Group Number A1 Group Members

Ravi Jyoti Sidhant Mahajan Shivendra Nidhi Agarwal Shubham Jain

1. The Renminbi - RMB

The Renminbi (RMB) is the official currency of China. The RMB was pegged to the US dollar till 2005. The currency was devalued to increase the competitiveness of Chinese industry as China moved from central planning to a market economy, and increased its participation in foreign trade. The RMB's official exchange rate was undervalued by as much as 37.5% against its PPP as has previously been claimed. However more recently, by the second half of 2012, the renminbi has been within as little as 8% of its equilibrium value due to appreciation actions by the Chinese government, as well as quantitative easing measures taken by the federal reserve and other major central banks. However since 2005, the RMB exchange rate has been floating in a narrow margin around a fixed base rate determined with respect to a basket of world currencies. The Chinese authorities has announced that it will gradually increase the flexibility of the exchange rate. Consequently due to rapid internationalisation of RMB, it has become the world's 8th most traded currency. The exchange rate is of 3 types: fixed, floating and managed float. Countries generally float their currencies if the following conditions are met: (i) The GDP is large (ii) Relatively low level of openness (iii) A high inflation differential with other countries (iv) A high degree of integration in international capital markets (v) Substantial diversification in traded goods.

For most of its early history, the RMB was pegged to the U.S. dollar at 2.46 Yuan per USD. During the seventies, the currency appreciated and by 1980 it reached to 1.50 Yuan per USD. When China's economy gradually opened in the 1980s, in order to improve the competitiveness of Chinese exports, the RMB was devalued. Thus, the official USD to RMB exchange rate declined from 1.50 Yuan in 1980 to 8.62 Yuan in 1994 which was the lowest ever on the record. Improving current account balance during the latter half of the 1990s enabled the Chinese government to maintain a peg of 8.27 Yuan per USD from 1997 to 2005. However the peg was reinstituted unofficially when the financial crisis hit. Under intense pressure from US, China took small steps to allow its currency to strengthen for 3 years starting in July 2005. But China again pegged its currency to the dollar as the financial crisis intensified in July 2008.

Thus, the trend in RMB can be analysed chronologically in five phases mentioned below : Before 1978

Until 1978, China was a planned economy with no major economic transactions with the outside world. From 1955 to 1972, China had a fixed exchange rate before moving to a composite peg. Then the Yuan was pegged to a basket of 13 currencies. It was later pegged to the average rates of the USD and the German Mark. States controlled international trade which was centralised. In the foreign trade there was no major role of official exchange rate. 1978-1985 Exchange rate underwent changes to improve the economic status of China. It adopted open door policy. When foreign trade was de-centralised, there were about a dozen foreign trade corporations managing foreign transactions. There were about 800 legal import and export corporations by the mid-eighties. Complemented by an internal rate for trade settlements, the exchange rate was overvalued and out of line with the world prices. It was less than the overvalued official rate. Until 1985, this led to frequent devaluations of the official rate. Then in 1985, both ended up merging into one. 1985-1993 In 1985, Foreign Exchanges Adjustment Centres were created. These were regionally based swap markets. Now retained foreign exchange which was acquired through exports, could be swapped by the joint ventures. In 1988 a formal foreign exchange retention system was established. Local governments and SOEs could now participate in the swap markets as well. Around 80% of foreign exchange transactions were managed at swap market rates. From 1978 to 1993, internal settlement rate and the swap rate were higher than the official market rate. There was a constant pressure for the RMB to decline. Therefore, the official rate was under regular devaluations. The RMB gained stability only after 1994 reform. The 1994 reform A market-based managed float system pegging the RMB to the U.S. dollar was introduced. By the end of 1996, for trade related purposes the RMB was fully convertible on the current account. Since July 2005

The fixed nominal exchange rate of the RMB ended with the introduction of a new currency regime. The dollar bilateral rate was re-valued by 2.1%, shifting it from RMB2.28 to RMB 8.11 to USD. The

authorities declared that the RMB would be leaded with reference to a basket of currencies rather than being tied to USD. People's Bank of China announced that with its value based on market supply and demand, the exchange rate has to be made more pliable. By the end of 2009, the market rate of the RMB-USD was 6.83. It apparently showed the cumulative nominal appreciation against USD by 21% during 1990-2000. China has shifted some of their reserves from dollar accounts to accounts in their competitor nations, leading these other nations to invest in dollars to keep their own currencies down. The RMB is now moved to a managed floating exchange rate based on market supply and demand with reference to a basket of foreign currencies. The daily trading price of the U.S. dollar against the RMB in the inter-bank foreign exchange market would be allowed to float within a narrow band of 0.3% around the central parity published by the People's bank of China. Later the band was extended to 0.5%. On April 14, 2012, the band was extended to 1.0%. China states that the basket is dominated by the USD, Euro, Japanese yen and South Korean won, with a smaller proportion made up of the British pound, Thai baht, Russian rubble, Australian dollar, Canadian dollar and Singapore dollar. On April 10, 2008, it traded at 6.9920 yuan per US dollar, which was the first time in more than a decade that a dollar had bought less than seven yuan and at 11.03630 yuan per euro. China allowed the Yuan to rise by 21% against the dollar in the 3 years till July 2008, but since then it has more or less kept the rate fixed. As a result, the yuan's trade-weighted value has been dragged down this year by the sickly dollar, while many other currencies have soared. Since March the Brazilian real and the South Korean won have gained 42% and 36% respectively against the Yuan, seriously eroding those countries' competitiveness. On a bilateral basis, the trade between India and China has witnessed significant turnaround since the late 1990s. Indias imports from China (LMCH) have grown at a faster rate than exports (LXCH) in the last few years.

In the past few years, China has become one of the major trading partners of India. This is reflective as Indias exports to China have become around 6.7% of Indias total trade. Its imports from China have a share of 10.8% of Indias total trade. Also, China's growth rate was slower than its imports. This led to India maintaining an increasing trade deficit with China. Given the growing bilateral trade relations between the two countries and especially in terms of imports, it is important to realize that any valuation of RMB would affect the trade pattern between the two countries. In a floating regime, whenever there is an increase in the supply of dollar-denominated assets the dollar depreciates against both the euro and the Yuan. US investors cut their demand for foreign assets, following the dollar depreciation, in order to keep constant shares of each type of assets in

