Country Analysis –China Essay Example

according to Reporters Without Borders.Without scrutiny by press and centralization of the power, corruption is inevitable. Corruption in China is estimated to cost $ 86 billion per year, about 10% of government spending. Political corruption will then cause poor products quality control and rampant piracy because of ineffective law enforcement through bribery.

Economy In the late 1970s, China began the economic reforms that it shifted from the central planning command economy to a more market-oriented economy. It then allowed more private enterprises and now only one third of businesses are state run.After its economic reforms, China has become the fastest growing economy in the world with average growth rate of 10 % and has attracted a lot of foreign direct investment. The economy of China is the second largest in the world after US with a GDP of $10. 21 trillion in 2006 when measured on a purchasing power parity (ppp) basis.

It is the fourth largest in the world after US, Japan, and Germany, with a nominal GDP of US$3. 42 trillion in 2007. Despite its fast growing economy, China’s per capita income is classified as low by world standards, at about 2,000(nominal, 107th of 179 countries/economies). But the per capita has indeed grown a lot, at an average rate of more than 8% over that last three decades and helped millions of citizens out of extreme poverty. However, the economy growth is not nationwide. There is huge disparity and large wealth gap between eastern urban cities, like Shanghai, Beijing and western rural areas.

This results in social discontent and protests from many farmers and workers. There were 87,000 protests, or “mass incidents”, in 2005, according to

official figures. China joined WTO in 2001and was a member of APEC.It had to open its domestic market to the outside world and faced the competition from all around the world. China's foreign trade has grown faster than its GDP for the past 25 years. Despite the booming economic growth, China faced a bottleneck due to its poor infrastructure of transportation and communication.

The fast growing economy has fuelled the demand for energy. The country spends billions of dollars in pursuit of foreign energy supplies. Construction of the infrastructure has to keep up with its growth, so China can remain its outstanding economic performance.C. Financial System Most of China’s financial institutes are controlled by government. The system is dominated by a large but inefficient, under-developed banking system, with a large amount of non-performing loans.

The major one is the People’s Bank of China (PBOC), which served as both central bank and a commercial bank, and three other state own banks. It was not until the later period of 1992 to 1985 that a small number of foreign banks were permitted to set up branch office in China’s special Economy Zones.In 1992, there was a sharp increase in foreign direct investment in China and a deregulation of the banking sector characterized by the emergence of many new state/local government owned commercial banks and the re-emergence of Shanghai as the financial center of China. In 1997, nine foreign banks were allowed to enter the Renminbi markets and operations in the Pudong Special Zone in Shanghai. Since China’s entry to the WTO in 2001, it was asked to open its capital account and adopt a floating exchange rate. China is

expected to have increasing competition from foreign financial institution and frequent and large scale of capital flows.

With two stock exchange ( Shanghai Stock Exchange and Shenzhen Stock Exchange), mainland China’s stock market had a market value of $ 1 trillion by January 2007, which became the third largest stock market in Asia, after Japan and Hong Kong. It is estimated to be the world’s third largest by 2016. China has to improve the inefficiency of its banking system for further economic growth. The risk that a banking crisis could bring down the economy seems small, for China has huge foreign exchange reserves available to protect its banking system. D. CultureChina has history for nearly 4000 years and was deeply affected by Confucianism.

This ethical system involves respect for superiors, duty to family, loyalty to friends, sincerity and curtsey. One of the Confucian ethics is central to the Chinese concept of “Guanxi”, which refers to relationship networks supported by reciprocal obligations. Therefore, it is important to build relationship and network to do business in China. People usually do not just look at the good business plan or contents of the contracts, but if you know someone important in the company, the deal may be done easier.

The relationship you develop with a person represents your relationship with his or her entire company. Because of Confucianism’s influence, Chinese emphasize hierarchy. For example, if we are going to comment on something, the one with higher order will comment first. There is no one major religion domination and no deep religious influence on political and legal system. Most believe in Buddhism and Taoism, and some in Christianity and Islam.

Usually, Chinese do

not get used to personal touches like hugs and kisses, which should be avoided. Nodding and handshaking will be appropriate in the business setting.Entry of Manufacturing Industry China has become the world’s factory that many MNCs outsource in China for its cheaper costs and lower labor wages to increase their competitive advantage. China then become the maker of apparel, footwear, electric appliances, plastics and now mainly IT products. In 2004 China became the largest exporter of information and communication (ICT) exporters.

