Report: Opportunities and Challenges in the Chinese Business Landscape

This report examines the opportunities and challenges for businesses operating in China. It begins with an introduction to China's economic and political landscape, highlighting its status as a global superpower and its transition towards a socialist market economy. The report then delves into key industry sectors such as manufacturing, power, mining, and construction, and identifies specific opportunities for companies, including China's strong economic base, lower investment costs, government support for businesses, and its large consumer market. The report also addresses significant challenges, such as political tensions (trade war), corruption, and complex bureaucratic systems. The analysis draws on various sources and concludes by summarizing the potential benefits and risks associated with doing business in China, emphasizing the need for companies to navigate both opportunities and challenges to succeed. The report uses references from various academic sources, including the Brookings Institute, Delaware Funds, CFA Society New York, and others.

Opportunities and challenges
presented by external
environment

1
Contents
Introduction...........................................................................................................................................1
Information related to China..............................................................................................................1
Key Industry Sectors.........................................................................................................................1
Opportunities for company....................................................................................................................2
Challenges.........................................................................................................................................3
Conclusion.............................................................................................................................................3
References.............................................................................................................................................4

2
Introduction
China is another super power nation in the world both in terms of political power and
economic terms. This company provides an excellent opportunity to the foreign investors.
With low labour cost and highly skilled workforce available in the country it acts a perfect
destination for doing their business. Its political system is a centralised unitary state which is
totally administered by the Chinese Communist Party. They have a large national
bureaucracy that deals with every aspect and it is considered to be authoritarian in its
ideology and structure. China is the second largest economy in the world and the growth of
China was 6.6% of the GDP1. The transformation of the Chinese state started in the year 1978
when the communist government fostered dual economic structure which has originated from
a socialist, centrally planned economy to a socialist market economic system.
1 David Dollar, 'United States-China Two-Way Direct Investment: Opportunities And Challenges'
(Brookings, 2019) <https://www.brookings.edu/research/united-states-china-two-way-direct-
investment-opportunities-and-challenges/> accessed 22 July 2019.

3
Information related to China
It is having an area of 9,596,961 sq. km having a population of 1,330,141,295. Its annual
growth rate is approx. 0.494%. Its ethnic group comprises of Han Chinese which is 91.5%
whereas other ethnic minorities are approx. 8.5%. Putonghua or Mandarin is the prime
language in China. Its GDP is approx. 12.24 lakh crores USD in the year 2017. Per capita
GDP is approx. 8,826.99 USD. The inflation rate for the year 2018 was approx. 2.1%2.
Key Industry Sectors
The major industry sectors of China include manufacturing, power, mining and construction.
Alone in the year 2015, manufacturing industrial sector contributed 40% in the GDP of
China. It is leader in the manufacturing sectors like Steel, Cement and Chemical fertilisers. In
Agricultural sector, it is largest producer of potatoes corn, barley, tea, wheat, rice, peanuts,
millet, oilseeds, fish and pork and fibers3.
Opportunities for company
China has an excellent socio-economic and political environment. There are different factors
that are supporting the expansion of the companies in this state. First is its economic
condition. China has a strong economic base providing strong support to the companies that
aims to do business. This is building huge investor’s base in the economy. At the same time
the cost of investment is also lower than most of the nations. It is still an emerging economy
hence the scope of development for the companies is on the higher side. Government is
providing loans for business at lower interest rates when compared with many competitive
nations. In the time when the average economy growth is around 7%, it can be a wonderful
location for doing investments. Its new projects like Silk Road are going to transform the
world’s economics4. This project will connect many countries from all across the European
2 'Investment Opportunities And Challenges In China’S Internet Finance Space | Accion' (Accion.org,
2019) <https://www.accion.org/investment-opportunities-and-challenges-in-chinas-internet-finance-
space/> accessed 22 July 2019.
3 'Top 10 Challenges Of Doing Business In China' (Tmf-group.com, 2019) <https://www.tmf-
group.com/en/news-insights/business-culture/top-challenges-china/> accessed 22 July 2019.
4 'Investing In China: Opportunities And Challenges » CFA Society New York' (CFA Society New York,
2019) <https://www.cfany.org/event/investing-in-china-opportunities-and-challenges/> accessed 22
July 2019.

