Human Capital Investment, Essay Example

Introduction

One of the main goals of China is to become an international innovative and ground-breaking powerhouse by the year 2020. The analysis of the country’s policies revealed that China’s productivity is brought about the structural and technological changes that are growing in a rate of 6 to 7% range that stems from being innovative. Undeniably, China is known for its robust economic ascension. This economic movement has made China one of the largest economies and exporter in the global scale. As a matter of fact, the country has integrated itself in the economies of the world more than the superpowers, such as the United States of America, have ever been. But this success did not happen without the help of human capital which is considered to be one of the most important tools for growth utilized by emerging companies (Cao, 2007). In this regard, this paper will explain the contribution of human capital investment to China’s economic growth by focusing on its human capital investment plan and technological development. This paper will also determine whether or not business sustainability hinders or enhances China’s technological developments by analyzing an emerging business called BYD Electric Car.

The quest of China to become a superpower nation in terms of the economy is imposing. As a matter of fact, China’s innovation as well as growth in the field of information technology and the incubation of its human capital has made the country’s efforts to attain the status of an economic superpower even more remarkable. But then again, the investment that China is making towards its human capital is not getting as much attention as compared to what China is trying to achieve in an international scale (Chi, 2011). As a matter of fact, China has been making huge ventures towards education in order to ensure that its human capital is progressing as well. A lot of resources are being used towards research and development and it is more than what any other countries in the West have afforded for their own research and development. This trend has become the magnet for international students and other expatriates to produce scientific papers that are related to engineering and other natural sciences (Chen & Zhang, 2009). By 2050, it is found out that China endeavours to become the world titleholder in the field of science and research (Guerin, 2001).

According to Adam Smith (1964), the fourth component of the wealth of the nations is its inhabitants or members of the society that have abilities that the nation can utilize for growth and development. A brilliant exposition of human capital was given by Theodore Schultz, the famous founder of the theory on human capital. Schultz (1990) revealed that members of the society, in general, have skills and they are in possession of knowledge. These sets of skills and knowledge are considered capitals that can yield results when utilized as investments. Some clear examples of human capital are health care and education. However, these examples are only as effective as when they are aimed towards getting out of domestic migration. Investing is an important aspect of the economy. To invest means to use resources with a hope of future benefits. To make investment in the form of human capital is a good economic venture. It refers to the abilities and capabilities of a country to invest in human capital that to ensure economic improvement, progress and development whose venture lies directly on the cost of education and training of its citizens (Becker, 1987).

In order to increase the effect of people in the economic growth in terms of money, consumption and income, there is a need to invest in human capital. The values of human capital can be summed up in five different categories: the ability to learn, the ability to accomplish a task, creativity, activities in the cultural and recreational aspects, and coping abilities with the non-equipoise (Heckman, 2000).

Ever since the opening of the Chinese market into the word and the socialist market, China’s human capital has been evolving on a steady pace. As a result the country is enjoying the economic and the social impact that human capital has to offer. In addition, it helps in the promotion of the economic development in the country. However, it cannot be denied that despite the evolving human capital, the growth and progress of the country, China is still face with various problems in relation to the investments made in human capital as well as its accumulation.

Education is one of the main aspects of human capital that has to be intensified as far as investments are concerned. In 2004 alone, China has used up about 724 billion of its resources to target education. Education is crucial in the movement of the economy in the nation. The lack of it will restrict the development of human capital and will inhibit the efficiency of the country to affect a full progress of the economy in the national level (Heckman & Li, 2004). In this regard, it cannot be denied that China focuses on the education of its human capital. In the 1990s, China has made serious advances in its education system. However, the government did not invest as much as it should on education. Studies have revealed that China only allotted a total of 2.5% taken from its GDP for the education of its people while 30% of the GDP was given towards the physical capital of the country (Chow & Shen, 2004). Therefore, the ratio between the physical and human capital of China was higher than any other countries in the whole world. China received a lot of criticisms due to the under investment in human capital and over the top venture in physical capital. It is believed that the imbalance between the funds allotted in the physical and human capital is a direct distortion of the policies set in place in China to help the country work its way up to continued economic development.

Nonetheless, the country stayed on track and followed through its strategic plan in focusing in higher education and expanding it. With these efforts, people are returning to school and pushing for the comparative lead. This trend has resulted to the further progress of the labor markets in China as well as its global presence. In addition to this, people who attended college have experienced an 11% increase in their income especially in the urban China. The conclusion is that the increase in the returns to edification is the direct result of the economic reform in China. Even with some struggles in the field of education such inequality, China did not stop to promote higher education until it reached a point of internationalization (Lin, et.al, 2003). During this phase, cooperation between the Chinese and the Western schools and universities have been reached. Chinese students started to enter universities abroad and their number is growing. In addition to this, the government started offering scholarships to students who were using their own resources to fund their educational endeavors. The scholarships are based on academic performance. Regardless of the focus of the government to be the champion in the field of science and research, students are being given an option to pursue whatever choice they have after graduation. However, scholarships are only granted for students who are pursuing doctoral programs.

