Investing in Hi-Tech Industries in China: Pros and Cons

Topics: Tax, Income tax, India Pages: 11 (4026 words) Published: November 2, 2008
1.0 Introduction
China introduced market reforms in the early 1980s; only a third of the economy is now directly state-controlled. Since joining the World Trade Organization in 2001, China has rapidly become an economic force, doubling its share of global manufacturing output and creating a commodity-market boom. In 2004 China became the largest exporter of information and communication technology (ICT) exports. In China, the Hi-tech industry, that includes software industry is a recent phenomenon and the early industry participants were government-funded research institutions spin-offs Legend and Founder were setting up their operations in the year of 1980. China’s market-oriented economy reforms has largely encouraged a large numbers of entrepreneurs to apply their technical skills and set up new ventures to produce software for the vast home market. However, the Chinese software industry has been privately owned recently. According to Heberer (2000), the Chinese government has not only publicly endorsed their “Heroic” entrepreneurial activities and regarded them as a consequence of economic reforms and has been implemented a range of policies that target property rights, taxation, venture creation and export to promote the growth. 2.0 Pros

2.1 Huge Potential Market for Semiconductor ( China VS Vietnam ) a) Population and Markets Size
According to Distribution of World Population-Data Report 2006, the China alone comprises about 20% of the world population and is the largest population countries in the world. Estimate, it population already achieve around to 1.32 billion. It means that, it is a quite huge potential market because of their largest population. However, estimates population of Vietnam is around 87 million and near to 1.3% of the world population. It means that, the markets size in Vietnam is not very huge and potential if compare with the China. So, as wisdom investors they will choose the China as a market to invest not only the hi-tech industries but also others.

b)Stage of the Markets
China is already the world’s largest market for mobile phones and the second largest for personal computers. It is also the largest producer of televisions. Domestic demand for those three products creates an almost insatiable hunger for semiconductors. Howell’s report predicted that the Chinese market for computer chips would grow at a rate of 21.5 percent per year from 2002 to 2008. The US market has been growing by 7.3 percent per year. This shows that the China market is high potential for the foreign investors to invest at there because it has already developed now and not on the infant stage again. It has already had the knowledge about this hi-tech sector and already had the infrastructures that are suitable. However, the Vietnam now is only on the infant stages and just started to develop their hi-tech industries. So, it was not very stable if compare with China. Besides that, their start-up costs also quite high because the poorly developed infrastructure. So as a result, the investors will choose to invest in China but not the Vietnam. c)Labor and Wages

One of the principal attractions of China and Vietnam for the foreign investors is their large, relatively well educated and inexpensive labor forces. As a comparison, the labor in Vietnam poses some problems for foreign investors. There is a shortage of managerial talent and skilled workers, resulting in higher salaries for those employees. Another factor raising the costs of skilled and managerial workers is Vietnam’s sharply progressive personal income tax system that results in labor costs 2-3 times higher than in other Asian countries for relatively high-paid local staff.

d) Encouragements of China government
Since 1997, China has revised the industry guide for foreign investors on three occasions in the hope of channeling foreign investment to serve the needs of industrial restructuring. According to Justin Lin, director...
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