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Introduction

Political economy refers to political, economic and legal system. They interact and

influence each other. Political culture guides these systems. Political culture refers to

distinguish beliefs, values, attitudes and behavior patterns that characterize a political

economy. It function as a frame which constraints acceptable political action and

discourse and guide the economic system of any country. The essence of political culture

is not agreement on issues but common perceptions of the rights and obligations of 

citizenship and of the rules for participating in the political process. For example in

Ireland more emphasis put on individualism/ capitalism, and in china culture is more

concerned with collective equality/ Communism. Reviewing these political systems we

come to know how differences in political economic influences the benefits, cost and

risks associated with doing business in different countries and how they affect

management practices and strategy.

Political Systems

A number of different political systems affect the way business is conducted in differentenvironments and influences on market and legal systems. A dictatorship, such as that of  North Korea, is controlled by a single individual or entity. Totalitarian regimes are run bya single party, refusing additional groups the right to leadership. China is an example of this political form. Theocratic governments, such as Iran, rule the government using areligion-based leadership. Monarchies are ruled by an absolute leader chosen byhereditary means. Examples of this include Jordan and Saudi Arabia. Parliamentarygovernments feature representatives of the population operating under a political party.Israel is an example of this form of government. Republics, such as that of the UnitedStates, feature a number of directly elected representatives chosen by voters. The final

form of government is basically an absence of leadership, known as anarchy. This isfound within many failed states where the government has collapsed. Occasionally, thesesystems are merged into hybrid government systems. For example, the United Kingdomis a parliamentary-monarchy, although the royal family has little power .

Capitalism is an economic system in which the means of production and distribution are privately or corporately owned and development is proportionate to the accumulation andreinvestment of profits gained in a free market. Communism is an economic system characterized by the collective ownership of  property and by the organization of labor for the common advantage of all members.

Under communism by its very nature, because of authoritarian government control,socialism automatically becomes a byproduct of this system. Socialism is any of various theories or systems of social organization in which the meansof producing and distributing goods can be privately or collectively owned or dictated bya centralized government that often plans and controls the economy. Although socialismdoes not always co-exist with only communist or fascist governments, the

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implementation of socialism in many countries requires that a strong central governmentgenerally impose this philosophy on the people. Fascism differs from communism in that ownership of the means of production is left inthe hands of private industry but all industry and business activity is heavily regulated by

a strong national government. Therefore, socialistic objectives are achieved by the police power of the state. Fascist Germany and Italy both operated in this manner. Fascism canalso be defined as a government marked by centralization of authority under a dictator,stringent socioeconomic controls, and suppression of any opposition through terror andcensorship.

Dictatorship is a form of government in which the ruler is an absolute dictator (notrestricted by a constitution or laws or opposition from the people). Saddam Hussein is a prime example of a dictatorship wherein he controlled every aspect of Iraqi life withoutthe people having any say in the running of the country. Any criticism, no matter howinsignificant, was dealt with by torture and/or death.

 Democracy is the government by the people, exercised either directly or through electedrepresentatives. Republic is slightly different from a democracy and is a government in which supreme power resides in a body of citizens entitled to vote and is exercised by elected officersand representatives responsible to them and governed according to law. The UnitedStates of America is a republic.

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

Understanding Capitalism

The United States and most of the world operate under a system of capitalism whereinthe means of production are privately owned by corporations and individuals.

In capitalism, economists usually put emphasis on 3 things:

1. the market mechanism,

2. degree of government control over markets (laissez faire), and

3. Property rights

In a capitalist nation, businesses decide when and how much they want to invest for the

economy to grow.

Commerce plays an important role in determining the growth rate of the capitalist

economy. An economy grows when the total value of goods and services produced rises.

This growth requires investment in infrastructure, capital and other resources necessary in

 production.

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Understanding communism

Communism is a political thought that suffer from large-scale public condemnation.

Although countries like North Korea, Cuba and China still continue to practice

communism in its modified forms, it has been widely-accepted all over the world that

state controlled economy is a downright failure. All the means of productions are the

under the control of government.

