Analysis of China international business

Analysis of China international business

China is one of the oldest civilizations of the world, and the oldest continuous running civilization. The country’s contributions to the world in the field of arts, science and trade have been numerous over the centuries of its existence. However 19th and 20th century saw the country being beset by civil unrest, famines, military defeats and foreign occupation.

China came to be under the autocratic socialist rule of Communists after World War II, under the leadership of Mao Zedong. While this ensured China’s sovereignty, the rule imposed controls over the everyday lives, a system that exists even to this date.

However, late 1970s saw a change in rule with successor Deng Xiaoping, who with other subsequent leaders focused on market-oriented economic development, which led to the output of the country be quadrupled by the year 2000.

This led to a dramatic improvement in the living standards and increase in personal freedom for a majority of the population, though political control is still tight (Central Intelligence Agency, 2007). This paper will be giving an analysis of the political, economic and cultural environment of the country and its impact on the international business chiefly concentrating on Foreign Direct Investments, FDI.

2. Political Analysis – China has a communist style of government, which is seen by many foreign countries as being too restrictive. While the country is certainly better than what it was in the 1970s, the government is still unpredictable when it comes to policies. However, Chinese government is extremely committed towards economic growth at the national level, the proof of which can be seen in the enviable figures of growth for the country (Shirk, 2007, p. 42-43).

Foreign companies also enjoy equal status as the domestic companies for taxes, expenses and other benefits; however, the government keeps a close watch on the foreign company’s operations and profits. In addition, the procedures for foreign investors in establishing investments in China are extremely complicated.

There are also risks due to the single-minded market-oriented reform, the rampant corruption and increasing social unrest (Morton, Lewis, 2004, p. 266).

Finally, the inter-government relations between China and Australia, though are cordial, are at a very initial stage (Thomas, 2004, p. 69). All of these factors raise the risk for an Australian firm intent on investing in China.

However considering that China is still the topmost country in the world w.r.t. to FDI inflow, and has the production offices of almost all big corporations from all parts of the world; the risks are well-worth taking.

3. Economic Analysis – The economic growth of China started since the reform practices started in 1978. The growth rate has been steady between 6-10% (Wu, 2004, p 1-2), and IMF predicts that the country will sustain its growth in the years to come (Xiaouchuan, 2008, p.3). The exports and import growth stand at 20% and 18% respectively (Worldbank, 2008, p. 3, 8).

However, China in recent times has seen high levels of inflation, tight currency-exchange control, unemployment, and an unhealthy shift of labor from villages to urban towns. Also Australia’s investment in China has been extremely low, to the tune of less than $100 million.

This is because historically Australia has not been a large exporter of FDI, and whenever it has done so, the host countries had been developed countries (Ma, Yang, Zhang, 2008). Hence, it might be easier for an Australian firm to invest beca…………………………………………………..