their portfolios. The selling of Chinese assets by US investors is higher when the share of the Yuan is higher in US portfolios. It makes the dollar depreciate relatively less against the Yuan than against the euro. As a result, Chinese investors believe that the Yuan appreciate less against the dollar as compared to the euro. Hence they buy relatively more Euros. Overall, the euro appreciates more against the dollar than in the case where the Yuan plays a minor role in the US portfolio. Conversely, an increase in the dollar supply has less impact on the euro-dollar exchange rate, when there are more Yuans in the European portfolio. In this case, a downward pressure on the euro is put as the European investors buy more Yuan assets following the euro appreciation. Economists argue that a strengthening of Yuan would benefit China apart from helping reduce global imbalances, such as America's trade deficit. Apparently, China would regain control of its monetary policy. By tying to the dollar, it is apparently importing America's monetary policy. But for China's fast-growing economy, the American monetary policy would be too loose. A stronger currency would also strengthen China's economy by making it less dependent on exports. Hence it would put future growth on a more sustainable path. However China resists the revaluation of the currency. It presents following arguments: It says that other emerging-market currencies have risen sharply. China held its currency consistent against the dollar throughout the global financial crisis, while others tumbled. Since the beginning of 2008, the Yuan has advanced against every currency but the yen. China also argues that it has helped in global rebalancing. Its monetary and fiscal stimulus, domestic demand has contributed a remarkable 12 %age points to GDP growth in 2008, while net exports subtracted almost 4 %age points. Its current-account surplus has fallen by almost half, to around 6% of GDP from 11% in 2007. Another reason for hesitation is that the theory of revaluing the Yuan would allow Beijing to tighten its monetary policy is too simplistic. China's experience since 2005 reveals that a gradual rise encourages investors to rely on further appreciation. Hot-money inflows swell domestic liquidity. A large increase at once might work, as it would support expectations of a further rise. However the sort of hike required (perhaps 25%) is politically unacceptable because it would put many exporters out of business overnight. Some Chinese economists warn that the benefits to America from Yuan revaluation are much hyped and exaggerated. They believe a stronger Yuan would not significantly reduce America's trade deficit. There is a little overlap between American and Chinese production. So there is a very low chance of replacement of American goods by Chinese imports. Moreover, consumers might end up paying more for imports from either China or other producers, such as Vietnam. This would be like taxing American consumers. These arguments help explain why China is resisting and moving back. Nevertheless, a stronger Yuan would benefit China's economy and the world's economy in the long run. It would shift growth from investment and exports towards consumption. It would boost consumers' purchasing power. Corporate profits, which have majorly accounted for the appreciation in China's excessive domestic savings, recently, would be squeezed by the appreciation of RMB. The appreciation of RMB also implies that the price of various domestic resources, especially land and labour, would go up in relative terms resulting in the change of the value of international and domestic market. Domestic enterprises would rely more on sales to the domestic market and less dependent on export demand. Hence a more reasonable industry structure will be formed. RMB appreciation can also bring advantage to the industries holding large amount of foreign currency denominated assets (like aviation industry) and industries that need to import raw materials (like petrochemical industry). Besides, it would also result in the promotion of technical innovation. With the appreciation of RMB, since Chinas production process is enormously costly in terms of resources and energy and its

labour is so cheap, the products exported to the world should be technologically innovative in order to be more competitive in the global market. A shift of Chinese reserves into the currencies of their other trading partners has caused the nations to shift more of their reserves into dollars, resulting to no major change in the value of the Renminbi against USD. I would argue its time for China to lift Capital control for two most important reasons as follows: Firstly, they have come a long way in market reforms. Market forces have dramatically increased in China. To liberalize capital control is very much the right direction to take. It will allow more efficient capital. Secondly, China is a larger and open economy. It is the biggest exporter and second largest importer, and it is becoming increasingly hard for the Chinese govt. to maintain the capital control. Capital controls are not as effectual as it must be. Time has arrived for the govt. to open up more and hence promote domestic financial market and more efficient capital market.

2. MONETARY POLICY
Introduction
Monetary policies are the policies and measures which the central bank of any country uses to controls the money supply and availability of credit in the country. The main purpose of monetary supply is to support the growth of the economy. The main tools which are used to regulate the money supply are interest rates and the exchange rates. By regulating these two, central bank tries to bring out the price stability in the country. In China, The People's Bank of China maintains the supply of money i.e. RMB in the country to support the economic growth of the country. The PBC has established a monetary policy committee. It plays an important role maintaining macroeconomic balance and maintains it by making and controlling monetary policies. It acts as a consultative body for the PBC in making new monetary policies. The monetary policies are made for a specific period of time. The main responsibility of this committee is to maintain the coordination between the monetary policies and other macroeconomic policies such as financial policies. The committee held meetings on a quarterly basis for its function. The committee consists of the governor of the PBC, 2 deputy governors, Deputy Secretary-General of the State Council, Vice Minister of the State Development and Reform Commission, Vice Finance Minister,the Chairman of China Banking Regulatory Commission, the President of the China Association of Banks and many other officials.

Monetary policy tools

The Peoples Bank of China mainly uses 5 instruments to maintain the monetary balance in the country. These 5 instruments are as follows: Open Market Operations Through open market operations, PBC buys or sells the government security bonds. The aim of this instrument is to control the short term interest rates and hence to regulate the money in the market. Reserve Requirement Ratio It is a common tool and is used most widely all over the world. This is also known as Triple 3. Through this instrument, the central bank sets a minimum percentage of cash reserves for all the banks operating in the country. The banks are required to

reserve this money in the central bank of the country. This reserves is used by the central bank to meet the requirement of the commercial banks. Central Bank Lending This consists of all the money which the central bank of china directly lends to the commercial banks. Benchmark Interest Rates Benchmark interest rates are decided by the PBC and can be explained as the minimum rate if interest at which investors can buy non-government securities. Standing Lending Facility This can be explained as the instrument which is used by the central bank when the commercial banks of the country face any liquidity squeeze. In such situations, the central bank lends a large amount of money to these banks in order to recover.

All of these instruments are used by the central bank to maintain an adequate supply of money in the country and hence to maintain the price stability in the country.

Measuring Monetary Policy

By the means of Money Supply:

One of the method by which the central bank of china i.e. PBC measures theeffectiveness of the monetary policies is via money supply in the country. PBC uses M2 in the country to measure and control the monetary policy in China. They check the amount of M2 present in the economy and then comparing it with the previous amount and then check the effectiveness of the policies in the country. At end-June 2013, the total amount of M2 available in China was approx. 105.4 trillion Yuan which went up by about 14% on yearly basis and was decreased by about 1.7% point from the previous quarter and has been accelerated by about 0.2% point from the last year. By end-June, the M2 growth rate had decreased by 2.1% points from the peak at the end of April and was due todecelerated deposit growth compared with last June. The main cause for the increment in the amount of money available in the market is the adoption of relatively liberal financial regulatory policies by the central bank which caused the commercial banks to adjust their asset-liability structure. This slowed down the excessive pace of issuance of credit and hence reduced the interbank transactions in the market.

By the means of increase in the deposits of financial institutions

The total amount of money deposited in the financial institutions in china increased to 103.6 trillion Yuan by the end of June 2013. This was increased by 14.1% on the yearly basis. The above figure consists of all the money i.e. domestic as well as foreign in the domestic currency denomination i.e. Yuan. Total amount of domestic RMB deposited in the Chinese financial institutions increased to 100.9 trillion Yuan which has been increased by up 14.3% on yearly basis. This increment shows a growth of 0.9% points from the last year. Outstanding deposits in foreign currencies posted USD 441.5billion, which has also been increased by 9% on yearly basis. Exchange Rates

This year showed fluctuations in the exchange rates. The RMB moved in both the directions. The value of Yuan became slightly flexible. At the end of June the exchange rate was about 6.1787 Yuan per dollar. This shows an increment of 1.73% from the end of last year.From the beginning of the RMB exchange-rateregime reform in 2005 to June 2013, the nominal effective exchange rate and the realeffective exchange rate of the RMB appreciated 30.47 percent and 39.28 percentrespectively.

