PEST ANALYSIS OF CHINA

I . I n t r o d u c t i o n Nowadays, China has become one of the worlds

most attractive locations and Chinas rise carries enormous significant for the international
business communities. China has a very gooddevelopment in term of legal system, the
size of the market, the low cost of labor and Chinasgrowth potential together offer
unprecedented

business

opportunities

for foreign investor

to do business

in

China.I n t e r n a t i o n a l b u s i n e s s h a v e d e v e l o p e d v e r y r a p i d l y i n C h i n a a n d t o d a
y, C h i n a b e c o m e increasingly integrated with other parts of the world and opened
up to a whole range of cross- border economic activities. Managing an international business
in China is not an easy task andthere are some challenges will be occurred. The prime
challenge for those interested in doing business in China is achieving their strategic
objectives

of

cost

reduction,

local

differentiationa n d t h e s t r e n g t h e n i n g o f c o r e c o m p e t e n c i e s i n t h e i r s p e c i f i c f
u n c t i o n a l a r e a s a n d b u s i n e s s activities.

China is the formal member of World Trade Organization (WTO) since 2001 and
from thedate, China enjoyed all the rights the WTO gives to other members and full participates
in WTOactivities. China's entry will benefit its national economy, as well as encourage global
economicg r o w t h a n d t h e i m p r o v e m e n t o f t h e m u l t i l a t e r a l t r a d e s y s t e m . W T O
m e m b e r s h i p o p e n s u p Chinas market for more international trade and investment, and
opens up the world economy for Chinas exports.This report will cover the reason for doing
business in China, defines and identify the macroenvironment of China in term of political,
economic, social and technology factors in order to do business in China and the impact of China
on joining WTO
Chinas economy has experienced a strong annual GDP growth rate of 10% during the last five years. It is
expected to continue its growth momentum and surpass the US in GDP by 2020. A high rate of savings,
abundant and increasingly skilled labor, healthy export business, and potential urban growth is likely to
drive the Chinese economy to sustained growth during 2012- 2017.

Lucintel, a leading global management consulting and market research firm, performed a Political,
Economical, Sociological, Technological, Legal, and Environmental (PESTLE) analysis of China and
presents its findings in PESTLE Analysis of China 2012.
As indicated in the study, foreign direct investment (FDI) has proven to be the driving force for Chinas
ongoing economic growth. The large and expanding market of China is attracting leading multinationals,
encouraging local innovators, allowing domestic manufacturers to produce lowcost products, and
permitting formation of industry clusters and business groups. Successive governments focus on reform
processes and simplification of Chinas tax law and FDI procedures makes China an ideal destination for
investment and growth. The report also indicates that large-scale production diminishes production costs,
leading to less-expensive exports. Chinas strong presence as an export platform supports income and
employment growth in the economy.
The Chinese economy is plagued by challenges from the European economic crisis that could adversely
affect its growth rate, regional disparity, and growing environmental concerns. Rapid economic
development and accelerated domestic demand in China, however, offers significant opportunities for
growth.
Lucintels study outlines Chinas need to address several significant challenges and risks, such as its
aging society, rising income inequality, large and growing environmental impact of its industrialization, and
stubborn external imbalances for its transformation into a leader of the global economy.
This unique report from Lucintel will provide you with valuable information, insights, and tools needed to
identify new growth opportunities and operate your business successfully in this market. This report will
save hundreds of hours of your own personal research time and will significantly benefit you in expanding
your business in this market. In todays stringent economy, you need every advantage that you can find.
Features of This Report:
To make business, investment, and strategic decisions, you need timely, useful information. This market
report fulfills this core need and is an indispensable reference guide for multinational materials suppliers,
product manufacturers, investors, executives, distributors, and many more that operate in this market.
Some of the features of PESTLE Analysis of China 2012 include:
- Trend and forecast of real GDP growth rate
- Trend of savings and investments as well as consumption expenditure in percentage of GDP
- Trend of consumption expenditure as percentage of GDP

- Trend of growth of population and unemployment rate in china

- R&D and technological factor of China 2012
Who Can Benefit From This Report?
This study is intended for material suppliers, investors, executives, and consultants. This multiclient
market study from Lucintel is used by small to multi-national Fortune 500 companies and utilized for a
variety of reasons as follows.
- Business development
- Strategic planning
- Business presentation
- Determination of market size and trend
- Competitive analysis
- Personnel training
- Budgeting
- Investment decision

