BSI - Business Strategies International

Opportunities in China

The New AsiaSome people say that the larger the country, the more the opportunities and risks.  This can be said of China, but it is only the beginning of the story.  In China, opportunities and risks are heavily influenced by its history, culture, ambitions and government.

China’s history is filled with internal and external threats and confrontations.  Its culture emphasizes the importance of hard work, group and family allegiance, and deference to authority.  Its population is ethnically homogeneous, but there is severe income inequality.  It is highly nationalistic, and it holds strong views concerning its sovereignty and its rightful place in the world.  Its government is controlling and stable, but a lack of transparency conceals episodes of instability.

Many opportunities are unfolding in China – domestically and internationally – as a result of its integration with the global economy and gradual acceptance of international trade standards.  With a growing middle class, expanding urbanization and rising wages, there is more money available for domestic consumption.  Chinese businesses are also increasingly comfortable with doing business with foreigners, at home and overseas.  Meanwhile, the government is spending as needed to maintain economic development.  When the global financial crisis of 2007-2008 crystalized in 2008, the government unleashed a large stimulus package valued at US$586 billion.  Much of the stimulus was spent on infrastructure and industrial projects to sustain exports, which tempered the impact of the crisis on the country.  Similarly, when markets for China’s exports wither during a global economic downturn, the government will have the ability to fund support for the domestic economy.

Opportunities can often be found in China’s smaller cities where competition is not as keen, but foreign entrants will need to pay greater attention to the preferences and practices of the locality.  In addition, the provincial and local governments are not as efficient or knowledgeable about international business as those in the large cities.

Another impediment for foreign interests is China’s state-owned enterprises.  There are approximately 155,000 such organizations, all receiving various support or preferences from the government.  While they can be less competitive than private enterprises, they often use their governmental connections to ward off private competition.  On the other hand, foreign interests that collaborate with China’s state-owned enterprises can benefit from the relationship.

For China’s economy as a whole, there are several issues that can affect growth.  On the positive side, a rising middle class can be expected to press for liberalization of economic and other policies that could promote growth, especially for domestic consumption.  Also, as wages and incomes rise, labor-intensive industries will relocate to less developed countries and higher-value industries will grow.

On the negative side for growth, China’s state-owned enterprises can be a drag on the economy due to their inefficiencies.  In addition, there is a potential for economic disruptions resulting from trade disputes and controversies with neighbors and others, as with arguments over territorial rights in the South China Sea.  More serious, perhaps, is a potential for social unrest, industrial or political.  In 2012, there were riots at a Foxconn plant in Chengdu over working conditions and pay.  There were also three days of protests in the coastal city of Ningbo in 2012 by thousands of demonstrators over the expansion of a petrochemical plant, which the protestors claimed would further harm the city’s fragile environment.  After the third day, city officials, alarmed by the size and ferocity of the protests, agreed to halt the expansion.

Yet another negative impact on growth is China’s pervasive corruption and cronyism, which not only is an added cost burden on productivity but can be a potential stimulant of social unrest, especially in today’s social networking environment, notwithstanding governmental censorship of the media and intermittent disablement of Internet communications.  In 2012, The New York Times broke the story of vast wealth that had been accumulated by relatives of Wen Jiabao during his tenure as China’s prime minister.  The government swiftly blocked Internet access to websites carrying the story, but the report has spread widely within China.

On a scale of 1 to 10, the chances are 9 that China’s economy will grow at an average rate of more than 3 percent during the period 2013-2023.

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