Business Environment

In 2008, under the leadership of the CPC Central Committee and the State Council, the people of all nationalities of China, taking as the guidance of Deng Xiaoping Theory and the important thought of "Three Represents", implemented earnestly the scientific approach to the economic and social development. They united as one with indomitable spirit to fight against the natural disasters and international financial crisis. National economy kept fast growth and all social undertakings achieved new progress.

National Bureau of Statistics of China, February 26, 2009

General Outlook

The general level of consumer prices in China was up in 2009 by 5.9% over the previous year. Of this total, the prices for food went up by 14.3%. The prices for investment in fixed assets were up by 8.9%. The producer prices for manufactured goods increased by 6.9%, of which, the prices for means of production increased by 7.7%, and for means of subsistence grew by 4.1%. The purchasing prices for raw materials, fuels and power went up by 10.5%. The producer prices for farm products were up by 14.1%. The prices for means of agricultural production were up by 20.3%. The sales prices for housing in 70 large and medium-sized cities were up by 6.5%, of which, that for new residential buildings went up by 7.1%, for second hand housing grew by 6.2%, and the prices for rental and leasing were up by 1.4%.

Languages

The national language is Putonghua (the common speech) or Mandarin which is one of the five working languages at the United Nations. Most of the 55 minority nationalities have their own languages. Cantonese is one of the local dialects of southern China.  As a written language, Chinese has been used for over 6,000 years.

Getting Paid - Terms of Payment

If you do not want to use a letter of credit, require your partner to make advance payment.  Chinese companies usually do not use terms that allow unsecured payments after delivery of the product.  For example, payment terms of "30% letter of credit, 70% payment 120 days after delivery" would not be customary in China.  For most large projects, terms of "70% advance payment, 30% letter of credit" would be common.  Offering payment after delivery tells your partner that you do not know how business is done in China and makes you look easy to deceive.  NEVER agree to unsecured payments after delivery.

Investing in China

During the Tenth Five Year Plan period, China’s opening-up was fully embraced by international economic cooperation and competition since its WTO entry. China also made progress in utilising foreign investment.  Foreign investment of US$383 billion was actually used, far exceeding the total value during the Ninth Five Year Plan, including about US$286 billion as foreign direct investment (FDI), US$38 billion collected by issuing stocks overseas, about US$46 billion as loans. China provides all the investors in the world with excellent environment for investment, production and operation. The environment of Chinese macro-economy being improved day by day and the utilisation of foreign investment having obtained significant achievements during the tenth five-year plan.

China has become a favourable investment destiny for foreign capital and multinationals. Other foreign investments represented by overseas stock issue also made much progress. China successfully took over the new-round international manufacturing industry. the Foreign invested corporations set up good examples in introducing and applying advanced technology, management and concept, pushing market and global oriented development of China’s economy and enterprises, and successfully nurturing some industries with international competitiveness in the fields of electronic and information, integrated circuits, light industry and textile, electric appliance and general machinery products.

With the entirely implementation of China's WTO commitments, apparent progress has been made in the service industry in the opening up.  By the end of 2005, a total of 71 foreign banks from 20 countries and regions have set up 238 business operative institutions in China. More than 10 Chinese-invested commercial banks including China Construction Bank, Bank of China and Industrial and Commercial Bank of China have brought in overseas strategic investments and China Construction Bank and Bank of Communications were successfully listed overseas.  A total of four joint venture securities companies and 20 joint venture fund management companies were set up upon approval.  On the basis of the WTO commitments, the insurance industry has been opened to foreign-invested insurance companies in all regions and in all businesses except related statutory insurances. By the end of 2005, the number of foreign-invested insurance companies had increased to 40 companies and 93 head companies and branches.  Foreign-invested enterprises have become an important part in the fields of logistics and commerce.  In 2005, the foreign capital utilised in the service industry of China exceeded one fifth of the total amount of foreign investments in the year.