STRENGTH
WIND AND SOLAR ENERGY
"China's government has passed a renewable energy law which is intended to increase production of
energy from sustainable sources. The law, which will come into force early next year, seeks to increase
the usage of solar and wind power to 10% of China's total consumption by 2010. This would equate to
around 60 gigawatts. China's wind market is one of the fastest growing in the world with the exception of
the US. A recent study by the Global Wind Energy Council predicted it may have installed capacity of 122
gigawatts by 2020, equivalent to the capacity of five Three Gorges dams."

POPULATION/ CHEAP LABOUR

Today, China has a population of 1.3 billion people, or about 4 times larger than the population of the
United States. China's current labor force is a little over 800 million. Over 40% of those 800 million
workers still work in agriculture. This means over 300 million Chinese workers are still low tech farmers, a
number that is greater than two times the total work force of the United States. So as you can see china
still has a large untapped source of cheap labor and compared with most other developing countries, the
Chinese population has a much higher literacy rate (for example, China's 91% versus India's 61%
according to the CIA World Fact Book) making china a source of highly trained labor as wel

A PESTLE Analysis On Chinese market (E-Commerce

Sector)
February 25, 2013 - Sample of English Assignments By Chinese Students - Tagged: A PESTLE Analysis
On Chinese market (E-Commerce Sector), Economic analysis, Environmental analysis, PESTLE
Analysis, Political and legal analysis, Social and cultural analysis, Technological analysis - no comments

This Assignment Is Published With Permission From The Author For Online Review Only
All Rights Reserved @ ChinaAbout.Net
The PESTLE Analysis is a common approach for examining the general business environment
in order to manage the future opportunities and threats from probable changes in the
environment (Mullins 2002) by analyzing the Political and legal conditions, Economic
conditions, social and cultural conditions, technological conditions and environment related
issues. In the following we will execute a PESTLE Analysis on the E-Commerce sector of the
Chinese market. And as proposed by Neil Botten (2008, p.39) that there are no pure factors
because these factors are interlinked.
Political

and

legal

analysis

Political factors include government regulations and legal issues and define both formal and
informal rules under which firm must operate. And it is claimed that the political force is
probably the most turbulent force in the environment (Fahey & Narayanan 1986). In the past
one decade, the Chinese government attaches great importance and focus to the
development of e-commerce in the most populous country, for example, on issuing the
Summaries of the Middle/Long Term Science and Technology Development Plans of China
and the Development of Information Industry Plans in the Eleventh Five-year and Long Plan
in 2020 Years in The Ministry of Information Industry, the application of e-commerce
platform technology has been listed as a key point (Li 2010, p.260).
In term of the legal system, the Chinese legal framework for e-commerce is still in its
nascent stage and has already experienced several problems. China has limited experience
with drafting e- commerce legislation for issues such as transactional security, intellectual
property rights protection and tax. And regulations supporting areas critical to the
development of e-commerce such as the privacy, consumer rights, and validation of
electronic contracts and recognition of digital signatures have yet to be written
(Kariyawasam 2011, p.270). But the legal system of China does develop quickly to meet the
needs of the e-commerce.
Economic analysis
Any development in the economic part of a countrys environment could have significant
impacts on the SMEs and their activities. These factors include the total GNP trend, GDP per
head, inflation rate, exchange rate, energy and raw materials availability and cost,
employment level, interest rate, monetary and fiscal policies, banking policies an investment
and so on (Analoui & Karami 2003, p.75).
Figure 2 Growth of China GDP per capita in the new century
Source: The World Bank Group 2011
Above is the growth trend of the GDP per capita of China in the new century, similar to the
indicator GDP, the country has sustained a continual rapid growth in term of GDP per person,
indicating that each people is creating more and more values to the society resulting in the
increase of the individual consumers purchasing power. Though the economic situation is
seems to be good, the economic development does slow down a little and also with worrying
trends such as high inflation rate and high property prices. According to the most recent
news, the consumer price index rose 6.1 per cent from a year earlier in September, down
from a three-year high of 6.5 per cent in July. Politically sensitive food prices, however,
increased by more than 13 per cent. The overall economy has now slowed for three
consecutive quarters largely the result of BeiJings efforts to cool growth and dampen
inflation. The central bank of China, the Peoples Bank of China, has increased interest rates
five times over the past year and increased the reserve requirement for commercial banks

for nine times, and at the same time also asking banks to reduce lending and imposing
limits on home purchases to curb property and consumer prices (Anderlini 2011).

