Group 13

Pranav Anand (3)

Sahil Kapoor (31)
Swapnil Rahee
(49)

CHINA

Presentation Road Map

1.
2.
3.

Introduction
Environmental analysis (Political, Economic, Cultural)
China as a part of multilateral organizations (UN, WTO, BRICS,
ASEAN)
4. Doing Business with China-World Bank report
5. Country Attractiveness
6. Implications for MNEs
7. Forms of Business
8. Economic Reforms-Balancing Act
9. China starts relaxing one Child Policy
10.Controversies and learning for MNEs
11.South China sea territory disputes in China

About China

A socialist state
The PRC is asingle-party stategoverned by theCommunist Party, and
governs over 22provinces, 5autonomous regions, 4direct-controlled
municipalities(Beijing,Tianjin,Shanghai, andChongqing), and 2 selfgoverningspecial administrative regions(Hong KongandMacau).
Qing Dynasty (1644-1912), Republic of China (1912-1949), Peoples
Republic of China(1949 onwards)
Used to be a Japanese Colony
Introduction ofeconomic reforms in 1978 under the leadership of Deng
Xiaopang
PRC also claimsTaiwan which is controlled by theRepublic of
China(ROC), a separate political entity as its23rd province.
One of the world'sfastest-growingmajor economies,
2nd largest economy by GDPandpurchasing power parity (PPP), and is
also the world's largest exporter and importer of goods.

Indicator

Value Source: World Bank Report 2014, The

Economic Indicators

GDP

$ 9.240 trillion

GDP growth rate

7.4%

Population

1.357 billion

GDP per capita

$ 6560

HDI Rank

91

Gini Coefficient

0.474

Inbound FDI

$ 1.4 trillion

Unemployment rate

4%

Inflation rate

1.6%

Economist

Political Environment Totalitarian

The Chinese government consists of a system of
multi-party cooperation and political consultation
under the leadership of the CPC. Other eight parties
participate in the discussion and management of
state affairs.
Political Risk : There are the risks of confiscation,
expropriation, currency inconvertibility and contract
repudiation. Currency devaluation and rampant
inflation are possible scenarios.
Rule of man : The constant battle between the
countrys central government and the provincial and

Economic Environment
One of the worlds fastest growing economies
Primary recipient of the worlds destination of FDI in
recent years
Chinese National Development and Reform Commission
(NDRC) had established a plan to better manage FDI
investment in the economy
Economic Risk
Rampant inflationary pressures and corruption in the
system
Devaluation of currency

Cultural Environment
Rapidly growing population, 1 child policy introduced
Confucian thought has dominated the Chinese way of life
for 2,000 years
Collectivist culture (High- Context Culture):
importance of the family, hierarchical structure of social
life, cultivation of morality and self-restraint, and the
emphasis on hard work and achievement

Hofstedes Cultural Typology

Power distance

Individualism

Masculinity

Source: China Today Portal

uncertainty avoidance

Long term orientation

China as a Part of the UN

As a founding member of the United Nations in 1945,

China is one of the five permanent members of the UN
Security Council
China's role is growing in the UN Peacekeeping force as it
is the second largest provider of peacekeepers among
the five permanent members of the UNSC.
Plays an active role in sustainable development, climate
change, renewable energy and other priority areas.
Chinese public views the UN as a vehicle bywhich
Western powers impose Western valueson the rest of the
world. Others might fear that by becoming too active in
the UN, China could be dragged into messyforeign
conflicts like the civil war in Syria

China as a Part of WTO

After 15 years of diplomatic struggle, China became a fullfledged member of the WTO in 2001 in Doha
Came after a long set of negotiations with its trading
partners, notably the United States and the European Union
China has scored remarkable achievements in economic and
social terms :
2nd largest economy in GDP terms
1st largest merchandise exporter
4th largest commercial services exporter
1st destination for Inward FDI among developing countries
1st investor for outward FDI among developing countries
First Largest trading partner of Australia, Chile, Japan, South
Korea, Malaysia, Russia, Brazil, South Africa, Saudi Arabia

FDI in China

China as a Part of BRICS

The scale of growth of Chinas economy and pace of its
development has out-distanced those of its BRIC peers.
China alone contributed more than half of the BRIC countries
share.

