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Doing Business in China Risks Analysis


The liberalization of the Chinese markets has given an unprecedented boost to the Chinese economy in the last few decades. The emerging Chinese wealth and development, however, is something of a mixed bag in the sense that China’s economic growth appears to be more of an urban phenomenon. Still, there is no denying the fact that Chinese economy is continually developing at a fast pace. Discernibly, the scenario seems to be fraught with propitious opportunities and possibilities for the foreign investors. Since the last couple of years, the Chinese GDP has been growing at a steady pace of approximately 8 percent per annum (McGregor 2007). The Chinese GDP in 2007 stood at $3.42 trillion (McGregor 2007). Credible experts and institutions expect the Chinese economy to become the world’s largest economy by the end of 21st century. However, the development in China exhibits gross income disparities, a trend bolstered by the ensuing liberalization of the domestic markets. Not to mention that an undemocratic political setup has multifarious ramifications those have a direct detrimental impact on the economy. The growth of human capital in China has been non-uniform and sluggish, with the fruits of progress captured by urban centers and politically elite (Plafker 2008). Western companies tuned to a lot of liberal and transparent structure seem to be optimistic but apprehensive about joining the Chinese world.

Doing Business in China Risks Analysis

Table of Contents

  • 1.0 Introduction
  • 2.0 PESTEL Analysis
    • 2.1 Political Factors
    • 2.2 Economic Factors
    • 2.3 Social Factors
    • 2.4 Technological Factors
    • 2.5 Environmental Factors
    • 2.6 Legal Factors
  • 3.0 Risk Analysis of China
  • 4.0 Risk Analysis Commentary
  • 5.0 Recommendations
  • Appendix
  • Works Cited

1.0 Introduction

The economic reforms China implemented in the 70s and 80s definitely succeeded in transforming China’s global image. It was only owing to these reforms that the sectors devoid of state interference exhibited a marked growth. The opening up of the Chinese economy definitely made way for foreign investment and trade. However, the momentum of reforms in China though steady has been more or less cautious and slow. Ushering the changes has resulted in a modest but definitive transfer of power and obligation to local actors (Hexter 2007). Still, these reforms failed to yield the expected results owing to the rampant corruption and the stringent control of the state government. The per capita income in China is very low when compared to the global standards. However, the Chinese economic setup has proved to be resilient and adaptable. The calculated decentralization of power and the establishment of special economic zones definitely succeeded in attracting the foreign investors. Yet, the Chinese economy is predominantly agrarian, though the over all contribution of the agriculture sector to the national GDP is negligible. On the one side, China is trudging towards a market-oriented economy, but on the other side, the inbuilt political constraints and social mores have failed to respond commensurately. This makes it utterly difficult for the foreign investors to develop a balanced perceptive towards China, an economy opting for capitalism, while being inherently totalitarian and communist (Zeng & Williamson 2007). The purpose of this report is to assess the type and level of risks expected by any organization intending to enter China.

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