China
Developing Giant
What developing country also has the world's third largest economy (after the United States and Japan)? The People's Republic of China. Yet China today is something of an adolescent as a world economy: oversized and exuberant, in many areas underdeveloped, yet also growing faster than its motor skills can quite control.
Less than two decades ago, in 1976 when Mao Zedong and Zhou Enlai died and the Cultural Revolution came to an end, China was in economic terms a backward-looking recluse. Now, as a result of economic reforms first introduced in 1978, and "faster, bolder" economic growth endorsed by the Chinese leadership in 1992, China has burst on the global economic scene with lightning speed and vitality. The country's economic growth was 9.3 percent in 2005, and it is expected to average eight percent during the period 2006-2010.
[Tip — Business Style: Although China is now an important player in international trade, it was "out of the loop" for several decades during the Cultural Revolution. Do not expect high levels of business sophistication and efficiency in most of your dealings with the Chinese. Be explicit and patient in your communications with them.]
Growth has been sparked in part by a number of economic zones, called Special Economic Zones, Development Zones, and Open Economic Zones, established in the 1980's to promote trade and foreign investment. These zones, situated in the coastal and southern provinces of the country, now play an important role in China's economic growth. They provide various tax incentives, tariff concessions, and reduced costs of land and labor. They also facilitate technology transfer, joint ventures, and research projects.
Growth is all around. In Shanghai, new buildings are going up everywhere you look, and roads are under construction at every turn. In 1976, China essentially had only one major television station, controlled by the central government, and few people owned television sets. Today, there are about 3,500 television stations in China and over 400 million TV sets. In addition, there are more than 350 million mobile phones in use and about 111 million Internet users.
It is a wonder that such a large country is growing so rapidly. In land area, China is massive, the third largest country in the world (after Russia and Canada) and slightly larger than the United States. In terms of population — over 1.3 billion people — China is even more huge, with one fifth of the world's people. Such size clearly presents enormous logistical and governmental problems. Indeed, China appears "out of control" from time to time. Steps taken in 1988 to cool an overheated economy resulted in a recession in 1988-1989. A more recent overheating and double digit inflation brought harsh monetary restrictions in 1993. Corruption is also a problem in some sectors, with advantages being taken by persons in positions to grant governmental approvals or provide access to materials and markets.
Another problem has surfaced as a result of China’s economic success: there is a growing disparity between the income of the average Chinese and the income of some individuals who are profiting immensely in China’s emerging market economy. Upscale imported products are selling well in the larger cities. Even a showroom for expensive Ferrari automobiles recently opened in Beijing, with price tags and massive import and luxury taxes for a single automobile that would take the average Chinese some fifty years of savings to afford. Indications of imbalances in personal wealth such as this may eventually become a political problem for the Chinese leadership.
China’s Premier Li Peng, in a speech at the opening of the National People’s Congress in Beijing in March 1994, called for a balance between growth and reform, on the one hand, and stability on the other. He also called for a sharp reduction in China’s growth rate, and cited a need to oppose “money-worship, ultra-individualism, and decadent lifestyles” and to continue the crackdown on corruption and crime.
Although China is still a developing country in an economic sense, it is one of the greatest civilizations of all time, having contributed significantly to art, science, and philosophy over the centuries, and with a recorded history beginning over 3,000 years ago. Even during its Cultural Revolution and the isolation of recent decades, it has maintained technological progress. In sports, its athletes have continued to win Olympic medals.
[Tip — “Small Talk”: For "small talk" in correspondence or conversation with Chinese, good topics include Chinese culture and history, China's economic progress, and the excellence of its athletes.]
Feudal dynasties and an imperial system prevailed in China until 1911, when the Manchu Dynasty was overthrown by forces led by Dr. Sun Yat Sen and a republican system began to develop. Political and military factions contended for power from the early 1920's (the Chinese Communist Party was founded in Shanghai in 1921), and Japan began to exert economic and soon military control over much of the country. In the 1930’s, Japanese policy toward China became increasingly aggressive. Japan occupied Manchuria, and attacked or invaded other parts of the country during this period. In 1937, the Sino-Japanese War broke out, uniting diverse Chinese factions against Japan and continuing to the end of World War II. The Japanese occupation of China eventually collapsed as World War II entered its final phase, but a united China was not the result. Civil war erupted in 1945 between the Nationalist Party under Chiang Kai-shek and the Communist Party under Mao Zedong. The Communists won that war, and the Nationalists moved their government to Taiwan.
The military forces led by Mao Zedong were fueled by revolutionary zeal and a deprived population that had suffered from 12 years of warfare. Following the Communists’ victory in 1949, a period of agrarian reform and social restructuring substantially changed the economy and political organization of the country.
A centrally planned socialist government and economy prevailed for the following two decades. A strong industrial base, following the Soviet Union’s model, was developed during this time. Then a period of isolation and anti-intellectualism, dubbed the "Cultural Revolution," brought on the disintegration and stagnation of China's social and productive systems from 1966 to 1976. Following this, China entered its present period of modernization, economic reform, and gradual opening to international trade.
Although Westerners and Western influences were present in China from the early 1800’s, and Western religious missionaries have been persistent in their efforts to serve and proselytize the Chinese, China tends to remain aloof from foreign influences. And it is well to remember that even today China remains a communist country, despite its recent capitalistic leanings. Although a private sector is emerging, business people from "free world" countries will encounter attitudes and practices that are markedly different from their own. Moreover, many of the Chinese with whom they will deal, even in business, are essentially government bureaucrats.
[Tip — National Loyalty: The Chinese, like others from collectivist cultures, are loyal citizens. In communications with them, it is best to avoid political discussions and any criticism of government leadership and policies. Correspondingly, it will not reflect well on you if you criticize your own government.]
China also adamantly claims sovereignty over Hong Kong and Taiwan. Hong Kong reverted to China in 1997 pursuant to a Joint Declaration of China and Great Britain made in 1984. No such plans are in the works for Taiwan; Beijing simply does not recognize Taiwan's assertions of independence.
[Tip — National Sensitivities: In correspondence or other communications with Chinese, China should be referred to as "China" or "the People's Republic of China," not "Mainland China." Hong Kong and Taiwan should not be mentioned as separate countries. Taiwan should be referred to as the "Province of Taiwan," not (as Taiwan calls itself) "the Republic of China." If you use a map with any of your communications, be certain that Hong Kong and Taiwan are not labeled as independent countries.]
There are four principal problems facing international business people who would trade with China. First, China has a low per capita income. Although there is strong pent-up demand, the great majority of its people do not have much money to spend. Second, China's infrastructure is poor. Getting goods into the distribution system is an immense task. Transportation systems and telecommunications are still poor in many areas. Third, China is not a homogeneous market; its provinces differ in many ways. Therefore, marketing strategies cannot be applied across the board. Fourth, foreign exchange restrictions inhibit the free transfer of currency from China. Foreigners cannot easily get their profits and capital investments out of the country.
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