http://www.pwccn.com/webmedia/doc/634940150734265198_iic_full.

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Choosing the right vehicle for entry is one of the most crucial
decisions a business can make when entering China for the first
time. Although a growing number of foreign companies are going
it alone' in China, the joint venture (JV) business model still brings
with it many advantages and can often be seen as a lower-risk
strategy than the wholly foreign owned enterprise (WFOE).
Equally, while some b2b markets require setting up a local
Chinese entity, in other markets using local intermediaries or a
small representative office may suffice.
Entry mode often depends on a number of factors, including
industry landscape, the geographical size and scope of the
market, whether the company plans to manufacture locally or
import its products, and the level of on-the-ground sales and
technical support required by customers. Ultimately, when
choosing which form is most appropriate, a company should
consider each of these factors, along with the overall costs of
setting up a local entity and hiring local employees.
Ultimately, the best vehicle for a foreign enterprise entering the
market for the first time will vary according to the size and scope
of an enterprise, along with the specific characteristics of the
market it is entering. For example, while WFOEs are often the
main modus operandifor high-tech firms with large IP inventories,
companies specialising in more commoditised products often find
that risk is mitigated by partnering up with a well-established
local company.
In China, Gross Domestic Product is divided into three sectors:
Primary, Secondary and Tertiary. The Primary Industry includes
Farming, Animal Husbandry, and Fishery and is around 9 percent
of GDP. The Secondary sector, which includes Industry (40 percent
of GDP) and Construction (9 percent of GDP) is the most
important. The Tertiary sector accounts for the remaining 44
percent of total and consist of Wholesale and Retail Trades;
Transport, Storage, Real Estate, Hotel and Others.

http://www.frbsf.org/economic-research/publications/economicletter/2015/august/china-economic-growth-miracle-slowdown/

. For comparison, inflation in India amounted to 9.44 percent that

same year.
CHINESE officials tired of defending their exchange-rate policy can
at least appreciate the irony in the latest charges levelled against
them. For years foreigners accused them of keeping the yuan
artificially weak to boost exports. Now, domestic critics say, they
are doing just the opposite: keeping the currency artificially strong
and, in the process, wounding the economy. Some predict China
will soon change course and engineer a devaluation. But just as
the Chinese authorities did not resort to a big one-off appreciation
when the yuan seemed too weak, they are unlikely to embark on
a dramatic devaluation now that it is looking strong.
The yuan has been one of the worlds top-performing currencies
this year. The reason is simple. Although China claims to be trying
to manage the yuans value against a basket of currencies, in
practice it is still loosely pegged to the dollar. As the dollar has
risen against most currencies over the past seven months, the
yuan has hitched a ride. The dollar is up by 18% since July against
the worlds seven most traded currencies, but by only 0.6%
against the yuan (see chart). As a result, the Chinese currency is
at an all-time high in trade-weighted terms.
Those forecasting devaluation believe the state of the economy
does not justify such strength. More than $90 billion (nearly 3% of
quarterly GDP) flowed out of China via its capital account in the
fourth quarter, a record deficit. The central bank sold a small slice
of its nearly $4 trillion foreign-exchange reserves at the same
time, implying that it intervened to prop up the yuan.
Devaluation would, all else being equal, let Chinese exporters
regain some lost competitiveness. By raising the cost of imports,
it would also help China stave off deflation. With monetary easing
from Japan to Europe setting up several currencies for bigger
declines, it is fair to ask whether China can afford to sit on the
sidelines.

Yet the costs of devaluation outweigh the benefits for China, for
two reasons. First, it is doubtful that it would deliver the desired
economic outcome. Despite talk of currency wars, Asian countries
have so far avoided full-scale hostilities over their exchange rates.
If the regions biggest economy launches an offensive, others
would surely follow, wiping out any advantage it hoped to gain. In
fact, a devaluation might hurt the economy. A falling yuan might
spur the outflow of capital. It would certainly endanger Chinas
companies, which have amassed $1 trillion in foreign debt, which
would become more expensive to service if the yuan lost ground.
Second, the politics of devaluation would harm China. In the short
term, there would be renewed complaints in America about
Chinese currency manipulation, raising the possibility of
countermeasures. In the longer term, it would hamper Chinas
efforts to make the yuan a rival to the dollar. The strongest
reserve currencies serve as safe havens when others are in
turmoil. During the Asian financial crisis of 1997-98 and the global
meltdown of 2008, China maintained a steady exchange rate
against the dollar, despite having ample cause to allow
depreciation. Such actions have bolstered the yuans credibility. A
rush to devalue now would undermine it.
That said, some weakening of the yuan is likely in the coming
months. The central bank has long vowed to give the market
greater sway over the exchange rate. With the current-account
surplus narrowing and capital flowing out, the market is pointing
to at least mild depreciation.
The central bank has also vowed to make the exchange rate more
volatile, to wrong-foot speculators and force companies to do a
better job of hedging their exposure to different currencies. Guan
Tao, an official with the foreign-exchange regulator, sounded such
a warning this month, citing an ancient proverb: A wise man
should not stand next to a dangerous wall. The dollars relentless
rise may dislodge a brick or two, but China is not about to let the
yuan collapse.
Effects from sterilized intervention
The PBoC can avoid these inflationary pressures if its currency
intervention is sterilized. Sterilized intervention means that the extra
renminbi created are mopped up by the central bank through selling

central bank and/or government bonds for which is receives renminbi

in return. Hence, when the PBoC uses sterilized intervention, it
reverses the expansion of the domestic supply of renminbi by issuing
central bank bonds and receiving renminbi in exchange. However, if
the central bank issues these bonds, it has to make the required
interest payments to the bond holders. This is another cost of sterilized
intervention.
http://www.chinabusinessreview.com/chinas-rising-costs/