As many recalls and toxic products from China have made consumers raise concerns on “Made in China” products. A stronger Renminbi is limiting profit margin for companies outsourcing China.According to a new study conducted by Booz Allen Hamilton and the American Chamber of Commerce (AmCham) Shanghai, more than half (54%) of the U. S.companies surveyed believe that China is losing its competitive edge to other low-cost countries in manufacturing industry. Will China be a good target for manufacturing industry? The following are the discussion from different aspects. A. Labor Chinese labors used to have bad working conditions: sweatshop, long working hours, low wages, even child labor, but new Chinese labor law took effect in Jan 2008.

The new labor law limits overtime, sets minimum wages and severance pay. It can protect Chinese workers’ right and definitely raise costs of the companies. By 2005, there’s stronger demand of workers than supply in urban cities, and thus drive up the minimum wages from average U. S. dollars 100 to 200 dollars.

The labor shortage results from the demographic change as the number of young working people declines due to the strict family plane-one-child-policy and government policy to develop rural

inland.Data from official suggest that major export industries are looking for at least one million additional workers. The rising costs of the labor cause the increasing price of manufacturing that many have seek other countries, like Vietnam, India and Bangladesh for cheaper labor. B . Counterfeit & Piracy Piracy and counterfeit are rampant in China, from software, music, movies, to apparel and any brand name product; even manufacturing operation procedures can be copied.

Though China joined the WTO, protection for intellectual property rights are not consistently enforced.In a speech to Communist Party officials, President Hu Jintao said: "We should strengthen our law enforcement and lawfully and severely crack down on and effectively curb law-breaking and criminal acts of violating intellectual property rights. ” C. Quality Control China is notorious for its poor quality control due to poor regulatory and inspection protocol in communist china.

There were so many incidents of toxic food and recall products made in China. Adulterated Chinese products have killed thousands of pets in the US and caused hundreds of people to die in Panama.Chinese people are so eager to make money that they use cheaper substitute for their products and the officials’ corruption makes the situation worse that they allow toxic product onto global market. D. Public Health & Security In general, medical care, public hygiene and sanitation are improving considerably and epidemics were controlled.

Especially in eastern urbanized cities, the living standard has kept up with the living standard of developed countries. Although crime rates are relatively low in Chinese urban cities, affluent foreign businessmen sometimes become targets of blackmails or even murders.Any potential relationship with sensitive political issues, foreigners can be jailed

immediately without investigation and lose all their properties. E. Regulatory Environment China’s regulatory environment did not keep up with its rapid economic growth. The growth of new businesses has outpaced the government’s ability to regulate them.

Enforcement of regulation varies a lot and depends heavily on the related officials, who are easily bribed. Nike-- In or Out of China? Nike, the leader in sneaker industry, which requires intensive labor, outsources most of its manufacturing to China, Indonesia, and Vietnam.The core competencies of the firm are marketing, distribution and technological expertise. They need to monitor the quality of their product and the actual working condition in the factories.

After 2000, China has gradually moved from makers of apparel, textile to a high value, higher skilled IT products. Consequently, the labor cost rises, and it will erode the profit margin of the manufacturers. One of Nike’s subcontractors, Yu-Yuen Industrial Ltd, is among companies shifting some production from China to Vietnam to cut costs.With new labor law and other issues like labor and energy shortage, companies will be forced to relocate their manufacturing in countries such as Cambodia, Pakistan and underdeveloped regions of Africa in search of lower wages. Nike may still remains outsourcing in China for a few year, but the trend is moving out, not moving in for the industry.

Conclusion: Due to the labor shortage, rising labor wage, and the new labor law, China is decreasing its competitive advantage for outsourcing manufacturers, especially labor intensive ones. However, compared to developed countries,China still owns many advantages over developed countries for manufacturers, for it has less strict environmental regulation, cheap labor and larger domestic market. Energy, transportation and communication are

the bottlenecks of the current economic development; furthermore, the legal and banking system will be the hindrance in the future as well. Chinese government not only has to solve those problems http://uk.oneworld. net/guides/china/developmnent?gclid=COXysfX00JICFSJrTAodSnQ...

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