BUS431 Doing Business in Asia Pacific Historical, Political and Economic Background in China Jing Li

BUS431 Doing Business in Asia Pacific

Basic data  Land: 9,561,000 sq km  Population: 1.3bn (end-2002)  Main cities: Population (m) of main cities (end-2002, urban districts only) Shanghai 9.86 Beijing (Peking, capital) 7.61 Chongqing 6.61 Tianjin 5.33 Wuhan 4.41 Guangzhou 4.36  22 provinces, 5 autonomous regions and 4 municipalities.

BUS431 Doing Business in Asia Pacific Historical background  Dynastic China (2200BC to 1911) China claims one of the longest histories of any civilization, dating from at least 2200 BC. First politically united in 221 BC, China became the most powerful state in East Asia. Three pillars in the imperial system.  Emperor  Imperial bureaucracy  Confucianism Dynastic China has been credited with some of the world’s greatest technological inventions. The last dynasty, the Qing, collapsed in 1911.

BUS431 Doing Business in Asia Pacific Historical Background  The Republican Era ( ) Two broad political efforts: Guomindang (GMD) and Chinese Communist Party (CCP) In 1937 Japan launched a full-scale invasion of China. When Japan surrendered in 1945, civil war broke out between GMD and CCP. Chiang Kai-shek (Leader of GMD) was forced to flee with the ROC government in 1949 to the island province of Taiwan. On October 1 st, 1949, the CCP leader, Mao Zedong, proclaimed the founding of the People's Republic of China.

BUS431 Doing Business in Asia Pacific Historical background  The Maoist Era ( ) To achieve a peasant-led socialist revolution To achieve unrealistic rapid economic development

BUS431 Doing Business in Asia Pacific Historical Background  The Era of economic reform (1978- now) Deng xiaoping’s strategy: “reform measures were legitimate if they promoted rapid economic growth and if they did not weaken the Party’s control of the political system; everything else was subject to compromise.” Deng was known for his pragmatism. His slogan is “Who cares if a cat is a black or white, as long as it catches mice.” Economic reforms have not been carried out according to a comprehensive blueprint, but rather have been piecemeal and ad hoc, best summarized by the Chinese phrase "crossing the river by feeling for the stones".

BUS431 Doing Business in Asia Pacific Economic reforms  Agricultural reforms Household responsibility system Dual price system  Trade and investment reforms Four special economic zones  State owned enterprises reforms Management responsibility system Dual price system

BUS431 Doing Business in Asia Pacific

China in the 21 st century  Economic structure Industry has a dominant role  Industry accounted for 51.1% of GDP, services 33.5% and agriculture 15.4% in The increasing role of private and collective enterprises  By 2002 the share of state-owned and state-holding enterprises in gross industrial output value had shrunk to 41%.

BUS431 Doing Business in Asia Pacific External sectors  Merchandise trade growth is rapid  Export growth is fuelled by foreign enterprises  Import growth is determined by growth in exports  The US is China's largest export market

BUS431 Doing Business in Asia Pacific

Capital flows, Foreign reserves and the exchange rate  Inward FDI dwarfs outward FDI FDI inflows are US$40bn a year in the late 1990s and reach US$49.3bn in 2002  China has large foreign-exchange reserves US$412bn in 2003  The Renminbi (RMB, yuan) has been stable since 1995 until recently

BUS431 Doing Business in Asia Pacific Foreign Direct Investment (FDI)  Foreign investment projects fall into four categories: encouraged, restricted, prohibited and permitted. Encouraged projects include those using high technology and contributing high quality products and contributing to the development of resources and manpower in the central and western China.

BUS431 Doing Business in Asia Pacific FDI  Restricted categories include those already developed in China, those with an adverse effect on environment, energy conservation and precious resources, those requiring central planning of the state.  Prohibited categories include those endanger state security, endanger human health, using manufacturing techniques unique to China.

BUS431 Doing Business in Asia Pacific FDI  China joined WTO in  During , most formerly restricted businesses are partially or fully open to FDI such as telecommunications, insurance, wholesale, banking, securities, legal services, and etc.

BUS431 Doing Business in Asia Pacific Challenges – trade disputes  International trade has played an important role in China’s economic development. However, there are many ongoing trade disputes with the U.S. and EU. What should the government and exporting companies do to deal with these risks?

BUS431 Doing Business in Asia Pacific Challenges- the role of joint ventures  To what extent will collaboration with foreign companies in joint ventures improve the competitive advantages of domestic firms especially the SOEs?