Reforms to improve monetary situations

The structural adjustments, transformation, and upgrading of the Chinese economy is very critical at the present scenario. Despite the complex environment and various constraints and challenges, there are a number ofpositive factors and favorable conditions to support sustained and healthy economicgrowth, and the fundamentals remain unchanged. Interest rates reforms

The central bank of china took various reforms to regulate the monetary situations in china. PBC decided to remove all the controls on lending rates in august 2013. PBC took various steps in order to liberate the rates which are as follows: a. The financial institutes were allowed to decide their own lending rates and the floor of 70% was removed. b. The financial institutions were allowed to determine their own discount rates and the premium for central bank was removed. c. The limits for the RCC lending rates were removed.

New credit policies

PBC has made credit more efficient by adopting various policies and by encouraging commercial banks to provide easy credit to various small- and micro-sized enterprises, the agricultural sector, to the rural areas and for the farmers to meet their funding needs. In the same way, commercial banks are also providing credit supports to advance manufacturing firms and to the emerging industries. The investment in the rural sectors, households and the agricultural sector has been increased to 1.48 trillion Yuan in the current year. Use of RMB

The central bank of China has encouraged RMB as the global currency. China has started using RMB for foreign trade. In the year 2013, the cross border trade of RMB increased by 64% and reached to 2.05 trillion. This included 1.37 trillion Yuan of settlements of trade in goods and 683.78 billion Yuan of settlements of trade in services and other items under the current account.

RMB settlements of cross-border trade

Monetary policies reforms

The administration has agreed to implement quantitative easing policies. In order to maintain the balance between the inflation and growth, the administration has decided

to target the federal funds rate to be maintained at 0 to 0.25%. The administration also decided to reduce the pace of asset purchases as the outlook for the labor market or inflation changes.

Furthermore, many reforms can be made in the field of industrialization and urbanization. The investment in the infrastructure has always been beneficial for china and is very critical for the development of the country. In the first half of 2013 also, the growth of infrastructural investments was 5.2% points higher than that of total investments. For the stabilization of the monetary conditions in china, a mixture of quantitative and price monetary policy instruments can be used, and the macro-prudential policy framework will be improved to guide the stable and reasonable growth of money, credit, and all-system financing aggregates.

Macroeconomic performance
The Chinese economy has maintained stable growth rate in the 2 nd quarter of the year 2013 which are the results of the structural adjustments which has been made by the Chinese government in the financial market. As we all know that china is growing rapidly and hence its level of consumption is also increasing very fast. At the same time, the foreign investment is also increasing in china. Also in the year 2013, the agricultural sector grew very well and the price levels were almost stable and under control. The CPI of country rose up by 2.4%. The fixed asset investment also grew in the country and the investments were mainly focused on the development of the tertiary sector. The total investment sums to 18.1 trillion Yuan which shows a growth of 2.1% points. Investment by state-owned or statecontrolled sectors was 5.7 trillion Yuan, representing year-on-year growth of 17.5 percent, while private investment registered 11.6 trillion Yuan, increasing 23.4 percent over the same period of last year. Consumer prices remained generally stable. In the first half of 2013, the CPI rose 0.4% year on year. The CPI in April, May, and June went up by 2.4%, 2.1%, and 2.7 % respectively compared with last year. The quarter-on-quarter decrease in producer prices widened, and quarter-on-quarter upstream producer prices continued to decline. In the first half of this year, ex-factory prices of industrial products fell 2.2 percent year on year, and

the average decline in the second quarter was 2.7 percent, widening by 1.0 percentage points compared with the previous quarter. The current account balance of china in the first two quarters stood at USD47.6 billion, accounting for 2.5% of GDP. The surplus under the capital and financial account registered USD90.1 billion, up by 61 percent year on year. Foreign exchange reserves grew by USD157 billion. According to preliminary statistics of the SAFE, in the first half of 2013 the current account surplus registered USD 95.7 billion, while the capital and financial account posted a surplus of USD 107.8 billion.

Conclusion
To further control of the economic conditions, the central bank of china can also consider to tighten the monetary policies in future. To control the presence of excess money in the market, the PBC has started working on. By taking all of these measures, the Chinese government can signal that it has full confidence in their own policies and also have confidence in the natural processes of the economy, such as open market transactions, to carry out stable growth and financing in the coming months. But still Chinese authorities have to take many actions so as to meet the new growing demands and expectations of the citizens.

3.Chinese Financial System

The financial system of China plays a very important role in bringing development and growth in China, it has now become the second largest economy in the world and is likely to ultimately surpass the US. Chinas banking sector has developed speedily since the beginning of the reform era. During 1978, the Peoples Bank of China (PBOC) acted as both the central bank of China as well as the only commercial bank. And in the 1980s, under PBOC four state-owned banks were established, namely: 1. 2. 3. 4. The Bank of China (BOC), The Agricultural Bank of China (ABC), The China Construction Bank (CCB), The Industrial and Commercial Bank of China (ICBC).

The PBOC functioned as a traditional central bank since then, without any important direct commercial banking functions. During the late 80s to early 90s, joint-equity banks were established by raising money from both the private sector and the government. They were not completely privately owned, but the governments share in them was significantly lesser than the governments share in the four state owned banks. Also many small local banks and microcredit companies had started to develop. The Banks of China dominate the Chinese financial system, they provide around three-fifth of total credit to the Private sector. Today the Chinese banking system is reasonably concentrated, with five banks sharing almost half the total loan market. These five biggest Chinese banks are primarily owned by the central government and there are substantial government stakes in many of the other banks. Also, the government intervention is far more active in banking decisions in China than in any other country. Most importantly, the central bank explicitly sets high interest rates for deposits and low interest rates for loans. Further the Government and party leaders can also exert huge influence behind the scenes, often by giving loans to some firms, sectors, or regions to increase their political agendas. The close connections between the government and banking, and the pervasive power of the Communist Party, have made this possible. Insurance companies are also under-developed part of the Chinese financial system, holding around $1.2 trillion in assets which is over 14% of GDP. The scale of the insurance industry in China is relatively small compared to countries with much more developed financial systems. Also the Chinas asset management industry is less developed as compared to the West, particularly compared to the crucial role played by the mutual fund market in America. Assets under management in China are around 5.1% of GDP. Nonetheless, Chinas asset management industry has been growing at a fast pace since emerging in the late 1990s, the number of funds has also been increasing, and the total assets under management is forecasted to rise to around 6.8 trillion RMB by 2015. China also has a very large and diverse informal lending sector which helps to fill the gaps left by the formal sector focused on funding the state-owned enterprises and politically favoured businesses. Lenders in this sector consist of the loan sharks, pawn brokers, formal or informal cooperatives of locals lending to one another, the State-Owned Enterprises (SOEs) relending out extra cash, and many other secretly, and sometimes privately, raise funds that are invested in start-ups. The informal sector has an unquiet relationship with the Chinese state and regulators. After 2002, the State Administration of Foreign Exchange and the Ministry of Finance has clamped down on over 500 underground banks, whose total assets were more than 100 billion RMB.