Comparative
data analysis,
2011

China Associate in ASEAN

Established a free trade areaamong the ten member states of
theAssociation of Southeast Asian Nations(ASEAN) and
thePeople's Republic of China.
The initial framework agreement signed on 4 November 2002
inCambodia
Establishment of China-ASEAN Investment Cooperation Fund
which is a equity fund sponsored by the EXIM Bank of China to
target investment opportunities in infrastructure, energy and
natural resources in the ASEAN countries
ASEAN and China had agreed to cooperate on eleven priority
areas of cooperation, namely agriculture, information and
communication technology, human resource development,
Mekong Basin Development, investment, energy, transport,

Country attractiveness-Why should one

invest in China
Population of 1.3 Billion out of total 7.1 Billion
Fastest and Second largest growing economy
Worlds largest manufacturing nation
Extensive transportation network since 1980
Strong presence in robust global supply chains
Free trade Zones Shanghai Free Trade Zone 2013
Chinas latest strings of reforms-Third Plenum in November
2013

Sources:
The
Telegraph
WSJ
Economist

Challenges while doing business with ChinaImplications for the MNEs

Market
Assessmen
t
Need for
Due
Diligence

Guanxi

Intellectual
Property
rights

State
Media

Challeng
es

Recent
Wage
Inflations

Regulatory
Policies

Onerous
Red Tape

Changing
Demograp
hics

Source: Economic
Times
The Telegraph
HSBC and PWC report
on Doing business
with China
Forbes

Chinas Achilles Heel-(4-2-1

phenomenon)

Forms of Business
In China, the Foreign Investment Industry Guidance Catalogue last
revised in August 2011 regulates foreign investment. Its a document
issued by Chinas National Development and reform Commission
(NDRC) and the Ministry of Commerce (MOFCOM), which oversees
foreign investment in Chinese companies. Depending on the business
activity, the catalogue classifies direct investment as encouraged,
restricted, or prohibited.
Forms of Business: (Common ways at present)
Non FDI based approach:
Contract Manufacturing
Licensing/Franchising
FDI based approaches:
Joint Ventures
Wholly owned subsidiary

Economic Reforms - Balancing Act

1. Stepping up financial reforms

These include setting up a deposit insurance system by early 2014, giving

qualified private investors the go ahead to set up banks, loosening controls
on the pricing of commodities, electricity and natural resources and
revamping the system for Initial Public Offerings (IPOs).
China's central bank removed controls on lending rates earlier this year.
China is moving towards a market bias and putting more emphasis on
market.
The implication is that the non-state sector will play a greater role

2. State-Owned Enterprises (SOEs)

SOEs will be required to pay larger dividends to the government, with 30%
of earnings from "state capital" to be paid back to the state and used for
social security by 2020.
Private firms, meanwhile, will be encouraged to play a greater role in the

Outsourcing Cities and Parks

Chinas population aggregation

Geographic view
Chinas population is aggregated
in East-southern part
Geographical Patterns of
Chinese Ethnic Minority
Population
The Industrial and economic
growth is also aggregated in the
East-southern part of the
country
New reforms are encouraging
countrys uniform development

Economic Reforms - Balancing Act

Welfare-system reformed

System of household registration The Hukou system - migrants give up the public
services when they move to urban areas.

Analysts say changing this system is a key step towards liberalizing the labour market,
allowing the free movement of labour and encouraging urbanization.

Greater rights for farmers

Farmers will be granted rights to "possess, use, benefit from and transfer their
contracted land, as well as the right to use their land ownership as collateral or a
guarantee."

At the moment, all land in China is owned by the government with farmers only
permitted the right to work the soil in their area.

