People's Republic of China Business Guide
Introduction
The People's Republic of China (PRC), commonly known as China, is the largest country in East Asia. With over 1.31 billion people, it is the world's most populous country. At over 9.5 million km² (3.7 million square miles), it is the world's third or fourth largest country in terms of total area. Due to its vast population, its rapidly growing economy, its large research and development investments and military spending, its status as a declared nuclear weapons state, and other capabilities, the PRC is often considered by commentators as an emerging superpower. It is the world's fourth largest economy and second largest at purchasing power parity, and represents China as a permanent member of the United Nations Security Council and Asia-Pacific Economic Cooperation. Market-based economic reforms since 1978 have helped lift 400 million people out of poverty, bringing the poverty rate down from 53% of population in 1981 to 8% by 2001. However, the PRC is now faced with a number of other economic problems, including a rapidly aging population and an increasing rural-urban income gap. China plays a major role in international trade. The country is the world's largest consumer of steel and concrete, using, respectively, a third and over a half of the world's supply of each, and it is also the second largest importer of petroleum. Globally it is the third largest importer in the world, and the second largest exporter counting all products.
Economy
China's economy during the last quarter century has changed from a centrally planned system that was largely closed to international trade to a more market-oriented economy that has a rapidly growing private sector and is a major player in the global economy. Reforms started in the late 1970s with the phasing out of collectivized agriculture, and expanded to include the gradual liberalization of prices, fiscal decentralization, increased autonomy for state enterprises, the foundation of a diversified banking system, the development of stock markets, the rapid growth of the non-state sector, and the opening to foreign trade and investment. China has generally implemented reforms in a gradualist or piecemeal fashion, including the sale of equity in China's largest state banks to foreign investors and refinements in foreign exchange and bond markets in 2005. The restructuring of the economy and resulting efficiency gains have contributed to a more than tenfold increase in GDP since 1978. Measured on a purchasing power parity (PPP) basis, China in 2006 stood as the second-largest economy in the world after the US, although in per capita terms the country is still lower middle-income and 130 million Chinese fall below international poverty lines.
Economic development has generally been more rapid in coastal provinces than in the interior, and there are large disparities in per capita income between regions. The government has struggled to: (a) sustain adequate job growth for tens of millions of workers laid off from state-owned enterprises, migrants, and new entrants to the work force; (b) reduce corruption and other economic crimes; and (c) contain environmental damage and social strife related to the economy's rapid transformation. From 100 million to 150 million surplus rural workers are adrift between the villages and the cities, many subsisting through part-time, low-paying jobs. One demographic consequence of the "one child" policy is that China is now one of the most rapidly aging countries in the world. Another long-term threat to growth is the deterioration in the environment - notably air pollution, soil erosion, and the steady fall of the water table, especially in the north. China continues to lose arable land because of erosion and economic development. China has benefited from a huge expansion in computer Internet use, with more than 100 million users at the end of 2005.
Foreign investment remains a strong element in China's remarkable expansion in world trade and has been an important factor in the growth of urban jobs. In July 2005, China revalued its currency by 2.1% against the US dollar and moved to an exchange rate system that references a basket of currencies. In 2006 China had the largest current account surplus in the world - nearly $180 billion. More power generating capacity came on line in 2006 as large scale investments were completed. Thirteen years in construction at a cost of $24 billion, the immense Three Gorges Dam across the Yangtze River was essentially completed in 2006 and will revolutionize electrification and flood control in the area. The 11th Five-Year Program (2006-10), approved by the National People's Congress in March 2006, calls for a 20% reduction in energy consumption per unit of GDP by 2010 and an estimated 45% increase in GDP by 2010. The plan states that conserving resources and protecting the environment are basic goals, but it lacks details on the policies and reforms necessary to achieve these goals.
Chinese Business Environment
In the Chinese business environment, it is necessary for American companies to have a well-planned strategy. The following list of tips for doing business in China is not comprehensive, but a guideline for an initial market evaluation. Companies entering the China market should consider the following:
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Have Clear Contract Terms
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Make Certain Your Project is Economically Viable
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Know Your Partner
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Know the Rules
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Search for Problems Before They Materialize
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Do a Thorough Risk Analysis
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Mind the Store
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Expect Virulent Competition, Pricing Pressure
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Get Paid
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Watch Your Intellectual Property Rights
