Business Environment in China
QIU Guixi 邱贵溪(David)
Dean, Associate Professor
School of International Studies
Shanghai University of International
Business & Economics
Email: qiuguixi@suibe.edu.cn
Part 1 The Profile of Business
Environment in China
Location of China in the world
Macao
China’s Local Governments(34)
• Municipalities--4
( Beijing, Tianjin, Shanghai, Chongqing)
• Provinces--23
• Autonomous Regions—5
( inner Mongolia, Guangxi Zhuang, Tibet,
Ningxia Hui, Xinjiang Uygur)
• Special Administrative Regions—2
(Hong Kong Special Administrative Region,
Macao Special Administrative Region )
Geographical Division
• North-east China(3 provinces)
• East China (10 provinces and municipalities)
• Central China (6 provinces, i.e. Shanxi,
Anhui, Jiangxi, Henan, Hubei and Hunan)
• West China (13 provinces, municipality and
autonomous regions )
• SAR (2)
China is a Particular Country, why so?
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Vast in land (the 3rd,next to Russia and Canada)
Large in population ( the 1st,1.3 billion in Mainland)
Comprehensive ( 56 ethnic groups)
Diversity (history, culture, language)
Dynamic ( developing country, keeping changing)
Different consuming behaviors in different regions
One country, two systems
China is a Particular Country, why so?
• Sky-high housing price
(average price:2962US$/per square meter)
• High demand of luxury goods
(China has become the second largest consuming
country for luxury goods (next Japan), accounting
for 25% of the global market shares)
• Face-saving consuming behavior
• China ranks No.1 in both auto manufacturing
and auto selling for 4 years.
(19.27m auto and 19.30m auto-2012)
China is a Particular Country, why so?
• China has leapfrogged Japan to become the world's
second-largest economy, a title Japan has held for
more than 40 years.
• Japan's nominal GDP was $5.47tn in 2010, less
than China's total of $5.87tn (7.61tn in 2011)
• China still ranks 104 according to per capital GDP.
• For the total global stock market value, the USA
accounts for over 30%, China 7.38%,Japan 7.05%
(by BIG)
China is a Particular Country, why so?
• China’ GDP accounts for 9.5% of the total
volume of the world’s GDP in 2010, while in
2005, only 5%.
• The US’ GDP accounts for 23.8% of the total
volume of the world’s GDP in 2010.
China is a Particular Country, why so?
PetroChina tops Financial Times' Global
500 list ranked by market value($329.3b)
(issued by FT on May 30, 2010)
54 Chinese enterprises leaped into the
world’s top 500 enterprises club in 2010.
Most of the state-owned enterprises have
monopoly on resources, energy and capital
possession.
China is a Particular Country, why so?
• One week
a book
• One month
a paper
• One year
nothing
Some Important Events in China
1. 1949– the founding of the People’s Republic
of China
2. 1966-1976 Great Culture Revolution
3. 1978 –the reform and open policy started
(initiated by Deng Xiaoping- the general
architect of China’s reform and open policy)
4. 1993—the establishment of market economy
5. 2001- China’s accession to WTO
Chief Chinese Top leaders (from1949-now)
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Mao Zedong (1949-1976)
Deng Xiaoping(1979-1989)
Jiang Zemin(1989-2002)
Hu Jintao ( from 2002-2012)
Xi Jinping ( from 2012-
Part 2 The Legal Environment in China
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China’s Legislative System
China’s Judicial System
The Vehicles for Doing Business in China
The Investment Environment in China
Intellectual Property Protection in China
The Settlement of Disputes
China’s legislative system
• NPC and its standing committee
(NPC--constitution and basic laws, NPC Standing
committee--other laws--239)
• State council—administrative rules and regulations—
(690 existing and effective)
• Provincial (or municipality ) people’s congress and
their standing committee--Local ordinances
• Autonomous regional people’s congress and their
standing committee—
autonomous ordinances and separate regulations
(8600 local ordinances and separate regulations)
(up to March 8 2011)
China’s judicial system
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The supreme people’s court
Higher people’s court
Intermediate people’s court
District court (basic-level people’s court)
The Vehicles for Doing Business in China
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Direct sales to Chinese end-users
Trade with commission agents
Representative offices
Sino-foreign joint ventures (JV)
Sino-foreign co-operative enterprise
Wholly foreign-owned enterprises (WFOE)
Franchising
Constitution, laws and regulations
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Constitution of P.R. China (Art. 18)
Company Law
Sino-foreign Joint Ventures Law
Sino-foreign Co-operative Enterprise Law
Wholly Foreign-owned Enterprises Law
Catalogue for the Guidance of Foreign
Investment Industries(2010 version)
Article 18 of the Constitution of the P.R. China
Article 18. The People s Republic of China permits
foreign enterprises, other foreign economic
organizations and individual foreigners to invest in
China and to enter into various forms of economic
co-operation with Chinese enterprises and other
economic organizations in accordance with the law
of the People s Republic of China. All foreign
enterprises and other foreign economic
organizations in China, as well as joint ventures with
Chinese and foreign investment located in China,
shall abide by the law of the People s Republic of
China. Their lawful rights and interests are protected
by the law of the People s Republic of China.