The problems that the financial system is facing can be summarized in the following points:1. The financial system is unbalanced and underdeveloped. In China the banking system dominates the financial system, even under situations and periods in which bankrupt banks have been lending to more creditworthy companies. Adding to it the state owned agencies control both the financial and capital markets. 2. The financial system is under-supported. Financial Institutions which provide support, for example rating agencies, accounting & audit bodies, credit & collateral registries, information systems and affiliated information technology, and the legal system are in their nascent phase. The institutions that are required to support the financial system have yet to develop sufficiently to provide an adequate framework for effective and efficient financial intermediation. The support provided by the legal system is still problematic, with particular concerns over contract enforcement, recovery of collateral, adequate standards of disclosure, and the issues related with bankruptcy and creditors rights. 3. The banking system is inefficient. Considering both cost and allocation efficiency the performance of banks is not up to the mark. The banks are extremely over-staffed, and their excessively extensive branch networks add heavily to their high operating costs. Their portfolios rests on little to market-based assessments of the creditworthiness of their borrowers, and the result of the policy-based decision of their lending, is very high levels of nonperforming loans (NPLs). 4. The banking system is potentially weak. The state-owned commercial banks (SCBs) are loaded with massive NPLs, which, if calculated, imply that the SCBs are technically bankrupt; this concept might be of little meaning in a system in which the banks and many of their clients are state owned. Moreover, under no possible assumptions the SCBs could restructure their capital by getting their way out of trouble. Even if they are freed from their obligation to support shaky state owned enterprises (SOEs), there is many reasons to question whether the four SCBs could reduce loan losses to satisfactory levels, because of both a scarcity of banking skills and the lack of a credit culture that gives importance on timely servicing of bank loans and supports to recover collateral or any other assets in cases of default. These problems can be attributed to the policies of the Chinese government and the lack of their financial expertise inherent in domestic financial institutions. But increased efforts have been made in recent years to reduce the impact of all of the problems outlined above. Also since China agreed to the World Trade Organization (WTO), the government has become willing to amend its policies and to entertain some foreign ownership of Chinese banks to improve the performance and competitive position. The government and foreign investors agree that engaging in the expertise of international partnership has the potential to improve many dimension of Chinese banks performance, like the governance; complete control and management of operations; the introduction and marketing of new products; enhancement of asset quality; timely and accurate compilation of management information; better risk management; stronger capital positions and better equity returns; and rehabilitation of the banks reputations.

Chinese Government response

There are many reforms moving forward on many fronts, identifying any priority might be arbitrary. But what we think is that the government would concentrate on five areas in order to improve the performance of Chinas banks and of the overall financial system. They are the following: 1. 2. 3. 4. 5. Better overall governance, Better balance between the financial and capital markets, Increased effective regulation and supervision, Increased reliance on market forces, and a Improving legal system.

The reason for improving governance is that it will enable banks to make decisions based entirely on commercial considerations and it will free them from any influence of the government officials as well as other bureaucrats. Two major reforms that are required are the introduction of completely independent, expert executive boards to look after the work of the senior management of the banks, also including the freedom for boards and managers to nominate senior personnel based on merit and performance, rather than political association. Also the essential requirement for successful reform of the banks is to keep them at arms length from governments influence. And the reason for having balance between the financial and capital markets is to facilitate the above objective, along with contributing to more robust capital markets, which would efficiently serve the needs of long-term institutional investors and of enterprises and governments that seek access to long-term capital. Commercial banks would not be under any compulsion to acquire the bonds of the government, the policy banks, or the AMCs, nor would they be required to make loans to the infrastructure companies owned by national governments as a substitute for their inability to raise funds through bond issuance. The development of active primary and secondary markets in corporate bonds including bonds of sub national government would get more emphasis from Chinese policymakers. A number of reforms would be brought in, from reputable, independent rating agencies to fiscal reforms and improved financial management at the stage of provincial and municipal governments. The priority for the CBRC should be to train skilled bank examiners to ensure that the new system for asset performance is implemented perfectly throughout the banking system and also that banks apply the system appropriately in purveying for bad loans and including their capital as losses occur. Adding to it, the CBRC should be a strong body in giving the banks rights to seniority among claimants for the assets of failed enterprises. The market forces would determine the outcome of credit allocation and the condition that banks and the capital markets apply to borrowers and listed companies, respectively. Presently the banks seem to be reluctant to take advantage of the flexibility they have been granted to change prime lending rates according to the risks associated with different borrowers. The more reliance placed on the market would determine when enterprises, including banks, are required to exit their markets. The final outcome of sustained and poor financial performance would be bankruptcy, with the assets of the failed enterprise being distributed among claimants according to the seniority of their claims. The government and the financial regulators would be bent on increasing the use of the market to dispose of NPLs. The enhanced performance of the financial markets would also require improvements in the legal system, including the bankruptcy law and how it can be effectively enforced and implemented. The necessary reform in Chinas legal system would be to define, protect and dispose property rights in a cost-effective manner. Also without any assurance of recovery of their assets, in a timely way and at

an acceptable cost in the event of default, banks would continue to be reluctant to lend to small private enterprises. But the absence of such types of lending is one of the principal obstructions to the private enterprise in China; its continued absence would pose a threat to fast growth over the longer term. Increased efficiency, transparency and predictability in the legal system would be an invaluable benefit to Chinese banks. Considering all this Chinese government would eventually get much more foreign investment in Chinas banking sector and Chinese banks would also get strategic investment from foreign banks. Following this the foreign banks could also start competing with domestic banks. The foreign participation in domestic banks via equity investment would prove to be an effective way of increasing their competitiveness. Presently China is considering foreign participation which could be compatible with the states overall control of the banks and a valuable source of assistance in:1. 2. 3. 4. Promoting bank restructuring Enhancing banking skills through business cooperation Supplementing equity capital, without recourse to the fiscal budget Boosting the status of Chinese financial institutions in domestic and foreign capital markets.

Also by entering into a strategic partnership with a foreign banking group would enhance the public image of a Chinese bank. Though the Chinese banks are of huge size, the four main SCBs are not well known outside China, and none would be considered entirely as anything remotely equivalent to a blue-chip stock in major international capital markets. But with a stakeholder of spotless reputation, the Chinese bank could increase its credibility and its reputation. The Prospective shareholders would attribute more validity to disclosed information, and also to actions taken for restructuring the bank and embracing new products and new ways of doing business. All of this would give way for successful approach to improve the financial system and in turn the Chinese banking sector.

4. Business in China
Can you imagine to work or to live in China? What can be possible risks? How would you prepare?
One of the worlds oldest civilizations China, is one amongst the worlds most powerful industries these days. Going to China attracts expatriates for the manifold economic opportunities further due to the cultural expertise. If you have got the chance, dont deliberately concern moving to China. Despite the customarily vital image in Western media, several expats dont regret their call. Quite the alternative, indeed. If you have got the soft skills to address disorientation and also the barrier, your move to China is going to be Associate in Nursing sometimes frustrating, however eventually satisfying venture. Most aspirants realize that the locals they meet throughout their stay are friendly and welcoming hosts. On a private instead of a political level, they wouldnt need to miss the chance of moving to China.