Communism vs Capitalism

Ownership of Means of Production

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

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

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

Individual Freedom

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

individual, while capitalism puts individual freedom, before society.

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

Communism appeals to our more saintly side, wherein we think about others before

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ourselves. It is a noble thought, which goes against the inherent selfish nature of people,though it is appealing to their generous natures.

Both again are two extreme points of view, which have their advantages anddisadvantages. Some of the greatest advances in human history have happened due to

individual creativity and enterprise, which were self serving, though they ultimately benefited the society. Communism can kill that individual creative streak, by making a person do what he is told. In short, it has the danger of killing creativity and originalthinking.Capitalism, on the other hand, feeding selfish desires can create capitalist autocrats whocan have control of life and death over thousands of people, leading to exploitation.

Society

Communism advocates a classless, egalitarian society, where all men and women are placed on the same footing. There will be no differences of class, race, religion or even

nationality! This way, there will be nothing to fight for. This is nice as an idea, but tryingto implement this idea is tough and asking people to give up all the things that make themdifferent, is unfair. Every person is special and different in his own way.

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

Anatomy of Power

Communism appeals to the higher ideal of altruism, while capitalism promotesselfishness. Let us consider what will happen to power distribution in both theseideologies. Capitalism naturally concentrates wealth and therefore, power in the hands of the people who own the means of production. So, it creates the rich elite who controlwealth, resources and power. So, naturally they decide the distribution of power.

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

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

Ultimately what we need is a balanced approach, which is a combination of good pointsin both the ideologies. A mixed economy where the state has control over all the vital

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resources of a nation provides welfare for the needy, while also promoting freeentrepreneurship. Communism being an extreme form of socialism.

Pros and Cons of Capitalism

Capitalism promotes economic growth by providing an open competition in the market. It  provides individuals with far better opportunities of raising their income and thusachieving economic growth.

Capitalism results in a decentralized economic system. This is considered as one of thegreatest advantages of capitalism. In a decentralized economy, individuals are open tomore number of options in business. They are exposed to competition and have to facedifferent challenges and find solutions to them to stay in competition.

It is in a capitalist economy that hard work is rewarded. Capitalism gives rise to aneconomy where the consumers regulate the market. Many consider this as one of the

greatest strengths of a capitalist economy. A competitive market provided by capitalismfacilitates the manufacture of a wide variety of products and the formation of a widerange of services. Consumers are happier in a capitalist economy. It encourages people towork towards financial freedom.

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

Capitalism makes an economy money-oriented. Business corporations look at theeconomy with a materialistic point of view. Profitability remains their only primary business goal. Business giants take over smaller companies. Employment rights are

compensated with the sole aim of higher productivity.

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

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

.

Pros and Cons of Communism

Advocates of communism claim that capitalist systems exploit the working class by the people that own the means of production. The monetary condition will also have no valuein this system. People will not have any properties therefore cannot be discriminated basing on their monetary condition. The whole system is built and developed under the  principle of strict law, which is another advantage of communism. These laws aremaintained by the government. The rate of crime will be relatively low in this situation.However, communism has a number of disadvantages. For example, the advantages of 

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communism are mostly theoretical, in practical situation they fail to deliver their objectives. According to many specialists, no country will ever be able to achieve the truecommunism which is stated by its theory. People in a communist society will beminimum or no right of a number of basic, social and financial needs. Communism madeyou fear to even speak to your neighbor. Although there is much truth in that statement,

citizens of a communist country are nothing more than slaves of the state. The only wayto keep Communism alive is to make the citizens afraid to ever organize and protest.Hence, the government rewards snitches. If you mention something in passing to your neighbor that is against Communism, you very well might get arrested. WhileCommunism guaranteed you "free" housing, it was usually some horrible. No civil rights. No free press. Travel abroad only permitted after rigorous investigation into you and your family. No right to privacy. If you are gay, you will be ostracized. If you arehandicapped, you will be removed from sight (even in the more compassionate CzechRepublic, they followed this standard Communist practice, that non-productive peoplehad to be sent somewhere out of sight.

