Business With China: A Critical Evaluation Of Lure And Challenges

Abstract

This paper examines the significant historical and socio economic development in China over the past quarter century and summarizes the main features of the pre-reform economy and the main strategies adopted by china as it began its quest for economic progress.  The paper also evaluates the consequences of China’s market reform and the challenges to this new economic power.  The objective of the paper is to discuss both opportunities and risks in doing business in China and to provide and understanding of what compels so many firms to so boldly seek to establish a presence in China while taking substantial risks in doing so.  The research concludes that, investment and business opportunities in China would outweigh the risk and challenges faced by potential investors.  The paper examines the elements contributing to China’s reform, including pro market reform, economic growth, and the rate and significance of FDI in china. Investment challenges include: corruption, mostly “unfree” economy, low ranking in ease of doing business, undervalued Yuan, and lack of proper intellectual property rights. The research points to positive indicators such as: China’s economic development growth (i.e. GDP growth at 9.9% in mainland and 12.4% in Zhejiang); China’s entry in WTO – relaxing foreign investment restrictions; infrastructure development – transit, energy, telecommunications, etc.; and the impact of the market reform - China’s economic growth rate among the highest recorded during the past three decades.  The examination of risks and challenges, reveals (1) the “Driving Forces” for business investment in China which include: rapidly expanding economy; growth in Chinese consumer purchasing power; and economic Power & other Indicators; and (2) the issues of concern such as: excess capacity in industrial sector, export dependence economy, problem with banking sector, and potential unemployment problem.  The paper concludes that – despite potential and clear risks – there are good and legitimate business and investment potential in China and among many factors to consider are: many incentives to consider business opportunities and potential benefits; rising personal income and spending power in China; and increase in per capita income at steady rate of 8% since 1980, currently estimated at $3000.