Possible risks and ways that to be ready against them VISA NEEDS
If you focus on planning to China for work, you ought to have a demandingly thought-out arrange and realistic expectations. Though operating in China is much easier than it is accustomed to be, to qualify for Associate in nursing employment visa (Z visa), you would like to fulfil many needs. You want to get a political contender invite to the country, at the side of Associate in Nursing employment license or special standing as a Foreign Expert

FOOD SAFETY
Foreign guests are doubtless to be challenged with food issues of safety whereas in China. During a survey conducted this year, quite eighty percent of respondents in sixteen major Chinese cities aforementioned food safety was one amongst the most worrisome safety concerns in China. 9 out of eleven CET workers members have according being stricken by food issues of safety whereas living and dealing in China, together with malady from Chinese and Western restaurants. to cut back the danger from unsafe food, CET workers recommends avoiding the most cost effective restaurants, like food stands, and bars with suspicious drink specials, like foreigners drink free, that could be a red flag for counterfeit alcohol. Building buffets, wherever food sits out for an extended time, ought to even be avoided. food may be risky, in step with one staffer United Nations

agency finished up with malady four or 5 times over ten years. Preparation reception will eliminate the danger of ingesting faux or nephrotoxic foods.

ROAD AND TRAFFIC SAFETY

Traffic safety may be a significant concern for foreigners living in China. In step with a 2011 NY Times article, China has nearly double the amount of traffic-related deaths annually compared to the United Statesdespite having concerning tierce the amount of vehicles on the road. Concerning 1/2 CET workers members have according problems with road or traffic safety whereas living and dealing in China. To reduce the danger of traffic accidents in China, forever wear seatbelts in cars that have them and helmets on bikes or scooters. Keep alert in the least times on the roads, whether or not driving or on foot. Guests and expats in China might want to avoid motor scooters or nightlong buses to cut back the danger of being worried during a traffic accident.

THEFT
Petty felony of things like bicycles and wallets is one amongst the foremost common crimes in China, however visors and business folks will take steps to cut back risk of felony. Petty felony may be prevented by keeping personal affects ahead pockets rather than back pockets and never throw baggage over backs of chairs or out of sight. The taxi meter scamwhen a taxi driver forgets to show on a metercan be avoided by forever taking official taxis and ensuring the meter is running. Bike thefts may be troublesome to avoid, however residents will scale back thefts by mistreatment multiple locks or keeping their bicycles pose see able once doable.

HEALTHCARE
Nowadays, major cities in China have emigrant hospitals with international standards; those uneasy concerning native medical facilities will access a world hospital in most cases. CET workers members have had plentiful experiences with tending in Chinaespecially once traveling outside major citiesbut none according major safety issues with the nurture system. CET problems every of its students a wallet-sized emergency contact card that has the sign for the closest international hospital and a 24-hour English-language hotline for medical recommendation and hospital info throughout China. Studentsare taught to stay this card with them in the least times, particularly whereas traveling. Foreign residents and guests in China ought to keep similar info with them just in case of a medical emergency.

POLLUTION

Chinas pollution could be a growing concern each among Chinese voters and foreign residents. Two out of eleven CET workers members according issues with pollution whereas living and dealing in China. One staffer with a pre-existent sinus condition according a lot of frequent sinus infections in capital of Red China; another started developing asthma attack once a couple of years of living in Beijing. ways that to minimize its effects embrace avoiding outside exercise on the worst days, carrying a mask, and buying Associate in Nursing air cleaner for ones home.

LANGUAGE
Another drawback in China that foreigners usually face, is of language. Most of the folks in China speak native language solely Associate in nursing thus it becomes terribly troublesome to speak for the guests. Itsadvisable to understand some basics of Chinese language.

MEDICAL INSURANCE
Medical care in abundant of China is basic, particularly outside of major cities. Whereas routine health services might not be as big-ticket. Emergencies may be pricey particularly if service is soughtafter from a foreign/private clinic or an evacuation becomes necessary. Several hospitals might not settle for overseas insurance and demand payment before treatment. Its important for people to form certain that they need organized their own medical insurance or have comfortable funds offered just in case treatment is required.Foreigners could also be entitled to a kind of medical cowl through their leader. This could be processed at the time of acceptance of employment. it\'s vital to know the character and scope of any coverage because the quality and extent varies significantly.

OTHER SAFETY ISSUES

Other safety issues whereas living and dealing in China embrace problems associated with politics, anti-foreigner sentiment, or lack of knowledge. One staffer according that cement and soda bottles were thrown at her throughout a football game at the Workers arena. One staffer United Nations agency was in China in 1999 aforementioned he felt uncomfortable once the United States of America bombing of the Chinese embassy in Beograd. Many of us aforementioned aggressive things to him at that point. (Though the u. s. government says the incident was Associate in Nursing accident, Chinese officers still say it had been a barbarian act by us. Another staffer according a sense of apprehensiveness around foreigners in capital of Red China in August 1989 once the Tiananmen sq. protests; the full town appeared on edge and locals were petrified of being related to foreigners. Workers members additionally according feeling a way of unease throughout the respiratory disease natural event in 2003, once lack of reliable info LED to Associate in nursing abundance of rumours concerning the extent of the natural event. The 100-day suppression on

felonious foreigners in capital of Red China this year, once police patrolled expat and traveller areas and conducted random passport and visa checks, additionally LED to a way of unease. China remains a comparatively safe country, however guests and residents ought to stay cautious in bound things. It may be simple to adopt a false sense of security in China. Foreign residents and guests must always be ready and aware. Limit drinking whereas in unknown settings and avoid going out alone at night-time. CET would additionally advise against taking specific safety incidents in China and applying them wide. Life in China is mostly safe as long joined is intimate with potential issues of safety, one staffer aforementioned. China isn't sound-bit able, another staffer noted.

You are a member of a management team and you are attempting to accomplish a venture with a Chinese company. What would be your strategy for the negotiations?
A venture (JV) could be a business agreement during which the parties conform to develop, for a finite time, a brand new entity and new assets by contributed equity. They exercise management over the enterpriseand consequently share revenues, expenses and assets. There square measure alternative kinds of firms like junior varsity restricted by guarantee, joint ventures restricted by guarantee with partners holding shares.A junior varsity may be led to within the following major ways: Foreign capitalist shopping for Associate in nursing interest during a native company Local firm feat Associate in nursing interest in Associate in nursing existing foreign firm Both the foreign and native entrepreneurs put together forming a brand new enterprise Together with public capital and/or bank debt

It is attention-grabbing to review the joint-venture laws of China as a result of they're of recent vintage and since such a novel law exists.There square measure 2 major reasons to make a junior varsity, (1) once coming into a particular business needs an area partner in step with the restrictions printed within the Communist China Foreign Investment Industrial steering Catalogue, (2) once an area partner is ready to supply tangible edges like well-established distribution channels, government relationships or vital information of the native market. Like any partnership, additionally to the benefits of operating along, JVs additionally face serious challenges. Its powerfully counselled that before selecting this way of investment vehicle you talk to the foreign partner of Associate in nursing existing junior varsity so as to raise perceive the benefits and downsides of the junior varsity structure. A number of negotiating methods are-