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

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IRELAND

Introduction

In the early 2000s, Ireland was considered one of the most globally competitive

economies in the world. Despite its small size (population of just 4.4 million), Ireland hademerged as an attractive investment destination. A combination of factors had turned theIrish economy into a “Celtic Tiger”.

Background: Celtic tribes arrived on the island between 600-150 B.C. Invasions by Norsemen that began in the late 8th century were finally ended when King Brian BORUdefeated the Danes in 1014. English invasions began in the 12th century and set off morethan seven centuries of Anglo-Irish struggle marked by fierce rebellions and harshrepressions. A failed 1916 Easter Monday Rebellion touched off several years of guerrillawarfare that in 1921 resulted in independence from the UK for 26 southern counties; sixnorthern (Ulster) counties remained part of the UK. In 1949, Ireland withdrew from the

British Commonwealth; it joined the European Community in 1973. Irish governmentshave sought the peaceful unification of Ireland and have cooperated with Britain againstterrorist groups. A peace settlement for Northern Ireland is gradually being implementeddespite some difficulties. In 2006, the Irish and British governments developed and beganto implement the St. Andrews Agreement, building on the Good Friday Agreementapproved in 1998.

Political System of Ireland:

In Ireland, there is a republic, parliamentary democracy - a political system in which thelegislature (parliament) selects the government - a prime minister, premier, or chancellor 

along with the cabinet ministers - according to party strength as expressed in elections; bythis system, the government acquires a dual responsibility: to the people as well as to the parliament.

Economic System of Ireland:

Until 2008 Ireland was the open economy/pure free market/capitalist economy in theworld. 1) In period 1990ther was double digit GDP growth. 2) Progressive industrial policy that boosted large scale FDI and exports. 3) Economic and trade ties with US arevery important, Irish export in US represent approximately 17% of all Irish export andincludes alcoholic beverages , chemicals, electronic data processing equipment, electric

machinery, textile & clothing. 4) Period from 2004-07 was the best performance periodof Ireland among original EU 15 member states.5) Irish economy generated roughly90,000 new jobs annually and attracted over 200,000 foreign workers.However, Irish economy began to experience a slowdown in 2008. 1) Revenuesdecreased. 2) Widening government budget deficit. 3) Financial institutions wereseverely under capitalized. It was the time when Irish economy moved from pure freemarket/capitalist economy towards planned/command/regulated capitalist economy.

1)  One of the main banks involved in property lending, Anglo Irish Bank was

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nationalized. 2) The Irish government also created NAMA, (National Asset ManagementAgency) a government run organization. 3) Allied Irish Bank (A.I.B) was transferredunder the control of government. 4) Bank of Ireland is also partially state owned.

Legal System of Ireland:

It is based on English common law substantially modified by indigenousconcepts; judicial review of legislative acts in Supreme Court; has notaccepted compulsory ICJ jurisdiction .

Geography

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

Area: total: 70,273 sq km

land: 68,883 sq km

water: 1,390 sq km

Rate of Diseases: Irish  people living with HIV/AIDS are 6,900.

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

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

Demographics

Life expectancy at birth: total population: 80.19 yearsmale: 77.96 yearsfemale: 82.55 years (2011 est.)

Literacy: definition: age 15 and over can read and writetotal population: 99%male: 99%female: 99% (2003 est.)

Economy - overview: Ireland is a small, modern, trade-dependent economy. Ireland wasamong the initial group of 12 EU nations that began circulating the euro on 1 January2002. GDP growth averaged 6% in 1995-2007, but economic activity has droppedsharply since the onset of the world financial crisis, with GDP falling by over 3% in2008, nearly 8% in 2009, and 1% in 2010. Ireland entered into a recession in 2008 for thefirst time in more than a decade, with the subsequent collapse of its domestic propertyand construction markets. Property prices rose more rapidly in Ireland in the decade up to2007 than in any other developed economy. Since their 2007 peak, average house prices

