of china had been one of the main reasons for the growth of china.  With massive spending by the government, China have reached its growth. The leaders of China have also taken huge steps in order to boost the domestic demand from more than one billion people.  A strong market of the consumer will allow China to rely very less on the exports. In order to increase the growth, Chia will be needing more innovative companies which will be coming from entrepreneurship.

Evaluation of Emerging Economy of China

Figure 1 Growth rate of GDP in China

The twelfth five year plan will be the significant period for china for realizing the strategic goal of the basic industrialization. Industrialization faces many challenges such as the fast economic growth of china will be restrained by the rising demand in energy. China also have to rely heavily on the export of the oil from the other countries which is one of the major challenge (Ademola, Bankole and Adewuyi 2016). China also had to adopt an environment friendly policy by reducing the emissions of the carbon di oxide and the energy consumption. The industrialization of china is also under the administration of the central and the local governments which has resulted in regional protectionism.

The technological sources of the industrialization is dependent on the foreign nations. However the self-innovative capacity of the Chinese technology is quite weak. One of the biggest challenge is that more than fifty percent of the technology on which China relies is basically foreign.

There is also a presence of contradiction between the natural resources and the industrialization (Lai and Xia 2016). The  industrialization of china have also resulted to huge problems which includes high energy consumption  which resulted to environmental degradation such as worsening the quality of water, air pollution along with land contamination.  China is known to be at the middle stage of the industrialization. Although China had gained rapid economic growth with the help of industrialization, it had negatively affected in many parts. The environmental degradation of china have been getting worse day by day resulted in huge economic loss  which also posed severe environmental health risks. The ration of energy efficiency of this country is also known to be thirty to forty percent lower than the rest of the developed countries. The massive energy consumption also exhausted the natural resources and brought huge environmental problems.

China is also a challenging pace for doing any kind of business. Some of the challenges which the economy of China faces is the falling growth rate of China. The growth of China was planned by the government as it have the command economic system. A falling gross domestic product also means that tax revenue are also falling For the Chinese government. The economic boom have led to huge development all cross China which have risen as result of exports. As domestic consumption is the key factor, China will need to focus in the underdeveloped internal areas. However, the interior China is still in the third world country mainly with very low standards of living (Gaur, Kumar and Singh 2014). His can be challenging issue since minting a high growth rate with such poor infrastructure is known to be quite difficult. With the fall in the revenues along with increase in the expenditures, it have created shortfalls which will be filled with the help of borrowing money. The central planning made by the Chinese government have also led to a massive rate of mal investment. In future therefor, the industrialization of China will be facing hg problems such as lack of capability to self-innovate the industrial technologies, limitations in the natural resources, heavy pressure from employment and also imbalance in the development (Chen 2015). The industrialization of China can be divided in to three main stages which comprises of the first stage from the year 1953 to 1978. The second stage started from 1979 to 1999 And third stage starts from the year 2000 when there will be reappearance of heavy industrialization in china. The industrial structure of china is also not very well coordinated and the organization is not rational enough in nature where in the share of the gross domestic product   the ration between the share of industry and the service sector is quite low.

Conclusion 

The emerging economy of china have resulted due to the mixed economy. The strong financial sector of China have recently evolved to meet the need of the modern economy. the large population of china can also be seen as the greatest opportunity. However, there have been a lot of risks in doing business in china. However, China have faced a lot of challenges as a result of industrialization and trade policies. The financial markets also creates an open and regulated system for the companies in order to get large amounts of capital which is done with the help of stock and bond markets.  China have experienced a huge shift from the society which used to revolve around the sustenance in the agricultural industry into the society which used to revolve around socialism. The changes in the economy of China developed when there is change in the politics of China. The transition of the Chinese economy from the centrally planned economy helped the Chinese economy to expand.  Economic growth of a country have been regarded as an increment to the productive capacity. China is therefore no more regarded as an underdeveloped country which had been associated with poverty as a result of the closet door policy.  The economic growth of China regarded as the increment of the productive capacity. When the economy is strong, it will help to improve the purchasing power of the people. China is also known as the fastest growing economies in the world.  China have also achieved as the second largest economy in the world as well as the largest economy present among the developing nations.  

References

Ademola, O.T., Bankole, A.S. and Adewuyi, A.O., 2016. China-Africa trade relations: Insights from AERC scoping studies. In The Power of the Chinese Dragon (pp. 69-97). Palgrave Macmillan, London.

