Business Environment Analysis Report on China
With China’s 1.3 billion populations it would be a good market place for multinational companies that are searching for better potential market. The large population of China would potentially provide high sales and profits to multinational firms that would successfully penetrate the Chinese market.
Around 72 percent of China’s total population belongs to 15-64 age groups which would provide tremendous amount of laborers, source of competitive advantage, that can work on its domestic market and serve potential foreign direct investments.
Significant portion of China’s population already belongs to the middle class especially those people coming from the urban areas. This only suggests that consumers in China have enough money to buy “expensive” products like appliances and the like which would secure foreign investors with high “return on investment.
Population Growth Rate
Population of growth rate of China already starts to decline as the Chinese government tries to control the size of their population in a form of government policies such as the “One Child Policy”. In the near future, this would cause the decline of laborers in China and so with potential market for multinational companies.
The urban-rural composition of China is not, at present, in good condition as the margin of wealth between this two continues to increase due to the fast improvement of urban areas than with the rural ones.
Openness to Foreign Direct Investment
Since the economic reform of China in the 1970’s, the Chinese government has been eager to attract foreign investors in order to stabilize their trade balance and so with their GDP which they believe, during then, would bring China impressive economic growth. This only means that foreign investors would find it easy to establish their businesses in China plus a potential support for the Chinese government in terms of subsidies.
Chinese government, in the recent years, has been trying to become more transparent to the public regarding most of its actions especially when it comes to international issues. This secures foreign investors of stable peace and order security on China’s domestic market.
China has been accused of trying to manipulate their currency in order to gain competitive advantages over its major trading partners like United States. Due to this issue, government officials of United States become vigilant about the actions and international policies of the Chinese government which is not good for the relationship of both countries.
China ranked 126th on the freest economy all over the globe due to its low economic freedom on monetary, financial, investment, and property rights which makes it hard for many foreign investors to steer their businesses smoothly on the Chinese market.
Due to its communist type of governance, the legal system of China is relatively “harsh” compared to other countries. There is also insufficient number of commercial laws that would protect the private sectors especially against piracy which has been the primary complaint of various multinational firms operating in China.
China has hundreds of railroad systems that mostly being used to transport various products to its different provinces. Even in the early times, traveling through trains was the primary mode of transportation of the Chinese especially in moving to far provinces, this is the reason why railroads of China remains well maintained and developed. This can be utilized by investors especially in transporting raw materials and finished products from different provinces of China.
There are around 2000 ports in China composed of river ports and ocean ports while 130 of which are open for foreign ships. This large number of ports of China would make it easy for foreign investors to transport raw materials and finished products from China to other countries and vice versa.
Most of the airports of China are located in its urban areas specifically to major cities to support its economic activity while there are only a few airports in rural areas and some provinces do not have an airport at all.
At present, most of the major waterways of China is on the process of gradual formation as the Chinese government wants to utilize its waterways efficiently specially the river systems in the mainland.
Roads and Highways
The Chinese government is still on the process of developing its roads and highways especially those roads that would connect different provinces to major cities. It would still take a few more years before this physical infrastructure would be fully developed.
GDP Growth Rate
Since 1999, the GDP growth rate of China has been performing impressively as foreign direct investments stabilized major economic indicators, specifically the trade balance and domestic consumption, which are vital in determining the overall performance of a given economy. This only suggests that China can offer high return on investments to investors in the next coming years as China’s GDP growth rate continuous to increase every year.
Due to its large population sixe and high disposable income of every Chinese household due to its impressive economic development for the past years, China offers great potential market to many multinational companies seeking for large number of customers. This will provide multinational companies high sales and profit from operating in China.
Trade as Share of GDP
Alongside with the influx of foreign direct investment in China, Chinese share of trade on their GDP continuous to increase every year as multinational firms increases the international trading transactions of China to the rest of the world.
Per Capita GDP
Per capita GDP in urban areas are undeniably high but considering the conditions of those households from the rural areas, overall, per capita GDP of China is not in good condition as wealth distribution is still skewed towards to the households in the urban areas.
Consumer Inflation Rate
High inflation rate has been one of the economic problems of China that it presently faces due to its fast-paced economic growth. This could either pose as beneficial or detrimental to foreign investors depending on the type of product they will sell in the Chinese market and the size of their operation in China.
At present, China is already on the verge of overtaking United States in terms of using the internet as more and more Chinese owns personal computers. There are around 137 million internet users in China and continuous to grow every year at a rate of 18 percent. This only suggests that, since internet is already vital for business operations, investors would find it allot easier to operate in China and to market their products to its large potential market through the internet.
Personal Computer Ownership
Alongside with the improvement on the number of internet users in China, personal computer ownership is also on its good condition as domestic producers of personal computers in China continues to emerge in its domestic market.
Wireless Telephone Market
There are nearly 500 million mobile phone users in China and the Chinese government continues to provide subsidies for mobile phone companies to invest more in China. This high growth rate of wireless telephone industry of China would provide smooth operation to foreign investors especially when connecting overseas for international trading.
Fixed Telephone Market
There are already around 350 million fixed telephone subscribers all over China and this only suggest that fixed telephone market in the said country is currently in good condition (Belic, 2007).
In China, there are only few households that owns televisions and most of them are living in urban areas which suggests how depressed China’s rural area when it comes to purchasing power and wealth distribution.
In terms of economic performance, China has been performing impressively compared to its neighboring countries in Asia and can compete at par with top developed countries like United States and United Kingdom in terms of volume of trade and sources of competitive advantages.
Due to China’s large population, it has been able to offer cheaper laborers and large potential market which are both attractive to foreign investors leading to the improvement of their foreign direct investments for the past years since the late 1990’s. Without this component, it is impossible for China to attain its present state and achievements.
Due to the effort of the Chinese government to attract more foreign investors into their market, it has been extensively supporting the development of its communication infrastructure by providing subsidies to telephone companies. This would soon boost the business activities all over the domestic market of China.
Compared to communication infrastructure, physical infrastructure of China seems to develop at a slower rate thereby could impede for the fast growth of foreign investments in China. Though the Chinese government is also on the process of improving their facilities in this area, but, overall it is still lower compared to the development of their communication facilities as mentioned above.
This would be one of the primary factors that allow foreign investors put their capitals in China due to rampant corruption, insufficient laws that would protect the interest of foreign investors, and weak economic freedom and all of these could draw potential investors away of China if the situation continues to exist in the next coming years.
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At this point, it is clear based from the above mentioned statistics and arguments that the business environment of China is highly attractive despite of some negative factors. China’s economy, demographics, communication infrastructure, and physical infrastructure provides high potential return on investment to foreign investors and even to domestic investors while its government provides some glitches on the benefits that the other four factors is offering to domestic and foreign investors. Overall, after adding all the effects of the five factors, the result would be positive thereby suggesting the business environment in China is indeed highly attractive to investments.
Belic, D. (2007). China Phone Industry in Numbers; 487 Million mobile Phone Users in the Country. Retrieved May 12, 2008, from http://www.intomobile.com/2007/05/25/china-phone-industry-in-numbers-487-million-mobile-phone-user-in-the-country.html