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have fallen 50%. In the wake of the collapse of the construction sector and the downturnin consumer spending and business investment, the export sector, dominated by foreignmultinationals, has become a key component of Ireland's economy. Agriculture, once themost important sector, is now dwarfed by industry and services. In 2008 the COWENgovernment moved to guarantee all bank deposits, recapitalize the banking system, and

establish partly-public venture capital funds in response to the country's economicdownturn. In 2009, in continued efforts to stabilize the banking sector, the IrishGovernment established the National Asset Management Agency (NAMA) to acquire problem commercial property and development loans from Irish banks. Faced withsharply reduced revenues and a burgeoning budget deficit, the Irish Governmentintroduced the first in a series of draconian budgets in 2009. In addition to across-the- board cuts in spending, the 2009 budget included wage reductions for all public servants.These measures were not sufficient. The budget deficit reached nearly 32% of GDP in2010 because of additional government support for the banking sector. In late 2010, theCOWEN Government agreed to a $112 billion loan package from the EU and IMF tohelp Dublin further increase the capitalization of its banking sector and avoid defaulting

on its sovereign debt. The government also initiated a four-year austerity plan to cut anadditional $20 billion from its budget. A return to modest growth is expected in 2011.

Economic Indicator 

For Ireland in year 2010 Indicator Value

GDP Growth (Constant Prices, National Currency) -0.273 %

GDP (Current Prices, National Currency) EUR 156.127 Billion.

GDP (Current Prices, US Dollars) US$ 204.144 Billion

GDP Deflator  94.113 (Index, Base Year as per country's accounts = 100)

GDP Per Capita (Constant Prices, National Currency) EUR 37,090.23 .

GDP Per Capita (Current Prices, National Currency) EUR 34,906.86 .

GDP Per Capita (Current Prices, US Dollars) US$ 45,642.49

Output Gap, Percent of Potential GDP -6.77 %

GDP (PPP), US Dollars US$ 173.614 Billion

GDP Per Capita (PPP), US Dollars US$ 38,816.48

GDP Share of World Total (PPP) 0.237 %

Implied PPP Conversion Rate 0.899

Inflation, Average Consumer Prices (Indexed to Year 2000) 105.353 (Index, Base Year 2000 =100)

Inflation (Average Consumer Price Change %) -1.601 %

Inflation, End of Year (Indexed to Year 2000) 105.065 (Index, Base Year 2000 =100)

Inflation (End of Year Change %) -0.6 %

Unemployment Rate (% of Labour Force) 13.5 %

Employment 1.842 Million

Population 4.473 Million

General government revenue (National Currency) EUR 55.209 Billions.

General government revenue (% of GDP) 35.362 %

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For Ireland in year 2010 Indicator Value

General government total expenditure (National Currency) EUR 82.79 Billions.

General government total expenditure (% of GDP) 53.028 %

Total Government Net Lending/ Borrowing (National Currency) EUR -27.581 Billions.

Total Government Net Lending/ Borrowing (% of GDP) -17.666 %

General Government Structural Balance (National Currency) EUR -14.338 Billion.

General Government Structural Balance (% Potential GDP) -8.562 %

General Government Balance (National Currency) EUR -23.476 Billion.

General Government Balance (% of GDP) -15.037 %

Total Government Net Debt (National Currency) EUR 86.184 Billion.

Total Government Net Debt (% of GDP) 55.201 %

Total Government Gross Debt (National Currency) EUR 146.189 Billion.

Total Government Gross Debt (% of GDP) 93.634 %

Fiscal Year Gross Domestic Product, Current Prices EUR 156.127 Billions.

Current Account Balance (US Dollars) US$ -5.582 Billion

Current Account Balance (% GDP) -2.734 %

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

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

The signs are that the current level of FDI still seems to be very healthy and even moreimportantly the level of world confidence in 'Ireland inc.' appears not to have abated the

IDA’s success in attracting cutting edge Foreign Direct Investment to Ireland continuesapace. US, European and Asia/Pacific companies demonstrate continued confidence inIreland’s capability to house their overseas operations'.

1. The success of IDA and others in securing FDI can be seen as a result of government's various incentives. In 1956, tax free status was granted to exportoriented firms.