Foreign loans increased steadily, which effectively supported construction of key projects of the state. During the 10th Five-Year Plan, the foreign preferential loans actually utilised throughout China totalled US$20.7 billion, which supported 150 key projects, including the reinforcing projects of the main dykes of the Yangtze River and the Yellow River, trunk line highways in Sichuan and other provinces, several trunk line railways from Hubei Province to Chongqing, the coal-bed gas project in Shanxi Province, pollution treatment along the basins of the Huaihe River, the projects of agricultural comprehensive development in the central and western regions, etc. Emphasis was laid on the central and western regions, which gained more than 70% of preferential loans when the foreign preferential loans being arranged. The financing channels and ways of international commercial loans took a feature of diversification. During the 10th Five-Year Plan, US$25.8 billion of international commercial loans (except loans granted by foreign-invested enterprises) have been borrowed in China, which mainly supported some projects on energy and traffic urgently-needed in the national economic development as well as some industrial projects with short construction period, good economic returns and ability to generate foreign exchange earnings through export such as the hydro-power station of the Three Gorges, Ling'ao Nuclear Power Station in Guangdong, Tianwan Nuclear Power Station, Qinshan Nuclear Power Station and purchase of planes by airlines, helped introduce some important advanced technical equipment and key equipment which could not be manufactured by China, alleviated the unsuitable structure of foreign exchange sources from domestic financial institutions, and enhanced the domestic institutions' ability to optimally allocate funds.

Capacities of managing foreign debts have been further enhanced, and the foreign debt scale is in step with the level of the national economic development and the situation of the international balance of payment.  With regard to the tendencies which foreign debts of China took on in recent years, namely, the flow increased by times, the total scale grew rapidly, and short-term foreign debts took up a large proportion, the administrative department of foreign debts successively promulgated related provisions, effectively controlled the growth of foreign debts and adjusted the structure of foreign debts in a timely manner, so as to keep the debt service ratio, liability ratio, and debt-to-GDP ratio of China's foreign debts within the safe lines that are accepted internationally.

The regulations and policies on foreign capital utilisation have been improved constantly and the management level has been advanced gradually.  On the basis of the requirements for the development of socialist market economy and China's WTO commitments, related laws and regulations as well as rules and regulatory documents of all departments and localities on foreign capital utilisation have been completely cleared up and amended.  We have amended the Catalogue for the Guidance of Foreign Investment Industries twice, amended the Catalogue of Priority Industries for Foreign Investment in the Central and Western Regions and promulgated the implementation opinions on the promotion of the old industrial base in northeast China to widely open up to the outside world.  According to the spirit of the investment system reform of the State Council, auxiliary reform of the management system of foreign capital utilisation was conducted, the approval procedures for foreign loan projects have been regularised, the approval system for foreign-invested projects has been changed into ratification system, the examination steps have been reduced, and the work efficiency has been improved.

In terms of resources, the Chinese agricultural resource is abundant. Various planting and breeding such as farming, forestry, livestock breeding and fishing are all advanced. The specifications are complete and the production system is perfect. Several dozens of mineral resources list in the first several places in the world. The natural reserves are great. China is one of several big countries in resources in the world.  Thus, China has advantages in introducing resources and foreign investment. Meanwhile, the abundant natural resources also provide foreign investors of various manufacturing even service industry with excellent support.

In recent years, the construction of Chinese infrastructure has been improved greatly. The infrastructure in transportation, communication, and the supply of water, electricity and natural gas is almost complete. The ability of supply and quality of energies, raw materials and components has been improved obviously, which provides foreign investors with excellent external conditions in production and operation.

Chinese Government will further perfect the environment for investment in the future

Among all the elements of investment introduced by China, the soft environmental element is most important one, especially the market-based degree and policies of foreign investments including construction of law systems, perfect of market economy, establishment and implementation of policies and encouraging measures for foreign investment. After China joined the WTO, the reform and opening up has entered a new developing stage. The Chinese opening up is omni-directional, multi-levelled and wide-range. In November of 2006, the Communist Party of China held the 17th national congress, which keeps the stability of the national political situation and continuity of every principles and policies and will guarantee the Chinese reform and opening up to go on continuously and smoothly.