Analysts say this change is important to encouraging urbanization and shifting China's
economy to a consumer-driven one since it could enable farmers to cash in on the
value of their land, invest in new ventures and move to the cities.

China starts relaxing one child

policy
China's one child policy policy was put in place in 1979 to control the

country's booming population Initial prosperity - Contributed to falling

birth rates
The policy is eased to allow couples to have 2 children if one the parents
is an only
child.
World's
most
populous country would
Warni
face
Relaxation
in
policy
to
support
Chinas
population.
labour shortage within next two aging
ng!
decades.
Age structure
014 years

17.2% (2012 est.)

1564 years

73.4% (2012 est.)

65 and over

9.4% (2012 est.)

Zhejiang was the 1st province to

carry out relaxation - agreed by
country's Communist leaders in Nov.
2013 and approved by the national

Controversies and learnings for MNEs

Apple
Foxconn Apple Factories Violated Chinese Labour Laws in Zhengzhou, China and
received criticism for the use of child labour and unethical business practices
The Fair Labor Association (FLA) says Foxconn ignored the weekly work time limit of
legal Chinese maximum of 49 hours/week and employed labour for 60 hours/week
Foxconn has admitted to employing underage interns in factories as young as 14.

[Source: CNN Money - Apple faces new China labour allegations]

Starbucks
-

Starbucks Pricing Controversy Storm in a Coffee

cup
The international coffee chain Starbucks charged
50% higher prices in China than in other markets
Tall latte costs $4.43 in a Starbucks in Beijing,
$3.98 in London, $3.26 in Chicago, and $2.40 in

Google Controversy in
Source-Financial times
China
Google.cn, the China-based Google search engine site was launched in January 2006. Google,
Inc. agreed to filter the sites search results in compliance with the Chinese governments
censorship laws. Controversy immediately followed this announcement because many
believed the company was actively supporting the Golden Shield Project.
Google responded to the negative media regarding their compliance with the censorship laws
by stating, While removing search results is inconsistent with Google's mission, providing no
information (or a heavily degraded user experience that amounts to no information) is more
inconsistent with our mission.
Additionally, Google executive Rich C. Skye, bluntly stated in 2006, Google is a business,
businesses tend to want to maximize profits.
The fast growing number of Internet users in China makes it a very attractive environment for
a growing business.
January 2010, Google announced they would no longer act in accordance with Chinas
censorship laws and complained that they had become a target of hacking operations.On
March 23, 2010, all Google.cn searches were automatically re-routed to the Google Hong Kong
site, where information is freely distributed and is not subject to Chinas Internet filtering laws.
The Chinese government quickly reacted and blocked Google completely in mainland China,
but reversed this ban the following day. The automatic re-direct to Google Hong Kong stopped
June 30, 2010 so that Google would not lose their license to operate in China. Today, Google,

Indian MNEs in China

Many Indian companies have set up operations either in the form of joint
.
ventures or wholly owned subsidiaries in China.
Axis Bank, Union Bank of India, ICICI Bank, Punjab National Bank have
representative
offices in China while banks like Canara Bank, Bank of Baroda, State Bank
of India operate branch offices there.
Companies like Bharat Heavy Electricals Limited (BHEL) and Adani have
overseas operations in China
Larsen & Toubro has manufacturing facilities Engineers India Limited (EIL)
operates through a representative office.
Pharmaceutical companies like Lupin, Piramal Healthcare and Sun
Pharmaceuticals and chemicals companies like Reliance Industries and
Chinas
MNE
Jubliant
Organosys have also forayed into China.
Alibaba
Ziomee
RenRen Chinese facebook

REFERENCES
World Bank
UNCTAD
Journals from Telegraph, Economist
Forbes International

CNN Money - Apple faces new China labour allegations

www.worldbank.org/en/country/china/research .html
www.economist.com/specialreports/china256.html
http://economictimes.indiatimes.com/news/international
/business/main-risk-facing-the-world-is-a-chinese-debt
-disaster-warns-george-soros/articleshow/28607021.cms

Appendix

Source: Forbes
International