2. Ireland's taxation system, in attracting overseas Investment to Ireland, containsCorporate Taxation, Personal Taxation, Double Taxation Treaties with Ireland,Employment Taxes, Value Added Tax (VAT), Dividend & Interest WithholdingTax, Capital Gains Tax (CGT), Research & Development Tax Credit, which makeit easier to do business here.

3. They have removed the requirement that each company must have an Irishresident director by widening this definition to EEA resident director (EuropeanEconomic Area which includes EEC countries plus Norway, Liechtenstein andIceland).

4. Introduced a 0% corporate tax rate on companies with trading profits up to €320,000 per annum provided they are new companies incorporated and startedtrading in 2009.

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5. Ireland had also developed a solid reputation for its quality of life.6. They fostered cooperative industrial relations, and financial support from

European Union (EU).7. In 1980, the Irish government pursued a cautious fiscal policy to ensure

compliance with the criteria for Economic and Monetary Union prescribed the

Maastricht Treaty. By lowering the annual budget deficit and the level of nationaldebt, the government tempted to create a macroeconomic climate favorable toforeign direct investment (FDI) and private sector growth.

8. Ireland's IP structure is considered to be one of the strongest in Europe. The mainlegislation seeks to protect patents, trade marks, copyrights and designs.

Future Outlook:

Ireland had been highly successful in attracting foreign investments. Overseas companiescontinued to play a critical role in Irish economic development. Ireland had a good mix of high quality global businesses in various sectors. However, future investment were linked

to how well the country handled key infrastructural issues such as telecommunications,electricity supply and education.

China

Introduction

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

only one written language.

Background: For centuries China stood as a leading civilization, outpacing the rest of the world in the arts and sciences, but in the 19th and early 20th centuries, the countrywas beset by civil unrest, major famines, military defeats, and foreign occupation. After World War II, the Communists under MAO Zedong established an autocratic socialistsystem that, while ensuring China's sovereignty, imposed strict controls over everydaylife and cost the lives of tens of millions of people. After 1978, MAO's successor DENGXiaoping and other leaders focused on market-oriented economic development and by2000 output had quadrupled. For much of the population, living standards have improveddramatically and the room for personal choice has expanded, yet political controls remain

tight. China since the early 1990s has increased its global outreach and participation ininternational organizations.

Political System of China:

 A Communist form of government rules China. Communist state-a system of government in which the state plans and controls the economy and a single - oftenauthoritarian - party holds power; state controls are imposed with the elimination of 

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 private ownership of property or capital while claiming to make progress toward a higher social order in which all goods are equally shared by the people (i.e., a classless society).

Economic System of China:

Since 1949 the government under  socialist economic system, has been responsible for  planning and managing national.1) In the early 1950, the foreign trade system wasmonopolized by the state.2) Nearly all the domestic enterprises were state owned. 3)Government had set the prices for key commodities. 4) Controlled the level and generaldistribution of investment funds, 5) Determined output targets for major enterprises and branches. 6) Allocated energy resources. 7) Set wage levels and employment targets.8)Operated the whole sale and retail networks. 8) Steered the financial policy and bankingsystem.Since 1978, there was the emergence of  mixed idea when economic reforms wereinstituted, the government intervention has lessened to great degree. Industrial output bystate enterprises slowly declined, although a few strategic industries such as Aerospace

industry have today remained predominantly state-owned. While the role of thegovernment in maintaining the economy has been reduced and role of both privateenterprise and market forces increased, the government maintains a major role in theunban economy.Before introduction of economic reforms, private ownership of firms hardly existed.Private firms today account for about 60% of total production today. In fact, China is atype of mixed economy with a number of specific features.The pattern has basically been formed in which the public sector plays the main rolealongside non-public sector such as individual and private companies to achieve commondevelopment. According to this plan, China is forecasted to have a relatively completesocialist market economy in place by 2010 and this will become mature by 2020.