1. If the Chinese facet uses the wear em down technique, the foreign facet ought to refuse to participate. The foreign facet ought to firmly state its position and not bend unless and till the Chinese facet agrees or a minimum of moves nearer to the foreign sides position. 2. Never conform to a set linguistic communication date. create it clear that the linguistic communication ceremony are going to be regular solely once the contract has completed final negotiations. If that takes forever, then it takes forever. Never permit the Chinese facet to use a point in time as a tool. This appears like obvious recommendation, however we tend to see the rule perpetually desecrated. Chinese firms love linguistic communication ceremonies and foreigners constitute the entice as a result of they are doing not need to cause offense at the beginning. The Chinese have contempt for a sucker, therefore refusing to travel on this obvious technique won\'t cause offense: it'll instead earn the respect of the Chinese facet. 3. Make it clear thereto therell be no changes to the contract once linguistic communication and any try by the Chinese facet to alter the contract are going to be treated as a cloth breach, resulting in termination and a proceedings for damages. Chinese firms square measure standard for mistreatment the linguistic communication of a contract because the begin of a brand new negotiating method, not the termination. If the foreign party is willing to just accept this approach, then a transparent procedure should be instituted on the foreign facet that brings back within the legal and China informative team. The neutral players on the foreign facet should create the choices. The choices mustn't be created by the foreign facet players United Nations agency have already become committed to the project. 4. Businesses will and do fail, and it's typically necessary to give in and exit. Typically this may be sales connected, therefore it is smart to instigate a liquidation trigger clause into the contract by linking the performance of the corporate output that is additionally a part of the written agreement, to the exit clauses.

It is necessary to own equal management with each the parties to own made venture. All the on top of mentioned negotiation methods may not achieve success. Chinese entrepreneurs square measure terribly troublesome to affect and possibilities of cracking a affect them in your favour square measure terribly less.

Can you imagine why a Chinese student could feel offended by Indian behaviour? Is it necessary to treat him or her different?
Phenomenal economic process in China and Republic of India throughout the past few decades has drawn wide bookish attention to the relative performance of those 2 countries in varied spheres. How- ever, very little analytical comparison of their education systems has been done? Given the importance of education in economic and social development, and also the proven fact that these 2 countries host the worlds 2 largest education systems, this can be a vital gap in analysis.More and a

lot of Chinese students square measure preferring to require up studies in Republic of India as a result of the prices square measure too high in alternative places like Europe and North America. Alternative reasons square measure low tuition fees, sensible living conditions and most significantly sensible quality education. Presently there square measure around 2300 Chinese students United Nations agency square measure finding out in Indian Universities. Though these factors attract Chinese students however still there square measure varied culture variations between the 2 countries. Chinese students fail to regulate to varied conditions and norms in our country. A number of the variations in characteristics of scholars of each the countries are Chinese studentsare way more disciplined than the Indian students. Chinese studentsaremore focused and hard working.

Chinese students offer a lot of importance to learning and don't believe cramming up things. Whereas our systems lays a lot of stress on cramming up things and obtaining highest marks. Chinese students as compared to the Indian students are way more back and reserved.

Chinese students are solely involved concerning their own lives and that they dont like interference of others in their personal business, whereas Indians wish to raise personal inquiries to others and meddling in their lives. It is critical attributable to on top of declared factors to treat Chinese students otherwise. It may be done through varied ways it. Promotion of cultural sensitivity among academics and students. To have Associate in Nursing open mind for every others culture and check out appreciating

Fellow students ought to be appointed as mentors so they will facilitate them against any cultural or alternative issues. There ought to be a lot of cultural and exchange programmes for the students of both the countries, so they become easier with every others culture.

5. Financial Times
1st JAN, 2030 Wednesday

Yuan Rises Again to a Record High

Yuan has appreciated to RMB 2.88 per USD from RMB 2.98 per USD on the first day of 2030. A 3.6% rise in the currency reveals a new trend in the economy. This is improving the purchasing power of the citizens which has improved the standard of living. The inflation is also under control. The central bank is regularly decreasing the interest rate to insure liquidity in the market. So the loans available to people have got cheaper. This in turn has helped in the emergence of large number of local entrepreneurs. In the past few years a lot SMEs have started. Following the trend, in the coming years, more SMEs are going to be functional. This has improved the domestic consumption of China and reduced its independence on the export. Also Chinese companies have expanded their reach to many European and Asian countries through FDIs. However, the strengthening of the currency has increased the trade deficit of the country with lower export and higher import. But with 5% of GDP growth rate and a minimal level of inflation, China as a developed country is gaining its global control from its highly skilled labour and its internationalization of the RMB.

Balance of Trade Tumbles to a new low

On Tuesday, the trade deficit increased to USD 400 million. Since the past few years there has been a continuous decline in the balance of trade of China which has also tried to pull down its growth. Today, China is growing at only 5%. Nevertheless the GDP of China has been growing because of its industry and service sectors. Also due to high amount of domestic investments the budget deficit is little affected by its trade deficit. However, a consistent trade deficit for a long period may force the investors to invest in foreign exchange market and hence China could lose its charm of being the best place in Asia to invest.

Interest rates slashed by 50 basis points, shows positive signs

The recent decline in interest rate by The Peoples' Bank of China Monetary Policy Committee has shown positive results in the economy. The interest rates moderated after a very long wait and it has added momentum to the country's growth. The committee took this measure in order to increase the liquidity in the market that had reduced due to increasing interest rates. The government reforms have shown that it wants to change from export led economy to domestic consumption driven economy. The cut in interest rate has led to the injection of 10 trillion Yuan into the system, increasing liquidity in the markets. All the rate sensitive sectors, like real estate, automobiles, consumer goods and banking, were the main beneficiaries. This also created increased demand for properties and, loans. There were significant borrowings and investment by the small scale industries. It is a positive step taken by committee to support the entrepreneurship in China. The increased liquidity also increased the domestic investment in the country. The decline in interest rate helped in increasing the consumer spending, as their disposable income also increased. As more sales of consumer goods and services were recorded recently. This increased demand for goods and services has added to the growth as well as strengthening of the domestic market.

Stock market rises by 200 points

The recent reduction in the interest rate has energised the stock market. The Shanghai Stock Exchange Index, moved up by 200 points (1.2 per cent) on the day of the policy announcement. The Shanghai stock exchange index moved far beyond Singapore Stock exchange index. The investors are looking positively towards Shanghai Stock exchange for investment. Since the policy announcement lot of investments shifted from Singapore market to the Shanghai stock market. Investors confidence went up, as there were numerous investments in stocks. More investments are expected in stock market also due to, as the investors are moving money away from the bond market to the equity market. The share prices of many companies shot up. The liquidity is expected to remain at a comfortable level. The private sector banks saw an increase of 10% in new loans to the consumers as they have reduced the lending rates, due to reduction in interest rates by the committee. Since the rising interest rates in the past had been a cause for concern in many households servicing existing loans or planning to borrow money from the banks.