Catalogue for the Guidance of
Foreign Investment Industries
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Focusing on advanced manufacturing,
high-tech, modern services, new energy
and energy-saving sector.
Encouraged industries
Restricted industries
Prohibited industries (e.g. gambling and
eroticism)
China to promote seven new
strategic industries
一、Energy-saving and environmental protection
(节能环保)
二、New-generation information technology
(新一代信息技术)
三、 Biotechnology (生物)
四、 High-end equipment manufacturing(高端装备制造)
五、 Alternative energy (新能源)
六、 Advanced materials (新材料)
七、 Alternative-fuel cars (新能源汽车)
（2010年9月8日国务院常务会议决定）
Some Data
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Up to the end of 2009, China has approved
683,000 foreign-funded enterprises with
the total FDI value of 945.4b US$.
According to the 2009 report issued by
UNCTAD, transnational investment went
down by 50% in Brazil, 19% in India, 93%
in the UK, 57% in the US, 53% in Japan
and only 2.6% in China.
China records No.1 in absorbing FDI in
developing countries for 17 years.
Summary of IP Protection in China
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Short history
Great progress
High standards
Wider range of protection
Overview of IPR in China
• The formulation of IPR laws and regulations could be traced
back the early 1980s.
• China has finished its IPR legislative work in less than 30
years.
• China has revised its IPR laws in line with TRIPS Agreement
aiming at world dimension and world standards.
(WTO: trade in goods; trade in services; trade for TRIPs)
Work to be improved
• Enhancing the awareness of both the public and the
business owners over the protection of IPR
• Reinforce the implementation of the laws and
regulations over IPR
• Lower the threshold of fixing criminal liabilities to IPR
infringers.
Ways of Settlement of Trade and
Investment Disputes
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Mutual consultation
Mediation
Arbitration (CIETAC)
Litigation
the International Center for Settlement of
Investment Dispute (ICSID)
Governing Law and Jurisdiction
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Contract-based way of settlement
Arbitration vs litigation
Governing law vs arbitration body
Judicial assistance
Part 3 Cultural Environment in China
Regional Culture Differences in China
East part of China and the coastal cities:
focusing on written contract, more internationalized.
North-east of China::
focusing on oral contract
The West China:
focusing on commercial practice
The way of treating guests:
drinking culture in China (alcohol and tea)
Face Consumptions Culture in China
People purchase the luxury commodities merely to show off and
gratify their vanity.
The following are the top six luxury commodities consumed in
China:
Band-name garment (75.3%),
Gifts-jewelry, watch, handbag (60.7%)
Cars (59.5%)
Electronic products (55.6%)
Wine and tobacco (49.5%)
Cosmetics (43.9%)
Ages: 30-40
Groups: urban white-collar workers, the second- generation
wealthy kids
(By the Social Survey Center of China Youth Daily)
Focusing on Two Areas of Market
You can always do good business in the following
two areas:
The area of commodities for ladies
The area of commodities for kids
Drinking Culture in China
North-east of China and the western China
Good drinker of alcohol can be an
advantage.