4
and Asian region and hence providing easy access for all the companies to do trade in
different parts of the world.
Another factor that promotes growth in China is their social orientation. It is having huge
population hence acting as a market for any company that aims to enter into the nation. It is
expected that by 2020, this nation is going to have 600 million middle class people and in the
last decades they have uplifted more than 500 million people from the poverty5. China has a
cheaper labour market when compared with nations like US and European countries and at
the same time they are highly skilled. It is the skill and knowledge of the Chinese labour class
that it is one of the best destinations for research and development. At the same time,
government is also supporting the R & D work by providing the research infrastructure and
the policies that supports this expansion6.
Challenges
There are various challenges as well that confronts the business expansion of companies into
China. The biggest challenge that is confronting in today’s time Chinese market is the
political condition of China. China is having political tension with America in the form of
trade war. Due to this America is increasing the taxes on the products from china7. It is due to
this that most of the companies might face challenges in entering into the China especially
the companies that were looking towards China for their manufacturing and then use it as an
export market in different parts of the world. The impact of trade war in the time of economic
slowdown can be understood by the fact that the growth rate of China especially
manufacturing growth rate has been at the lowest level in the last three decades. The inflation
rate is below what is expected by the Chinese government. All these are demotivating the
investors to come in the country.
5 Yunhua Liu, 'Investing In China: Opportunities And Risks In The Future' (2012) 01 Journal of
Financial Risk Management.
6 'Opportunities And Challenges In Southeast Asia, China And India' (Development Matters, 2019)
<https://oecd-development-matters.org/2017/04/10/opportunities-and-challenges-in-southeast-asia-
china-and-india/> accessed 22 July 2019.
7 Kwek Ping Yong, Private Equity In China (John Wiley & Sons 2012).

5
Chinese market has large amount of corruption due to complex bureaucratic system. It is this
corruption that is having impact on the business and business routes8. Due to lack of public
funds there are many infrastructure developments especially in the rural areas and the areas
that are connected to the mining industry. Due to this companies had to spend a lot of money
in the activities such as lobbying for making their work done.
Conclusion
It can be concluded that China being an emerging market has lots of potential to attract new
customers. Being an economic power it provides a very stable environment for the growth of
the company. It is also having opportunities in terms of the fact that there is a huge
population living in the country which can be an effective market for the countries all across
the globe. On the other hand companies also had to face challenges in terms of corruption and
also face challenges in terms of the fact that there is trade war going on between US and
China which is not making the expansion of the companies easier in the country.
References
Dollar D, 'United States-China Two-Way Direct Investment: Opportunities And Challenges'
(Brookings, 2019) <https://www.brookings.edu/research/united-states-china-two-way-direct-
investment-opportunities-and-challenges/> accessed 22 July 2019
'Investing In China: Opportunities And Challenges' (Delawarefunds.com, 2019)
<https://www.delawarefunds.com/financial-advisors/literature/insights/2015/investing-in-
china-opportunities-and-challenges> accessed 22 July 2019
'Investing In China: Opportunities And Challenges » CFA Society New York' (CFA Society
New York, 2019) <https://www.cfany.org/event/investing-in-china-opportunities-and-
challenges/> accessed 22 July 2019
'Investment Opportunities And Challenges In China’S Internet Finance Space | Accion'
(Accion.org, 2019) <https://www.accion.org/investment-opportunities-and-challenges-in-
chinas-internet-finance-space/> accessed 22 July 2019
8 'Investing In China: Opportunities And Challenges' (Delawarefunds.com, 2019)
<https://www.delawarefunds.com/financial-advisors/literature/insights/2015/investing-in-china-
opportunities-and-challenges> accessed 22 July 2019.

6
Liu Y, 'Investing In China: Opportunities And Risks In The Future' (2012) 01 Journal of
Financial Risk Management
'Opportunities And Challenges In Southeast Asia, China And India' (Development Matters,
2019) <https://oecd-development-matters.org/2017/04/10/opportunities-and-challenges-in-
southeast-asia-china-and-india/> accessed 22 July 2019
'Top 10 Challenges Of Doing Business In China' (Tmf-group.com, 2019) <https://www.tmf-
group.com/en/news-insights/business-culture/top-challenges-china/> accessed 22 July 2019
Yong K, Private Equity In China (John Wiley & Sons 2012)