Environmental scanning analysis to evaluate the risks and opportunities of the China market as an international business destination.
China, with a total land area of 9.6 million square miles, is the world’s third largest country and has a population of approximately 1.3 billion. The breakneck pace of China's economic expansion has generated an ideological rift in the ruling CCP over economic policy. With the country's rural poor failing to feel the benefits of more than two decades of rapid growth, rising rural unrest is a potential threat to the status quo. While the leadership has reaffirmed its commitment to raising rural income levels, vast inequalities remain, and rural unemployment continues to be a problem. Crucially, the authorities need to ensure that enough new jobs are created for the millions of people joining the country's workforce every year.
Despite China's economic growth success, the business environment remains relatively weak, with corruption still a serious issue and the country's dominant state-owned enterprises in much need of reform. However, since China's entry into the World Trade Organisation in 2001, the authorities have been undertaking gradual reform, though they have been criticised for being too slow in areas such as strengthening intellectual property rights.
In 2006 merchandise exports were worth US$970 billion and imports stood at US$752 billion, resulting in a trade surplus of US$218 billion. China's biggest trading partner in 2005 was the European Union, with a total bilateral trade of US$217.3billion. The United States (US) was China's second-biggest trading partner, at US$211.6 billion, followed by Japan at US$184.4 billion. Gross Domestic Product is expected to grow by 9.6% in 2007, and forecasted to reach 10% in 2008. However, relations with trading partners have been strained over its huge trade surplus leading to demands for Beijing to raise the value of its currency, which would make Chinese goods more expensive for foreign buyers and, in theory, hold back exports.
We continue to believe that this pace of expansion is unsustainable and, as such, the authorities will need to step up their efforts to ease growth. Primarily, more work is needed to correct the country's vast external imbalances, with consistently high trade surpluses fuelling a huge current account surplus. This, in turn, is exacerbating China's excess liquidity problem, which continues to fuel rapid investment, rendering the economy still vulnerable to overcapacity and overheating risks.
Nevertheless, the authorities do seem committed to improving the business environment, and expect the reform impetus to continue. Despite the drawbacks, China remains a top destination for foreign direct investment.
China, with a total land area of 9.6 million square miles, is the world’s third largest country and has a population of approximately 1.3 billion. The breakneck pace of China's economic expansion has generated an ideological rift in the ruling CCP over economic policy. With the country's rural poor failing to feel the benefits of more than two decades of rapid growth, rising rural unrest is a potential threat to the status quo. While the leadership has reaffirmed its commitment to raising rural income levels, vast inequalities remain, and rural unemployment continues to be a problem. Crucially, the authorities need to ensure that enough new jobs are created for the millions of people joining the country's workforce every year.
Despite China's economic growth success, the business environment remains relatively weak, with corruption still a serious issue and the country's dominant state-owned enterprises in much need of reform. However, since China's entry into the World Trade Organisation in 2001, the authorities have been undertaking gradual reform, though they have been criticised for being too slow in areas such as strengthening intellectual property rights.
In 2006 merchandise exports were worth US$970 billion and imports stood at US$752 billion, resulting in a trade surplus of US$218 billion. China's biggest trading partner in 2005 was the European Union, with a total bilateral trade of US$217.3billion. The United States (US) was China's second-biggest trading partner, at US$211.6 billion, followed by Japan at US$184.4 billion. Gross Domestic Product is expected to grow by 9.6% in 2007, and forecasted to reach 10% in 2008. However, relations with trading partners have been strained over its huge trade surplus leading to demands for Beijing to raise the value of its currency, which would make Chinese goods more expensive for foreign buyers and, in theory, hold back exports.
We continue to believe that this pace of expansion is unsustainable and, as such, the authorities will need to step up their efforts to ease growth. Primarily, more work is needed to correct the country's vast external imbalances, with consistently high trade surpluses fuelling a huge current account surplus. This, in turn, is exacerbating China's excess liquidity problem, which continues to fuel rapid investment, rendering the economy still vulnerable to overcapacity and overheating risks.
Nevertheless, the authorities do seem committed to improving the business environment, and expect the reform impetus to continue. Despite the drawbacks, China remains a top destination for foreign direct investment.
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