Legal System of China:

The legal system of the People’s Republic of China (PRC) is defined by the government

as a “socialist legal system.” Despite the official definition, however, China’s legal

system is based primarily on the model of Civil Law. The Constitution of the People’s

Republic of China is the highest law within China. Judicial precedents are not

enforceable in China. The Supreme People’s Court (SPC), however, bears the authority

to issue Judicial Interpretations (  sifa jieshi) as guidelines to the trials, which are

nationally enforceable.

Geography:Location: Eastern Asia, bordering the East China Sea, Korea Bay, Yellow Sea, and

South China Sea, between North Korea and Vietnam.

Area: total: 9,596,961 sq km

land: 9,569,901 sq km

water: 27,060 sq km

Rate of Disease: Chinese people living with HIV/AIDS are 740,000 (2009 est.).

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Climate: extremely diverse; tropical in south to sub arctic in north.

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

Demographics

Life expectancy at birth: total population: 74.68 yearsmale: 72.68 yearsfemale: 76.94 years (2011 est.)

Literacy: definition: age 15 and over can read and writetotal population: 91.6%male: 95.7%female: 87.6% (2007)

Economy - overview: Since the late 1970s China has moved from a closed, centrally planned economic system to a more market-oriented one that plays a major role in theglobal economy - in 2010 China became the world's largest exporter. Reforms began withthe phasing out of collectivized agriculture, and expanded to include the gradualliberalization of prices, fiscal decentralization, increased autonomy for state enterprises,creation of a diversified banking system, development of stock markets, rapid growth of the private sector, and opening to foreign trade and investment. China generally hasimplemented reforms in a gradualist fashion. In recent years, China has renewed itssupport for state-owned enterprises in sectors it considers important to "economicsecurity," explicitly looking to foster globally competitive national champions. After 

keeping its currency tightly linked to the US dollar for years, in July 2005 China revaluedits currency by 2.1% against the US dollar and moved to an exchange rate system thatreferences a basket of currencies. From mid 2005 to late 2008 cumulative appreciation of the renminbi against the US dollar was more than 20%, but the exchange rate remainedvirtually pegged to the dollar from the onset of the global financial crisis until June 2010,when Beijing allowed resumption of a gradual appreciation. The restructuring of theeconomy and resulting efficiency gains have contributed to a more than tenfold increasein GDP since 1978. Measured on a purchasing power parity (PPP) basis that adjusts for  price differences, China in 2010 stood as the second-largest economy in the world after the US, having surpassed Japan in 2001. The dollar values of China's agricultural andindustrial output each exceeded those of the US; China was second to the US in the value

of services it produced. Still, per capita income is below the world average. The Chinesegovernment faces numerous economic development challenges, including: (a) reducingits high domestic savings rate and correspondingly low domestic demand; (b) sustainingadequate job growth for tens of millions of migrants and new entrants to the work force;(c) reducing corruption and other economic crimes; and (d) containing environmentaldamage and social strife related to the economy's rapid transformation. Economicdevelopment has progressed further in coastal provinces than in the interior, andapproximately 200 million rural laborers and their dependents have relocated to urban

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areas to find work. One demographic consequence of the "one child" policy is that Chinais now one of the most rapidly aging countries in the world. Deterioration in theenvironment - notably air pollution, soil erosion, and the steady fall of the water table,especially in the north - is another long-term problem. China continues to lose arable land because of erosion and economic development. The Chinese government is seeking to

add energy production capacity from sources other than coal and oil, focusing on nuclear and alternative energy development. In 2009, the global economic downturn reducedforeign demand for Chinese exports for the first time in many years, but China reboundedquickly, outperforming all other major economies in 2010 with GDP growth around 10%.The economy appears set to remain on a strong growth trajectory in 2011, lendingcredibility to the stimulus policies the regime rolled out during the global financial crisis.The government vows to continue reforming the economy and emphasizes the need toincrease domestic consumption in order to make the economy less dependent on exportsfor GDP growth in the future, but China likely will make only marginal progress towardthese rebalancing goals in 2011. Two economic problems China currently faces areinflation - which, late in 2010, surpassed the government's target of 3% - and local

government debt, which swelled as a esult of stimulus policies, and is largely off-the- books and potentially low-quality.