The China Advantage

» China has a more developed and balanced industry than many developing countries, a result of China’s much faster growth rate in manufacturing than India’s since the 1950s. In 1980, when India and China were more or less equal in Gross Domestic Product (GDP) per capita, China already enjoyed a powerful advantage in manufacturing. An Indian economist Pranab Bardhan remarked that “compared to India, Chinese were better ‘socialists’ during the planning era and better ‘capitalists’ during the reform era”.
» China’s very strong and effective state machinery has been an effective tool for mobilising resources for modernisation.  Despite the ascendancy of faith in the free market as the only reliable tool of development, the truth is that the modernisation of Korea and Taiwan has always been state-led.  China only adds one more example, despite the fact that the state since the 1980s accounts for a smaller share of economic activity than during 1949-79.  China is able to pour huge sums of state money into developing new industry, new EPZs (Export Processing Zones) great infrastructure etc., with which few developing countries can compete.  The same goes for the degree of social control exercised by the Chinese state.
» The sheer size of China - a huge country with a population of 1.3 billion - greatly magnifies the advantages of effective state-led growth and sophisticated manufacturing. It produces the benefit of economy of scale.  It builds huge EPZs out of nothing; now China houses two-thirds of the world’s total number of EPZs workers.  This advantage helps China to build three basic manufacturing clusters, each with its own specialisation. The first is the Pearl River Delta (including Hong Kong as the main channel for export) that specialises in labour intensive manufacturing, production of spare parts and their assembly. The second is the Yangtze River Delta, specialising in capital intensive industries: cars, semiconductors, mobile phones and notebooks, computers etc. The third cluster is Zhongguan Cun, Bejing, the Chinese Silicon Valley. Here the state directly intervenes to make possible the collaboration of colleges, enterprises and state banks to develop the Chinese IT industry.  Meanwhile, state colleges are also turning out huge numbers of college graduates - comparable to developed countries. In 2002 China had 590,000 college graduates majoring in science and technology, whereas Japan had 690,000 one or two years earlier and Thailand only 10,000.

Land Reform and Nationalism

» China’s land reform is generally recognised as much more successful than India.  China already out-competed India as far back as 1980 and even earlier in all human development indicators: literacy rate, daily calorie intake, death rate, infant mortality rate, life expectancy, etc.
When Western and Japanese media repeatedly praise the quality of Chinese labour (better educated, more willing to learn, disciplined) especially those rural migrants as compared to India’s, it never occurs to them that a contributing factor to this achievement is the great transformation in land reform earlier, and the collective provision of rural infrastructure and education that followed - not anything related to the later market reform.
» Quite the contrary, with the dismantling of the commune and the return to family farming since the 1980s, the burden of paying for their children’s education is now shifted to the peasants.  The erosion of the past social progress is happening swiftly.  The only remaining conquest of the past social transformation in the rural sector are small pieces of land to which farmers are entitled, providing a certain degree of social security for rural households, and thus a kind of safety valve for the sharpening class contradiction since the market reform took off.
An element of the China advantage is the deep-rooted nationalism. The dominant Han ethnic group accounts for more than 90% of the country, whereas the Indian dominant ethnicity only accounts for one-fifth of that nation.  This probably gives Chinese nationalism a greater coherence than India.  Indeed, this factor helped to give rise to the People’s Republic of China and impelled her once to dare defy the United States and USSR simultaneously.  China’s contemporary history of anti-colonialism makes her sensitive both to foreign domination and confident to defy it if necessary.
» The end of the 20th century, facing a rapidly enlarging market share for foreign companies, influential factional leaders in the Communist Party already called for a more autonomous model of capitalist development. After the bombing of the Chinese embassy in Belgrade in 1999 during the U.S./ NATO war against the Serbian regime and the surge of foreign direct investment (FDI) in China’s domestic market, mistrust of USA and foreign investors has grown and calls have intensified for more state-led growth in high-end products and less reliance on FDI-dependent growth. Which future direction China may take is still unclear.
» China has a unique advantage in the big leap forward to embrace global capitalism, namely the unique factor of having Hong Kong, Macau and Taiwan as her door to the world.  The three areas have provided immense support to Deng market reform from the very beginning to the present, from ideological resources to financial and managerial personnel. Hong Kong acts as the chief financial centre for China, raising billions of dollars for mainland corporations every year. Neither Russia nor India possesses such advantage.

Other

» After being stuck in a rut for more than 20 years, today China is the fastest growing economy in the world
» More so than any other emerging market it is gobbling up raw materials, goods and services to help further its rapid industrialization
» Major cities, notably Hong Kong are directly benefiting from the economic boom
» The nation has been dubbed the factory to the rest of the world
» A mass of products such as toys, furniture, computers and clothing are being manufactured for rock-bottom prices
» After the US, it is the largest consumer of oil, and the planet's biggest producer and consumer of coal and billions is being spent in developing its infrastructure
» In China, the amount of money scheduled to go into railways is huge – spending has been raised five-fold to circa US$25.5 billion a year
» Stock market growth has been phenomenal and the economy there has been rising at rate of circa 9% to 10% per annum, even when things slow in the global recession, experts say growth rates will remain respectable