China moves towards path of democracy

The communist Party has ruled China since the past 8 decades or so and has managed to bring about a sea of change in China from a developing country to the worlds largest exporter, and also the largest consumer. This has come at a cost though, rampant Corruption, restrictions on media, tyranny at the hands of officials and various human rights violations. The republican system driven out by Mao Zedong in 1949 and replaced by the communist party which has been in power ever since. In 1979 Deng Xiaoping who is known as the father of modern China opened up the gates of the Chinese economy and charted out a plan for economic reforms. This plan was quite successful and has put China in dominant position it holds today on the world economic map. China has been a hub for manufacturing and exports throughout the world. The

communist party has been able to deliver the promise of economic development. China consists of 31 provinces; these provinces are mini economies within themselves and can beat many nations in terms of their individual GDPs. The increase in GDP per capita of China has been remarkable. This change has also led to increased buying capacity and more disposable incomes. More disposable incomes meant that people started spending on luxuries and a new affluent class emerged. There have been various reports which suggested that growth is concentrated only in the major cities or coastal areas and the internal areas are economically and socially decades backward than the major cities. This is partly true; though the markets have managed to penetrate the internal areas around 35% and 65% of the population are now urban dwellers. These changes have led to more demands from the leadership for better governance, better rights and more freedom. The restriction on media, internet and other forms of communication were lifted in 2015. This led to a sea of change which swept over China where people had more access to information than they had had ever before. Also, after this they were able to view western movies, T.V. shows etc. and were awed by the lifestyle and the culture of the westerners which was very different to the Chinese culture. The lifting of restrictions also played an important role in the life of common people who were now able to think, learn and act freely. Using their new found knowledge they also felt that they also have the right as other nations have in electing their own leaders as is the norm in all other countries. This led to revolutions in many of the provinces and the anger which had bottled up since the past many years suddenly became uncorked. People want rights, they want to elect their own leaders, and they want to end corruption. The regime has been on the back-foot ever since, though they had tried shutting the revolution but it had already gathered enough support that they could not stop without a recap of a Tiananmen Square which was not possible now due to international exposure, social media and the mass of support they had managed to get. The situation was worse than how the regime had feared it to be. It was now imperative that the elections could be held within 6-12 months, the people would not accept anything less than elections, though it is doubtful if a true democracy would soon come, but a hope of democracy was shining the first time in a long dark tunnel of Chinas history.

China to start Twitting

January 14th, 2030. Following the rows of reforms, China has surprised the world by provodong access to TwitterTM to its citizens. The reforms which started taking place back in the year 2020, the Chinese government has now became liberal to the citizens. The IT authorities of china has now loosened up the regulations and restrictions on the content on internet. Following to the new IT

laws, which provides the citizens the right to use the internet content without any restrictions and provides security to privacy to the citizens data over internet, the citizens can now have the access to TwitterTMwhich is a microblogging website on internet. China had put a ban on the social networking websites TwitterTM in the year 2009 following the countrys policy of Internet censorship. Under the same law of Chinese internet censorship, many internet websites such as Google and all its other services like Google Doc, Google Drive, Yahoo, Facebook, BlogSpot, Picasa, Youtube, Twitter and many others were banned in the country. Also citizens were not even having access to foreign ERetail websites. But after the surprising turns of events from the year 2015, Chinese government has started liberating its policies. With the economic easing and liberalization of the policies, the Chinese government has now entertaining the needs and the requirements of the citizens. The IT regulatory authorities started loosening its privacy and censorship laws in the year 2020 and now as entering in the 10th year of the reforms, almost all the banned websites, with a few exceptions, has started working in China. In a row of Yahoo, Google, E-Retailers and Facebook in the last year, Twitter is ready to provide its services in all over the country. On the press conference by the authorities, the president of the Chinese IT regulatory authority said that China is growing and so its needs. If china wants to be the world leader it is most important to keep its citizens technically aware of the present world scenario so that they can also be in a race of development. For the same reason, as we already have loosened up our policies and hence TwitterTM, the government is also planning to start a new campaign to enhance the service industry in China. For the same, the government is planning to train the citizens with the new and advanced technologies. The process will take place in different steps. For all the illiterate and unskilled citizens, job specific IT training would be provided. The Chinese citizens have accepted and appreciated the new efforts taken by the government and are now eagerly waiting for their implementations.

The Art of Guanxi now available in a classroom near you!

Guanxi, the very famous Guanxi the legacy China has given the world has come a long way since just being practiced within the boundaries of our country. The Financial Times brings to you exclusive information that Harvard Business School, considered to be the best business school in the US as well as the world, will feature The Art of Guanxi as one of the official subjects offered, beginning as early as next fall. Guanxi is not something new in fact, it has been around for the last couple of centuries. However, from being something personal and restricted to Chinese culture, the journey of Guanxi becoming a part of Chinese business landscape began somewhere in the late 20th century and early 21st century. The last 20 years however have seen this Chinese practice ascend to greater heights, as Chinese companies, in a historic landmark, began expanding and investing abroad. And with them, they took Guanxi to the world. One can liken this phenomenon to a similar cultural rage which occurred about 20-25 years back in neighbouring India. The concept of Jugaad, an integral part of Indian culture began dominating

business discussions, being touted as the new way of doing business. And today, it is a very common practice across the world. It is heartening to see these Oriental influences have such an impact on the Western world and the way it does business. As of now, it remains to be seen what the response of the student batch of HBS Class of 2032 to The Art of Guanxi will be.

6. Marketing
What is Taobao? An analysis
Taobao is as of today, Chinas biggest e-tailer. Taobao is essentially a website for online shopping in China, only it majorly operates in the C2C (Consumer to Consumer) retail arena. Consumer to consumer is facilitation of electronic transaction between two consumers, the medium being a third party. A subsidiary of the hugely successful Alibaba group, it was established in 2003. And it grew so rapidly that by 2008, it had around 62 million registered members and a transaction volume of 18.8 billion Yuan. Taobao allows sellers/consumers to post details of used or new goods for either sale/resale on its website they are allowed to either charge a fixed price or go for auction. Interested buyers can make purchasing decisions by using the seller information made available on the website ratings, reviews and complaints.

Taobao -Timeline
2003 Taobao was launched by the Alibaba group. Alipay, an online payment medium for safety and with escrow payment features was launched in the same year. 2005 By 2005, due to numerous features-related advantages offered by Tabao, its market share ballooned from a mere 8% to a whopping 59%.

2008 The Taobao success story led to the shut-down of EBay in China. 2008 Taobao introduces a B2B service, Taobao Mall, which later launched an independent web domain, Tmall.com, which became an independent business in 2011. 2010 Taobao launches eTao, a search engine solely for the purpose of online shopping, providing merchandise and merchant information from the major e-commerce websites in China. 2011 Taobao, Tmall.com and eTao were split into three separate and independent companies

Why was Taobao a phenomenal success? Taobaos Strategies

Taobao is probably the most successful and important landmark in the Chinese e-commerce landscape. The number of products purchased via Taobao in 2010 was more than those bought from Chinas top-five brick-and-mortar retailers combined, thus making Taobao the biggest e-retailer in China. The site has more than 800 million online products, and 48,000 products are sold per minute. The three main business strategies of Taobao, to which its success can be attributed are:

1. Free of charge Services:

In its first three years of service, Taobao did not charge any listing fees or transaction fees from its users/vendors. This strategy worked brilliantly as providing free services acted as a magnet for sellers and customers. As a result, Taobao attracted big volumes.

2. Promotion Strategies:
Taobao formed long-term strategic alliances with major and popular Chinese internet portals like 21CN, MSN and Sohu, and began placement of advertisements in the websites at relatively low costs. These alliances meant a mutually beneficial, or win-win situation for both parties. Apart from this, Taobao also employed other mediums like movies and TV programs in order to enhance its reputation. As a result, it received extensive marketing and publicity.