Eastern and southern China:
Tea is often served during negotiations,
businessmen often choose the tea house
as the place for negotiations.
Localization of the Employees and
the Products
The employment of the local people can be a
great help.
The localization of the products can suit the
need of the local people.
( KFC offers breakfast with local flavor;
and Volkswagen improves the models of Polo
and Passat)
Car with no boot
Saloon with a boot
Guanxi in China
Guanxi means connection or relationship between or
among people. e.g. try to establish a relationship with
somebody, or someone has very good social
connections.
The logical development of close relationship is the
Chinese concept of “guanxi”. According to business
analyst Tim Ambler of London Business School, the
kernel of guanxi is doing business through value-laden
relationship. In a highly-centralized ,bureaucratic state,
the use of personal contacts is the only way or
important way to get things done.
In China, guanxi is important, but is not everything.
Sometimes, guanxi means you keep a good
relationship with the people in the business circle and
outside the business circle, and you keep a good
relationship with the competent authority of the
government.
Part 4 Other Influential Factors in
Business Environment
The Most Influential Factors in
Business Environment
Legal environment
Government efficiency
Nationalization of foreign assets
Enterprises' business efficiency
Infrastructure construction
Education
(the 2010 global competitiveness report by
International Institute for Management Development )
Competitiveness Ranking in 2009
1. The U.S.A.
2. Hong Kong, China
3. Singapore
4. Switzerland
5. Denmark
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20. China
{Issued by the International Institute for Management
Development (IMD)}
(four items including general economic performance, government
efficiency, enterprises' business efficiency, and Infrastructure
construction )
Competitiveness Ranking in 2010
1. Singapore
2. Hong Kong, China
3. U.S.A
4. Switzerland
5. Australia
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16.Germany
18. China
22. U.K.
24. France
27. Japan
(the 2010 global competitiveness report by IMD on May 19,2010)
China leads the BRICKS (India-31; Brizil-38; Russia-51)
Competitiveness Ranking in 2011
1. Switzerland
2. Sweden
3. Singapore
4. U.S.A
5. Germany
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11. Hong Kong, China
27. China (China leads the BRICS)
51. India
54. South Africa
58. Brazil
63. Russia
(the 2011 global competitiveness report by IMD)
Competitiveness Ranking in 2012
1. Switzerland
2. Singapore
3. Finland
4. Sweden
5. Netherland
6. Germany
7. U.S.A
8. U.K.
9. Hong Kong, China
10. Japan
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29. China
48. Brazil
52. South Africa
59. India
67. Russia
(the 2012 global competitiveness report by IMD)
The most problematic factors for doing business
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Inflation..........................................................................26.7
Inadequately educated workforce.................................14.0
Inefficient government bureaucracy…………………....12.2
Foreign currency regulations................................... ......8.5
Access to financing........................................................6.2
Policy instability..............................................................6.2
Tax regulations ...............................................................6.2
Restrictive labor regulations...................................... ...5.4
Inadequate supply of infrastructure ......................... ......4.9
Poor work ethic in national labor force ..................... .....3.9
Tax rates .........................................................................2.3
Corruption........................................................................1.6
Poor public health...........................................................1.0
Government instability/coups ................................... .... 0.5
Crime and theft....................................................... ... ... 0.3
Websites for General Information
Chinese Government’s Official Web Portal
www.gov.cn
Shanghai Municipality Official Website
www.shanghai.gov.cn
Websites for Investment
The Ministry of Commerce:
www.mofcom.gov.cn
Shanghai Municipal Commission of Commerce
www.scofcom.gov.cn
Investment in Shanghai website
www.investment.gov.cn
Websites for the Settlement of
Disputes
• CIETAC: www.cietac.org.cn
• Court : www.court.gov.cn or
www.chinacourt.org
• ICSID: http://icsid.worldbank.org