The China Venture
The China Venture 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
co-operate with other firms, especially foreign firms. (In Shanghai, for example, foreign Joint Ventures have been allowed since 1983). To improve the development of science and technology, the government provided substantial funding to facilitate technology and knowledge transfer from foreign countries to China. Thousands of students were sent abroad to study. Chinese universities were also rebuilt (having been suppressed during the Cultural Revolution) and given certain autonomy. Since then, the expenditure on research has increased enormously and international relationships multiplied. Thanks to the reforms, the Chinese economy took off in the 1980s. Agricultural output doubled during the same period and the country’s GDP had quadrupled since 1978. Industry posted major gains, especially in coastal areas near Hong Kong and opposite Taiwan, where foreign investment helped spur output of both domestic and export goods. However, such rapid economic growth has also been accompanied by unacceptable social consequences like unnecessary bureaucracy, lassitude, corruption, socially unacceptable greed among parts of the Chinese populace for windfall gains which threatened cultural values and social order, and inflation. The Tiananmen Square incident in June 1989 dampened economic growth temporarily. Nevertheless, following the announcement of far-reaching reforms during Deng Xiaoping’s trip to the Southern Special Economic Zones, foreign investments were boosted considerably. This could in part be attributable to the Bank of Japan’s more expansionary monetary policy at that time up to the middle of 1996, which also helped other Asia n nations. In 1992-96 annual growth of GDP accelerated, particularly in the coastal areas - averaging more than 10% annually according to official figures. In late 1993 China's leadership approved additional long-term reforms aimed at giving still more scope to market-oriented institutions and at strengthening the control over the financial system. State enterprises continue to dominate many key industries in the new "socialist market economy." In spite of Deng Xiaoping’s death in February 1997, China continued on its road to economic reform. The Asia Financial Crisis also failed to dampen China’s economic performance. In fact, the Crisis has led the Chinese government to make extremely tough decisions to reform the banking institutions and to crack down on corruption. Such rapid changes in laws and institutions are never comfortable to people who are living and working in China as it affects their way of life and increase the feeling of uncertainty. Nevertheless, this should bode well for the economic future of China. 5
- Page 1 and 2: The China Venture: Business Environ
- Page 3 and 4: Table of Contents List of Figures .
- Page 5 and 6: 3.2.3.2 Special Funds for Setting U
- Page 7 and 8: 3.4.1.1 National Culture ..........
- Page 9 and 10: List of Tables TABLE 2-1: THE AREAS
- Page 11 and 12: GBP Pounds Sterling GDB Guangdong D
- Page 13 and 14: 1. Introduction: The China Venture
- Page 15: After a short discussion with the p
- Page 19 and 20: The Chinese operating legal system
- Page 21 and 22: First of all, Britain’s predomina
- Page 23 and 24: democratic centralism, all governme
- Page 25 and 26: The courts are the state organs exe
- Page 27 and 28: more than three hundred intermedia
- Page 29 and 30: 2.2.8 Company Law China’s first n
- Page 31 and 32: Things seem have to become a lot cl
- Page 33 and 34: 2.3.1.1 Financial sector developmen
- Page 35 and 36: securities, trading, initial public
- Page 37 and 38: underdeveloped compared with market
- Page 39 and 40: established in January 1996 by 59 p
- Page 41 and 42: Chinese Banks Foreign Banks Financi
- Page 43 and 44: system formulation has been put on
- Page 45 and 46: The separation of production and co
- Page 47 and 48: swap centres (see also above). From
- Page 49 and 50: investors with little experience an
- Page 51 and 52: them, while a branch with a shortag
- Page 53 and 54: Loans, public offerings of shares,
- Page 55 and 56: is often to acquire foreign capital
- Page 57 and 58: 2.3.3.2 Debt financing As getting t
- Page 59 and 60: the approval of special authorities
- Page 61 and 62: control compared to national enterp
- Page 63 and 64: usiness in China and related issues
- Page 65 and 66: 3. Pre-Entry Strategic Consideratio
co-operate with other firms, especially foreign firms. (In Shanghai, for example, foreign Joint<br />
<strong>Venture</strong>s have been allowed since 1983).<br />
To improve the development of science and technology, the government provided substantial<br />
funding to facilitate technology and knowledge transfer from foreign countries to <strong>China</strong>.<br />
Thousands of students were sent abroad to study. Chinese universities were also rebuilt<br />
(having been suppressed during the Cultural Revolution) and given certain autonomy. Since<br />
then, the expenditure on research has increased enormously and international relationships<br />
multiplied.<br />
Thanks to the reforms, the Chinese economy took off in the 1980s. Agricultural output<br />
doubled during the same period and the country’s GDP had quadrupled since 1978. Industry<br />
posted major gains, especially in coastal areas near Hong Kong and opposite Taiwan, where<br />
foreign investment helped spur output of both domestic and export goods. However, such<br />
rapid economic growth has also been accompanied by unacceptable social consequences like<br />
unnecessary bureaucracy, lassitude, corruption, socially unacceptable greed among parts of<br />
the Chinese populace for windfall gains which threatened cultural values and social order, and<br />
inflation.<br />
<strong>The</strong> Tiananmen Square incident in June 1989 dampened economic growth temporarily.<br />
Nevertheless, following the announcement of far-reaching reforms during Deng Xiaoping’s<br />
trip to the Southern Special Economic Zones, foreign investments were boosted considerably.<br />
This could in part be attributable to the Bank of Japan’s more expansionary monetary policy<br />
at that time up to the middle of 1996, which also helped other Asia n nations.<br />
In 1992-96 annual growth of GDP accelerated, particularly in the coastal areas - averaging<br />
more than 10% annually according to official figures. In late 1993 <strong>China</strong>'s leadership<br />
approved additional long-term reforms aimed at giving still more scope to market-oriented<br />
institutions and at strengthening the control over the financial system. State enterprises<br />
continue to dominate many key industries in the new "socialist market economy."<br />
In spite of Deng Xiaoping’s death in February 1997, <strong>China</strong> continued on its road to economic<br />
reform. <strong>The</strong> Asia Financial Crisis also failed to dampen <strong>China</strong>’s economic performance. In<br />
fact, the Crisis has led the Chinese government to make extremely tough decisions to reform<br />
the banking institutions and to crack down on corruption. Such rapid changes in laws and<br />
institutions are never comfortable to people who are living and working in <strong>China</strong> as it affects<br />
their way of life and increase the feeling of uncertainty. Nevertheless, this should bode well<br />
for the economic future of <strong>China</strong>.<br />
5
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