Economic Indicator 

For China in year 2010 Indicator Value

GDP Growth (Constant Prices, National Currency) 10.456 %

GDP (Current Prices, National Currency) RMB 38,945.83 Billion.

GDP (Current Prices, US Dollars) US$ 5,745.13 Billion

GDP Deflator  275.696 (Index, Base Year as per country's accounts = 100)

GDP Per Capita (Constant Prices, National Currency) RMB 10,530.97 .

GDP Per Capita (Current Prices, National Currency) RMB 29,033.43 .

GDP Per Capita (Current Prices, US Dollars) US$ 4,282.89

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

GDP Per Capita (PPP), US Dollars US$ 7,517.72

GDP Share of World Total (PPP) 13.267 %

Implied PPP Conversion Rate 3.862

Inflation, Average Consumer Prices (Indexed to Year 2000) 248.214 (Index, Base Year 2000 =100)

Inflation (Average Consumer Price Change %) 3.524 %

Inflation, End of Year (Indexed to Year 2000) 131.864 (Index, Base Year 2000 =100)

Inflation (End of Year Change %) 3.524 %

Unemployment Rate (% of Labour Force) 4.1 %

Population 1,341.41 Million

General government revenue (National Currency) RMB 7,560.49 Billions.

General government revenue (% of GDP) 19.413 %

General government total expenditure (National Currency) RMB 8,686.38 Billions.

General government total expenditure (% of GDP) 22.304 %

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For China in year 2010 Indicator Value

Total Government Net Lending/ Borrowing (National Currency) RMB -1,125.89 Billions.

Total Government Net Lending/ Borrowing (% of GDP) -2.891 %

Total Government Gross Debt (National Currency) RMB 7,457.45 Billion.

Total Government Gross Debt (% of GDP) 19.148 %

Fiscal Year Gross Domestic Product, Current Prices RMB 38,945.83 Billions.

Current Account Balance (US Dollars) US$ 269.87 Billion

Current Account Balance (% GDP) 4.697 %

Encouraging FDI the Chinese way

In the formative years of the reform process, China followed a selective approachtowards FDI. While the sectors in which investments were sought received incentiveslike tariff exemptions and fiscal reductions, other sectors were subjected to severeconstraints. Chinese companies, which involved higher end work, such as hardwaremanufacturing, telecommunication and broadband infrastructure building. China openedup its economy in late 1978 and FDI was authorized in 1979. FDI was considered as one

of the best ways to introduced foreign capital and bring in modern technology andmanagement skills.

1. Since the mid-90s the level of protection has been progressively lowered. Theaverage tariff rate came down from 43 percent in 1992 to 23 percent in 1996. In1997, the average tariff on industrial products was reduced to 17 percent and thecountry had plans to bring it down to 10 percent in 2005.

2. Also China established foreign exchange centers in the late 1980s and currencyconvertibility for current account operations in 1996, which made it easier for foreign firms to handle their operations in foreign currencies.

3. China had focused on foreign investments in technology development andinnovation aimed at transforming industries from low high-tech.

4. Several tax incentives have been offered to lure foreign investors. Foreigncompanies that transferred adverse technology to China were exempted from both business and income tax. Foreign firms that increased their technology spendingin China by more than 10 percent over the previous year were allowed to deduct50 percent of the funds actually spent on technological development from their income tax dues. On the one hand, China provided incentives for export promotion and on the other hand it introduced strong import protection measures.

5. In china, while the large state owned companies enjoyed protection, the privatesector was subjected to strong market forces. China's labor markets were highlyflexible in the private sector while workers in the state sector were accordedgenerous job guarantees, workers in the non-state sector did not receivess

guaranteed employment. Employment in china grew at a rapid pace as firms couldhire workers with out fear of being stuck with unwanted labor in the future.

Future Outlook:

World Bank chief economist said, China economy will probably become the world biggest by 2030 when it will be twice the size of the United States, if measured in termsof purchasing power parity.

