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

BUS431 Doing Business in Asia Pacific

Historical, Political and Economic Background in China

Jing Li





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.


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.


Historical Background The Republican Era (1911-1949)

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 1st, 1949, the CCP leader, Mao Zedong, proclaimed the founding of the People's Republic of China.


Historical background

The Maoist Era (1949-1978) To achieve a peasant-led socialist

revolution To achieve unrealistic rapid economic

development


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".


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



China in the 21st century

Economic structure Industry has a dominant role

Industry accounted for 51.1% of GDP, services 33.5% and agriculture 15.4% in 2002.

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%.


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



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


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.


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.


FDI

China joined WTO in 2001. During 2005-2007, most formerly

restricted businesses are partially or fully open to FDI such as telecommunications, insurance, wholesale, banking, securities, legal services, and etc.


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?


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?

Documents

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