The China Venture

2. The Chinese Business Environment
The economic transformation of modern China from a Soviet-style, centrally planned
economy to one which is increasingly market-oriented and open to foreign business
investments and operations began in 1978. The story of China’s economic reform based on
the setting up and rapid growth of a market economy which is becoming increasingly
important, and in parallel to an existing and dominant command economy which shrinks in
tandem with the growing dominance of the market economy, provides certainly an interesting
lesson in economic transformation change. Matthias Weibel wrote about the China Reform
story ...
2.1 The China Reform story (by Matthias Weibel)
Under the guidance of Deng Xiaoping the economic reforms started with the “Four
Modernisations“ involving agriculture, industry, science and technology, and national
defence. In agriculture the authorities replaced the old collectivisation with a system of
household responsibility. In industry, the authority of local officials and plant managers were
increased. A wide variety of small-scale enterprises in services and light manufacturing were
also permitted. The economy was opened increasingly to foreign trade and investment.
Knowing that the modernisation of the Chinese industry could not be realised without foreign
resources, the government also decided to establish four Special Economic Zones along the
Chinese south coast, offering attractive incentives for foreign firms and creating a secure
economic environment. In these zones, China offered low tax rates, low bureaucratic hurdles,
and permission to repatriate the profits gained, in addition to relatively cheap land and labour.
At the same time, several provinces (Opened Coastal Provinces - OCPs) 2 and cities (Opened
Coastal Cities - OCCs) 3 were allowed to provide similar incentives for foreign investors.
Chinese firms, especially those in big cities like Shanghai, were selected for greater
autonomy. Since management was no longer subject to central government control, the
resident managers were now in charge of the bottom-line, and had a free hand in the choice of
suppliers, production methods, marketin g, administration and accounting. Banks were also
given greater autonomy in providing loans. The reforms encouraged Chinese companies to
2
Lioning, Hebei, Tianjin, Shandong, Jiangsu, Shanghai, Zhejiang, Fujian, Guangdong, Hainan,
Guangxi.
3
Dalian, Tianjin, Qingdao, Shanghai and Guagzhou.
4