Social

and

cultural

analysis

To understand the social and cultural environment involves close analysis of the society.
Demographic changes such as population growth, movements and age distribution will be
important, as will changes in cultural values and social trends such as family size and social
behaviors (Dransfield 2005, p.60). Such factors could include:
Consumer

lifestyles

Environmental

issues

Demographic

issues

Education
Immigration/Emigration
Religion

With the rapid economic growth, there are growing people having Internet access and use
the Internet to do shopping. Many people have called themselves the Taobaoer by spending
much of their monthly expenditure on Taobao, the largest B2C e-commerce website. In 2010,
Chinas online shopping industry had a turnover of $80bn, and grew 87% year-on-year.
Chinas 420 million Internet users spend around a billion hours each day online and last
year, 185 million made at least one online purchase. According to Boston Consulting Group,
the volume is expected to increase fourfold by 2015. And E-commerce has already been
changing the way Chinese consumers think about shopping: online, it is more social than a
hard sell. Its a new engaging experience to savour (bbc.co.uk 2011). But like many other
physical shopping, cheating and fake products are common in the online shops though the
most populous shops tend to sell quality and price competitive products to the customers or
will state clearly the possible quality problems of the products in the introduction of the
products in the pages. And also according to Patricia Ordez de Pablos and Miltiadis D.
Lytras (2009 p.406) In Chinese business there is often a need and expectation for face to
face contact to exist in order to build up a sense of trust which is related to the Hofstedes
notion of individualism-collectivism in which the Chinese culture is considered as having a
high collective scores (Hofstede 1997).

Technological

analysis

Technological factors include areas such as new products being developed, new purchasing
mechanisms (intranet, extra-net), new production technology, new distribution mechanisms
(Internet) and new methods of working (e.g. mobile telecommunications) (Botten 2009,
p.39). One technological problem that hinder the development of the Chinese B2C industry
is the lack of a stable and secure online payment systems and this problem is further
strengthened by the Chinese consumers preference for high Uncertainty Avoidance Index
(UAI) and high Long-Term Orientation (LTO) (Hofstede 1997). What is more, based on the
perspective of Ortolani (2005) there had been only 1 percent credit card penetration in
China suggesting that the most widely used payment method had low acceptance in China
and the payment system to support online credit card transaction is also facing low usage.
And the lack of safe online credit card payment system is one of the key reasons behind this
low usage and penetration.

Environmental

analysis

Environmental factors refer to all the factors directly related, influenced or determined by
the surrounding environment. This includes, but is not limited to weather, climate,
geographical position, climate change and even insurance (Heldman 2011). Despite the fact
that the environmental protection work is still low in China because the majority of focus and
priority had been attributed to the alleviation of poverty and economic development which
result in the low public participation in the environmental protection work, in the recent
years, with the substantial economic advancement and raised living standard, income level
and also the degradation of environment in the country, the Chinese government has
started educate the public about the environmental protection. And with a joint effort from
the non-governmental organizations (NGOs) and media such as newspapers, radio and tv,
we are witnessing an increasing environmental awareness in the public resulting in changes
in the consumer behaviors to put environment protection in a higher importance level
(Heggelund 2004, p.157).

Conclusion

of

the

PESTLE

analysis

As proposed by Bjrn Mller (2010, p.6), with the help of the PESTLE, companies would have
the possibility to understand the external macro-environment in which they operate and
might operate in the future. Here based on the analysis we have above, we are able to draw
some conclusions. Firstly, very stable political conditions and rapid economic growth has
made the e-commerce industry in China attractive to investors and the increasing
awareness of environment protection also promote the way of e-commerce as it creates less
pollution and damage to the environment; secondly, there are also risks such as lack of

trust, stable and secured online payment systems and lack of legal protection that create
challenges and uncertainties to the players in the industry.