3. Co-operation Strategies with banks:

By signing economic cooperation agreements with ICBC (the Industrial and Commercial Bank of China) in 2003, Taobao put in place an effective mechanism to protect itself against payment defaults. What this means is that the bank becomes the intermediary between the network and E-commerce - creating a new way of payment called online banking. The service, while increasing the confidence of customers on a creditable payment and settlement, also ensures a convenient way for vendors to receive payment for goods. An equally important factor is that it saves their time and energy.

Weaknesses of Taobao: What it lacks

Taobao, though hugely successful is not without some weaknesses, and some major ones at that.

1. Weak Core Competence:

Taobao website lacks in the areas of technical innovations, operating processes, communication platforms and commonly-used technical tools, which are quite commonly known and most often copied by other counterparts.

2. Lack of Quality Supervision:

Taobaos supervision of the products quality is quite weak as of today. In such case, it is quite possible that a significant chunk of the products will be of bad quality and much below customers expectations. And this is quite rampant. There are many counterfeit and pirated goods appearing regularly on Taobao as a result of poor supervision. This hampers the confidence of buyers who get the fake goods, and this in turn affects the sales of sellers who are selling genuine products is also affected. This lack of effective quality supervision has created a somewhat disastrous situation for Taobao in the sense that, there are a lot of grievances from customers about un-satisfactory product quality. This has affected Taobaos reputation adversely, and cost them a loss of a good chunk of loyal customers.

3. The number of disputes and frauds between buyers and sellers are continually on the rise.

4. Taobaos credit evaluation system and feedback system is not comprehensive and is also coupled with poor management. The sellers can very easily delete a bad review or evaluation from users. There is also the possibility that they can hire and pay someone to and hire someone to post positive comments. 5. Due to lack of effective monitoring and control of advertisements, the cases of falsity of advertising are also increasingly on the rise. 6. The trading models of Taobao are such that they can be copied very easily. For instance, the concept of Group buying popular in Hong Kong nowadays originated from Taobao. 7. Businesses might withdraw from Taobao and to have their own trading and shopping platform/ they will distribute their resources in different online trading platforms.

How to launch a successful competitor to Taobao Penetration Strategies

The key to launching a successful e-commerce business in competition to Taobao, the key to capitalise on weaknesses of Taobao mentioned above hit them where it will hurt the most. Apart from that some additional strategies can also be implemented in order to successfully become a significant competitor to Taobao. A mix of both is mentioned in the below suggestions:

1. Development of solid, strong core competencies:

Taobao has weak core competencies Low technical innovations and weak communicating platforms and operating processes. The competitor website should capitalise on this. Hire a highly skilled technical/IT staff, and build a strong software model and operating processes, which are quite hard to replicate. In order to achieve this, they can go for the latest available technology, and look to incorporate it in innovative ways. And the implementations should not be once-done-and-thenforgotten kind these technological innovations should be actively pursued and efficiently implemented at regular intervals of time. Some of the innovative measures could be:

A. The one-click pay model: This innovative model, implemented most famously by Amazon, is a technique which allows customers to make online purchases with one single click, since the payment information needed to complete the purchase

already entered by the user previously, during registration. What it effectively does is allow an online shopper to use an internet marketplace to purchase an item without having to use any kind of shopping cart software. What it means is that instead of manually inputting billing and shipping information for a purchase, the user can use one-click buying to use a predefined address and credit card number to purchase one or more items. This will mean saving of time spent by the user in online shopping. B. A Better GUI: The current graphical user interface of Taobao is not very good. Better and more efficient and appealing user interface (UI) can be designed for the competitor website. The user interface can be made more interactive and dynamic, making it a two-way street for communication.

C. Solid and Tamper-proof evaluation and Feedback system: As mentioned previously, the current feedback system at Taobao allows the sellers to delete negative comments and reviews etc. This should not be the case. A tamper-proof evaluation and feedback system should be developed for the competitor website. All comments and reviews posted against a seller should be accessible to potential buyers and all users, ensuring that the users have the right and authentic information available, enabling them to make an informed purchase decisions. A sellers evaluation will then be done on the reviews and feedback received, thus making the seller rankings more authentic.

2. Services like Product Comparison:

If a customer selected a particular product, the website should be able to offer them a comparison of all similar products listed on the website, available both in pairs and group comparison. This would be a good and appealing value-added service, and a good advantage to online shoppers, enabling them to make a better informed choice in absence of the ability to physically examine the product.

3. Use of data analytics:

By employing data analytics, useful insights into customer buying habits can be gained and then accordingly, product suggestions can be made to appear on subsequent user visits. The field of data analytics in becoming increasingly popular and a number of good options are available today.

4. Quality Assurance:

One of the major weaknesses of Taobao was the poor quality of product quality checking and a huge number of counterfeit good being sold. To overcome this, our website could implement a proper and extensive quality management programme and systems, through which mobile or local quality checkers would ensure that the products being accepted for selling on the site are of a minimum acceptable quality. Although this might be a significant investment for the company, one should also look at the fact that this is one of Taobaos most significant weaknesses, which has resulted in loss of a good number of customers. Thus, if by offering this total quality assurance to the buyers, the user satisfaction would obviously increase and this could equip our website with a very significant competitive advantage - win customer loyalty.

5. Tie-ups with social networking websites and mobile apps:

Taobao does not advertise using SMS facilities etc. The competitor website should utilise the immense potential of social media and mobile advertising to extensively advertising and market itself and its USPs. According to online reports, the websites like online media company Sina Weibo, internet media company Sohu, and web portals like Netease are the three biggest competitor websites to Taobao, in terms of internet traffic attraction. And these three giants have excluded Taobao from the advertising platform. If the competitor website can make explore this opportunity and form strategic alliances and partnerships with these companies, it can open huge advertising avenues for the website and obviously result in a very high number of hits and subsequent revenues. This would be due to the sheer volume of internet traffic attracted by these websites. Apart from this, the competitor website could also look at SMS advertising and the unexplored potential of mobile app marketing as alternative, innovative and fast growing advertising channels.

All the suggestions and penetration strategies mentioned above will result in an enhanced quality of user experience for the users of the competitor website. And since Taobao does not offer any of these advantages, the company would be able to make a place for itself in the market, i.e. gain market share and achieve significant market penetration.

Positioning of the competitor website:

Proper positioning of the website is very essential in order for it to become a successful business. Contrary to the positioning of the other online Chinese websites, which target older,

higher-salaried white-collar workers, Taobao has uniquely positioned itself by targeting the young and highly fashionable customer segment. This has been one of the major reasons for Taobaos phenomenal success. As the young and fashionable population of China today has the biggest potential, we would also like to target the same customer segment. But, where our positioning significantly differs from that of Taobao would be in the quality aspect. As is popular knowledge, Taobao suffers from loss of customers due to rampant sale of counterfeit goods, due to lax quality checking. But our website will be going for highly standardised and efficient quality management systems, thus ensuring good quality and reliable products. Thus, as indicated in the perception map below, the positioning of the competitor website would be that of highly fashionable products and high quality, as opposed to that of Taobao.

With proper market research, an initial test phase with a beta version of the website, proper implementation of appropriate market penetration strategies, and accurate segmentation, targeting and positioning of the website, a new e-commerce website or etailer could be a significant competitor threat to Taobao.

Marks Alloted Out of 100

Ravi Jyoti=22 Sidhant Mahajan=18 Shivendra=20 Nidhi Agarwal=23 Shubham Jain=17