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Mr Justin Lin senior vice president and chief economist at the bank said "China couldmaintain GDP growth of 8% over the next 20 years which will make it the world biggesteconomy. He added that by 2030 the Chinese economy may be approximately the samesize as that of the US at market exchange rates in terms of nominal GDP."

He added that "It is imperative for China to address structural imbalances, by removing

the remaining distortions in the financial, natural resources and service sectors tocomplete the transition to a well-functioning market economy."

He also said the concentration of income in the corporate sector and the wealthier sectionof society is contributing to the rising disparity in incomes and other imbalances in theeconomy.

Mr. Zheng Xinli vice president of the China Center for International EconomicExchanges said "China still has huge potential to maintain strong growth, as the countryurbanization rate is likely to reach 70 percent by 2030 from the current 47%."

Mr. Yi Gang deputy governor of the People Bank of China, the central bank, said inHong Kong on Wednesday that he was confident the government will be able to keep

consumer price inflation at or below, 4% this year.He said that "The inflation figure will rise to as high as 5 percent in May or June thisyear, but because of the higher base figure of the second half of 2010, inflation in thesecond half of this year will cool. So throughout the whole year, we will be able to meetthe government's 4% target."

Mr. Yi said he is comfortable with the current level of interest rates and that raising themexcessively would attract hot money inflows.

China consumer price inflation rose to 4.9% in January and February from 4.6% inDecember. It hit 5.1% in November a 28 month high. A drought in some major grain producing areas, together with increases in international grain and oil prices has led togrowing concerns about rising inflation.

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China’s Success over Ireland

China was able to search ahead of Ireland in attracting FDI, considered to be a primeinput for the progress of developing economies, as it embraced reforms much earlier andeventually established itself as "workshop of the world". Following are the reasons for higher FDI of China (i.e. $574 billion) as compare to that of Ireland (i.e. $228 billion):

1. China's success in attracting FDI was attributed by many to its authoritarian political structure that allowed it to make policy changes more easily than thedemocratic setup that prevailed in Ireland.

2. China could easily create policy framework that was investor friendly. Export  processing zones setup with the sole purpose of facilitating production bymultinationals for export from China in to their home markets met with hugesuccess.

3. Being a big market and a source of skilled manpower, gave China an edge over other developing economies. If a country’s population is growing very fast, thismay serve as a catalyst for FDI inflows. Besides, larger countries also have higher levels of physical and intangible assets to invest overseas. As, China’s market

size is larger in terms of consumers i.e. 1,341.41 Million as compare to that of Ireland i.e. 4.473 Million, the FDI inflow is also higher.

4. No matter what the political system is, because some totalitarian regimes havefostered strong IPRs protections and have experienced rapid economic growth.In addition, IPRs protection can preserve R&D incentives. China is a gooddestination country in this view because it provides cheaper labors to MNCs. Atthe same time, Irish democratic government does not have strong IPRs protectionsand thus have sluggish economic growth as compare to China. In 1992, Lee KaunYew, Singapore,s leader for many years, told an audience, “I do not believe thatdemocracy necessarily leads to development. I believe that a country needs todevelop discipline more than democracy.

5. Many transnational companies (TNCs), evaluating investment opportunities andlocations, typically looked for the stability of the domestic currency because anydepreciation of the currency increased their cost of debt servicing. China, becauseof its limited integration with global markets, could provide a stable currency andresisted the depreciation of its currency, the Yuan, against currencies like the USdollar. On the other hand, the sharp deterioration in the Irish Government’sfinances and the strength of the euro - - also didn’t help, another inimical todevelopment,”

6. Another favorable factor for china was the existence of more than 100,000 stateowned undertakings, which were earmarked for privatization. For many of theseunits, China looked for foreign capital that was expected to bring credibility to the

venture and help them to secure loans from international agencies. These stateowned units were for sale at a low price and so were able to attract foreign capital.

7. China built the required infrastructure to attract FDI for export production.8. The difference in composition of GDP of the two economies was also considered

to be a critical factor in determining the FDI flows.

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

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4.1%)

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