China continued to expand its ties and network with other countries to establish educational relationships. By the year 2007, China has already established such relationship with 188 countries all over the globe. Clearly, the goal of the country is to ensure that their people are going to be able to pursue education and enhance their abilities, capabilities, and knowledge wherever they want to (Naughton, 2007).

However, despite the success and achievements that China has acquired through the expansion of its educational system to hone its human capital, there are still some challenges that need clearing up to reduce or mitigate its negative impact such as inequality. It also needs to promote growth of the economic and the sustenance of the country’s high skilled workforce as a result of education.

The main concern relating to the promotion of education in China is the cost and the expenses that are tied to it. The expenditures that are education-related are very high. Hence, taking this into account, it cannot be denied that there is inefficiency in the practices as well as in-equitability. Even in the presence of a strong positive impact of education in the society and the economy, there are still limits in the accessibility of schooling due to the lack of capital markets available. Families only rely to their own resources to finance the education of their children. This does not promote access to education but rather inter-generational insufficiency (Knight & Song, 1999). It has to be remembered that there are certain areas in China where poverty is very rampant and apparent. This situation does not allow for an equal opportunity for children and youth to go after the achievement of higher education. This is particularly true in rural China.

Hence, there is a need for policies that will allow for the expansion of the investment in the field of human capital and will transcend geographic regions and the bridge the gap between rural and urban China. There is also an urgent need to build more schools not just for tertiary education but as well primary schools all across China to make room for the promotion of education to the migrant children that originated from rural China and reduce inequality.

Furthermore, a college loan program should be put in place in order to ensure that students who want to pursue higher education can do so and borrow against their future incomes. This gives poor families the same opportunity to pursue higher education. In this regard, it cannot be denied that China has been giving its people the chance to participate in its economic potentiality.

The human capital of China has become strong with the countries continued effort to increase global presence and competitiveness. The development policies that the government is enacting reflect its focus on education, science and technology. As a matter of fact, the outcomes of the educational efforts the country is exhibiting are impressive as far as its contribution in the natural sciences is concerned.

China’s focus on human capital has allowed the country to explore and expand its growth from an economic perspective. It helped the country to recognize the importance of its people and regenerate its economy by utilizing their abilities and knowledge mainly from productivity. The human capital in China became effective as the skills of the workers increases. The engineering performance of the country rises as a result of better training of individuals in the field of engineering. It has to be remembered that most of bright minds from China are studying engineering in universities from the West. They are being trained to develop strong and solid sets of skills that are necessary to aid in improving the engineering industry (Freeman, 1994). Not to mention that China is using its human capital to improve its adaptability. It is also allowing China to become more efficient in the allocation of its resources and making sure that these resources are properly invested to variables that will yield future benefits.

Undeniably, China is evolving. The entire nation is changing as it embraces the changes in the labor and capital markets as well as the global economy. The most important change that China has undergone is the acceptance of the fact that better skills that are attained from better educations allow for an easy transition and adaptability for change. China’s opportunities to benefit from these changes have been enhanced. In addition, it allows for the creation of more opportunities for the people as well with the increase in productivity. At the same time, the human capital of China allows for the mobility of workers from one occupation to another and change industries as new opportunities arise. The physical and human capital resources of the country are being allocated properly to more beneficial opportunities and investments (Chan & Welford, 2005). More importantly, China is now reaping the benefits of a more flexible workforce it created from educating its people. This is due to the fact that people with higher education can adjust better to opportunities and jobs as they are trained to adapt to new concepts, new ideas and embrace technological changes as they happen. Also, educated workers do not just embrace the changes but rather contribute to the improvement of a system as well as apply the acquired knowledge from studying abroad to the local operations in China (Chang & Lin, 2007).

BYD Electric Car: Analysis

In 2003, Wang Chuanfu established the BYD Automobile. BYD stands for Builg Your Dreams. In just about 8 years, it has become the 6^th largest manufacturers of car in all across China. The main vision of the company is to become the leading and top manufacturer of car by the year 2025. The utilization of PEST analysis will help analyze the company (Johnson, 2001).