Chen, P., 2015. Free to create: China’s quest for an innovative economy. Kennedy School Review, 15, pp.76-84.

Costich, J.F., Scutchfield, F.D. and Ingram, R.C., 2015. Population health, public health, and accountable care: emerging roles and relationships. American journal of public health, 105(5), pp.846-850.

Du, K. and Lin, B., 2015. Comments on “Using latent variable approach to estimate China’s economy-wide energy rebound effect over 1954-2010” by Shuai Shao, Tao Huang and Lili Yang. Energy Policy, 86, pp.219-221.

Gaur, A.S., Kumar, V. and Singh, D., 2014. Institutions, resources, and internationalization of emerging economy firms. Journal of World Business, 49(1), pp.12-20.

Huang, W., Li, N. and Shi, M., 2016, February. The Impact of Energy Transportation Constraint on Spatial Balance of Energy Supply and Demand And Regional Economy in China. In Meeting Asia”s Energy Challenges, 5th IAEE Asian Conference, Feb 14-17, 2016. International Association for Energy Economics.

Kirkby, R.J., 2018. Urbanization in China: town and country in a developing economy 1949-2000 AD. Routledge.

Lai, K. and Xia, O., 2016. China economy.

Leydesdorff, L. and Zhou, P., 2014. Measuring the knowledge-based economy of China in terms of synergy among technological, organizational, and geographic attributes of firms. Scientometrics, 98(3), pp.1703-1719.

Luo, Y., Sun, J. and Wu, Y., 2015. A theory of amalgamation toward the growth of emerging economy firms. Foreign Economics and Management, 37(6), pp.3-38.

Mastel, G., 2016. The Rise of the Chinese Economy: The Middle Kingdom Emerges: The Middle Kingdom Emerges. Routledge.

Meyer, K.E. and Peng, M.W., 2016. Theoretical foundations of emerging economy business research. Journal of International Business Studies, 47(1), pp.3-22.

Myers, M. and Wise, C. eds., 2016. The political economy of China–Latin America relations in the new millennium: Brave new world. Taylor & Francis.

Nosov, V. and Tseplyaeva, J., 2016. China: Economy in Transition. Economic Policy, 3, pp.46-55.

Pun, N., Ku, B.H.B., Yan, H. and Koo, A. eds., 2015. Social economy in China and the World. Routledge.

Qi, Y., Stern, N., Wu, T., Lu, J. and Green, F., 2016. China’s post-coal growth. Nature Geoscience, 9(8), pp.564-566.

Rodríguez-Pose, A. and Wilkie, C., 2016. Putting China in perspective: a comparative exploration of the ascent of the Chinese knowledge economy. Cambridge Journal of Regions, Economy and Society, 9(3), pp.479-497.

Shen, H., Yuan, Y., Zhang, Q. and Zhao, J., 2014. An empirical study of customer-based brand equity model for China economy hotels. Journal of China Tourism Research, 10(1), pp.21-34.

Tong, S.Y. and Wan, J. eds., 2017. China’s Economy in Transformation Under the New Normal. World Scientific.

Unger, J., 2016. The transformation of rural China. Routledge.

Van Aken, T. and Lewis, O.A., 2015. The political economy of noncompliance in China: the case of industrial energy policy. Journal of Contemporary China, 24(95), pp.798-822.

Wang, J., Zhu, H. and Tong, X., 2017. Industrial Districts in a Transitional Economy: The Case of Datang Sock and Stocking Industry in Zhej iang, China. In Proximity, Distance and Diversity (pp. 55-76). Routledge.

Williams, C., Colovic, A. and Zhu, J., 2016. Foreign market knowledge, country sales breadth and innovative performance of emerging economy firms. International Journal of Innovation Management, 20(06), p.1650059.

Yi, H. and Liu, Y., 2015. Green economy in China: Regional variations and policy drivers. Global Environmental Change, 31, pp.11-19.

Zhu, J.Z., Zhou, Q.Y., Wang, Y.M., Dai, Y.N., Zhu, J., Yu, C.H. and Li, Y.M., 2015. Prevalence of fatty liver disease and the economy in China: A systematic review. World Journal of Gastroenterology: WJG, 21(18), p.5695.