Mortgage Price Variations in US and China - Essay Example

The mortgage rates in China vary from an average of 4.35 percent for one-year loans to 4.9 percent for loans of over five years (Durden, 2017). Comparatively, in the US, the average cost of a 30-year mortgage is 4.15 percent while five-year loans are given out at a rate of 3.18 percent (Leon, 2017). Thus, the cost of owning a house through bank lending in China is slightly higher than in the US. Such rates also mean Chinese mortgage companies earn higher than their American counterparts from interest rates.

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Promotion Strategies

Maxima Investment Company recognizes that consumer tastes in the US differ with those of the Chinese and that the market strategies need to be different. First, Maxima Investment Company will adopt a Mandarin equivalent of the name Maxima. This will make it easier for the local customers to relate to the business. Second, promotional activities will focus on upcoming cities within China such as Chengdu and Chongqing because Maxima Investment Company aims to offer mortgage facilities to mainly low and middle-income earners.

Legal Protections in China

China is not as welcoming to foreign investors as compared to America. Most of their laws limit the entry of foreign commodities, manufacturers, and service companies. Furthermore, many foreign investors have to engage with local partners (who will be in charge of controlling the businesss affairs.) Further, unlike in the US, China has ambiguous business regulations that expose foreign companies to legal risks (China-Market-Challenges, 2016). In the US, the Treasury Department sets financial rules. However, in China, the State Administration of Foreign Exchange and the Peoples Bank of China are in charge of managing the financial sector. Laws drafted by these two institutions will significantly influence the operations of Maxima Investment Company since China operates a closed capital account. A closed capital account means that the government has a massive bearing on the movement of money in and out of the economy (China - Foreign Exchange Controls, 2016). Chinas economic approach will determine how much money Maxima Investment Company can issue as mortgage and the amount of currency that will move to and from the parent company in the US and the branch in China. Moreover, foreign investments are controlled by the government. Thus, companies can only invest in areas where the government deems necessary (China - Openness to and Restriction on Foreign Investment, 2016).

Also, Maxima Investment Company has to factor in copyright and patent protection since China has a first come recognition policy when it comes to intellectual property (Zheng, 2016). Comparatively, America recognizes the first inventors. As such, it would be important for Maxima to register all intellectual property (trademarks, software, and inventions) with Chinese authorities during registration. The intellectual properties will be registered in both English and Chinese versions.

Service Distribution Strategies

China has laws such as the Provision on mergers and acquisition of domestic entities by foreign investors which make it almost impossible for non-local firms to perform an outright buy of Chinese companies. Even when a corporation succeeds in acquiring a local business, the buying firm will have to cede some of its equity to a Chinese proxy (China - Openness to and Restriction on Foreign Investment, 2016). Therefore, Maxima will seek a small-size strategic partner. Maxima Investment Company will then form the mortgage lending branch of the Chinese bank aside from injecting capital into the smaller banks reserves to boost operations.

Effect of Exporting Maxima Investment Companys Service on its Value Creation Efforts

If Maxima Investment Company makes a successful breakthrough into the Chinese market, its stock price is sure to rise. The brand will become more valuable than it was before and the shareholders will get great returns. However, if Maxima Investment Company experiences challenges entering the Chinese market, then the process of exporting its services will hamper the process of value creation since expenses will exceed revenue.

References

China - foreign exchange controls. (2017). Export.gov. Retrieved 17 February 2017, from https://www.export.gov/article?id=China-Foreign-Exchange-Controls

China - market challenges. (2017). Export.gov. Retrieved 17 February 2017, from https://www.export.gov/article?id=China-Market-Challenges

China - openness to and restriction on foreign investment. (2017). Export.gov. Retrieved 17 February 2017, from https://www.export.gov/article?id=China-Openness-to-and-Restriction-on-Foreign-Investment

Durden, T. (2017). Chinese banks begin to raise mortgage rates. Zerohedge.com. Retrieved 17 February 2017, from http://www.zerohedge.com/news/2017-02-09/chinese-banks-begin-raise-mortgage-rates

Leong, R. (2017). U.S. mortgage rates fall in latest week. Reuters.com. Retrieved 17 February 2017, from http://www.reuters.com/article/us-usa-mortgages-freddiemac-idUSKBN15V27B

Zheng, R. (2016, September 25). Patent basics-utility model patent practice in China. [Video File]. Retrieved from https://www.export.gov/article?id=Patent-Basics-in-China