Political

In the year 2009, the government of China approved the infamous “Adjustment and Vitalization Plan for Auto Industry”. This plan paved the way for the trials on green car subsidy launched in 5 pilot cities. This means that individuals who have decided to purchase hybrids and electric cars will get a subsidy of about 60,000 RMB or approximately $8,000 depending on the current exchange rate. Accordingly, it is the hope of the local government to produce about 24,000 vehicles and about 12,750 charging stations to accommodate the electric cars. It is surprising to see that the goal of China and its support on the electric cars exceed that of the United States of America. While the United States of America allotted about $5 billion in electric cars, China has allotted about $17 billion (Zhao, 2005).

Economical

When electric cars were launched in China, the total sales it acquired just in 2005 reached a total of 5.9 million units. As the years progressed, BYD have sold 13.64 units in 2009 which accumulated a total of 23% increase in its sale. As a matter of fact, this record allowed China to surpass Japan as the leading manufacturer of automobile not just in Asia but in all parts of the world.

It is predicted that by the year 2020, China’s will acquire 35% of the global electric vehicle market. This is an outstanding prediction given the fact that in 2010 alone, the market share of China in the electric vehicle market is only 2.7%. The aggressive prediction will make China gain an impressive 32.2% market share in just about 10 years. This prediction can be rooted from the fact that, although, China has about 19% of the global population share, statistics from 2009 revealed that it only has 1% of the oil reserves in a global perspectives. Moreover, China is making investment in various green energy products amounting to $34.6 billion. This goes to show that China is focusing in the betterment of its environment while becoming more technological (Zhao, 2005).

Social

China’s acceptance of electric cars is also remarkable. As a matter of fact, a study conducted revealed that 60% of people asked to participate showed a strong interest in purchasing electric cars. The reason behind such acceptance is the reliability of new energy and the positive environmental impact of electric cars to the society due to the eradication of burning fossil fuels. It is undeniable that China is experiencing the wrath of climate change and 98% of the population living in urban China are concerned about climate change. In this regard, 69% of them are willing to change their ways of living if such acts will mitigate or reduce the effect of climate change (Beyer, 2006).

Technological

It is a known fact that electric and hybrid cars are the next trend in the automobile industry. This is particularly true with the rising cost of fuel and gas. Electric cars might be more expensive to buy but it allows people to save more money in the long run.

Business Sustainability and Technological Development

Undeniably, the relationship between the sustainability of business and the development in technology lies in the impact of business not just in the profitability of a company but more so in the environment. The sustainability of a business can be measured by its universal implications not just to one sector of the economy such as a market or an enterprise but also in terms of its impact on other factors such as competitiveness, supply and demand as well as the environment. These are factors that weigh in and bridge the gap between companies and the society (Cao & Dupuis, 2010). As a matter of fact, there has been a shift in the paradigm of business focus. Before, it is always about profitability, potentiality and marketability. But now, businesses are becoming more aware of the issues on climate change and how it impacts the financial activities and performance of the economy. Issues on sustainability have important economic impact. Hence, the issues on climate change and greenhouse gas emissions coupled with technological development means building 21^st century transportation that increases the standards in fuel economy (Cheung, Welford, & Hills, 2009).

The government of China has set regulations for the “Adjustment and Vitalization Plan for Auto Industry”. As a result, the progress and efforts to improve fuel-efficiency dwindled while there is an extraordinary increase in improving the attributes of the vehicles, acceleration rate, horsepower and even speed. The consumers are now buying vehicles that are fuel-efficient (Belyaeva & Kazakov, 2014). Although the entire Chinese population has not embraced the idea yet, a good portion does. The IPCC or the Intergovernmental Panel on Climate Change noted that vehicles that have improved efficiency that contribute to fuel savings have net benefits.

Because of the fact that road transportation is the number one contributor to greenhouse gas emissions, building 21^st century fuel efficient transportation is more cost-effective considering the impact it will have in the reduction of the emissions and the environmental benefits that can be attained from it. Environmental improvements will be the direct result of this action. The adaptation and development of modern transportation technologies alternative on the other hand, allows for the linking of core outlay, and work platform as it includes construction of road infrastructure, design, operations and maintenance (Bai & Sarkis, 2014).

Conclusion

With all the foregoing, it cannot be denied that China’s human capital investment plan is to educate its people has allowed for the nation to evolve in the fields of technology. Armed with vast knowledge acquired from studying abroad, China has become competitive in the fields of technology with roots founded on engineering and on other fields of sciences. This kind of workforce will help China as it enters international and global markets and it will provide access to new global technological advances. In this regard, new job opportunities will be created as the need for more skilled workers increases as well this is due to the fact that Chinese students that are sent to different parts of the world to learn new skills will come back to their motherland bearing new knowledge and new technology. Therefore, the country will need more skilled workers to operate and participate in this new technology.

In addition, the strength of the relationship between business sustainability and technological development lies on businesses ability to become more and more innovative in their strategies and practices while taking part in the preservation of environment. Technological development is not always bad. But it is not always about progress at the expense of the environment. Hence, companies are building reputations and brands based on a greener environment (Chow & Chen, 2012). Such as in the case of BYD Automobile, the company has utilized new technologies and applied it to product development. The issue on climate change will sustain the business and take it as far as it can. This is particularly true in China where greenhouse gas emission is the top most cause of pollution in the country.

Bibliography

Bai, C. A., & Sarkis, J. (2014). Determining and Applying Sustainable Supplier Key Performance Indicators. Supply Chain Management: An International Journal, 19(3), 5-5.

Becker, G. (1987). Human Capital. Beijing: Peking University Press.

Belyaeva, Z., & Kazakov, A. (2014). Integrated Approach to Social Responsibility: a Model of Stakeholders Interaction in Russia and China. Systems Research and Behavioral Science. DOI: 10.1002/sres.2265

Beyer, S. (2006). Environmental law and policy in the People’s Republic of China. Chinese Journal of International Law, 5(1), 185-211.

Cao, J. (2007). Measuring Green Productivity Growth for China’s Manufacturing Sectors: 1991–2000*. Asian Economic Journal, 21(4), 425-451.

Cao, L., & Dupuis, M. (2010). Strategy and sustainable competitive advantage of international retailers in China. Journal of Asia-Pacific Business, 11(1), 6-27.

Chan, J. C. H., & Welford, R. (2005). Assessing corporate environmental risk in China: an evaluation of reporting activities of Hong Kong listed enterprises. Corporate Social Responsibility and Environmental Management, 12(2), 88-104.

Chang, S. E., & Lin, C. S. (2007). Exploring organizational culture for information security management. Industrial Management & Data Systems, 107(3), 438-458.

Chen, H., & Zhang, H. (2009). Two-way communication strategy on CSR information in China. Social Responsibility Journal, 5(4), 440-449.

Cheung, D. K., Welford, R. J., & Hills, P. R. (2009). CSR and the environment: business supply chain partnerships in Hong Kong and PRDR, China. Corporate Social Responsibility and Environmental Management, 16(5), 250-263.

Chi, T. (2011). Building a sustainable supply chain: an analysis of corporate social responsibility (CSR) practices in the Chinese textile and apparel industry. Journal of the Textile Institute, 102(10), 837-848.

Chow, W. S., & Chen, Y. (2012). Corporate sustainable development: Testing a new scale based on the mainland Chinese context. Journal of business ethics, 105(4), 519-533.

Chow, G. & Shen, Y. (2004). The Role of Private Funding in China’s Education System. Unpublished Manuscript: Princeton University, Department of Economics.

Christmann, P. (2004). Multinational companies and the natural environment: Determinants of global environmental policy. Academy of Management Journal, 47(5), 747-760.

Christmann, P., & Taylor, G. (2001). Globalization and the environment: Determinants of firm self-regulation in China. Journal of International Business Studies, 439-458.

Freeman, R. E. (1994). The politics of stakeholder theory: Some future directions. Business ethics quarterly, 4(4).

Guerin, T. F. (2001). Transferring environmental technologies to China: recent developments and constraints. Technological Forecasting and Social Change, 67(1), 55-75.

Heckman, J. (2000). Policies to Foster Human Capital. Research in Economics, 54(1), 3-82.

Heckman, J. & Li, X. (2004). Election Bias, Comparative Advantage and Heterogeneous Returns to Education: Evidence from China in 2000. Pacific Economic Review, 9(3), 155-171.

Johnson, G. (2001). Exploring Corporate Strategy. London: Prentice-Hall.

Knight, J. & Song, L. (1999). The Rural-Urban Divide: Economics Disparities and Interaction in China. Oxford: Oxford University Press.

Lin, J., Wang, G., & Zhao, Y. (2003). Regional Inequality and Labor Transfers in China. Chicago: Johnson Memorial University of Chicago.

Naughton, B. (2007). The Chinese Economy: Transitions and Growth. Cambridge, MA: MIT Press.

Schultz, T. (1990). Discussion on the Human Capital Investment. Beijing: Beijing Institute of Economic Press.

Smith, A. (1964). The Wealth of Nations. Beijing: Commercial Press.

Zhao, M. (2005). Five Competitive Forces in China’s Automobile Industry. The Journal of American Academic of Business, Cambridge, 7(1).