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Political and legal environment:

Brookfield faces a number of challenges if it enters the Chinese


market. Under the totalitarian political system, the central
government guards the decision making of the whole country.
Therefore there may be some legal- political risks arising from the
political and legal environment. Such risks caused by the political
decisions or events in a country may affect the profitability of an
investment or a project in China. There are a few types of the
potential risks. A systematic risk such as changes in the tax rates
and property rights will affect all firms in the market. Procedural
risks may be the result of a corrupt and ineffective government. The
2014 Political Risks (Dynamic) Index indicates a high risk in China.
Widened income disparity and the centralized ruling may cause
social unrest and thus social instability in China.
The new China under President Xi s leadership is subject to many
changes and reforms in the present and the future. The new China is
now more open to foreign businesses and therefore filled with
opportunities. The new political composition includes young and
opened minds. China is now attracting more and more foreign
investments. However, the fundamental structure of the political
and legal environment in China remains very rigid. Unlike the
separation power in Australia, the political party influences the
judicial decisions. The communist party will always make sure that it
controls the majority of public freedom and power. It is very unlikely
the system will undergo any revolutionary changes in the near
future. The corrupted government poses enormous risks to foreign
businesses as it lacks thorough knowledge of the domestic market.
For example, licences are extremely difficult to come by in China. To
a Western business, in this case Brookfield, its current long
established procedural structures may not be able to adapt to the
new legal environment. . The firm needs to keep updated on
changes in the regulatory framework.

Economic environment
The sustained high economic growth rate in the past decades shows
that China is a fast emerging economy. The high total GDP figure
indicates that the economy is performing strong. Emerging
economies are the focus of many MNEs because their growth
prospects and large potential markets.
However, Brookfield needs to take a number of factors into
consideration. Firstly, the rising wages is going to drive up the
labour cost. China used to employ large numbers of cheap unskilled

workers at construction site but as the wage increases it is putting


increasing pressure on the developers.
The growth of the construction sector largely depends on
government decisions. The government is regulating the real estate
and fixed assets investment as part of the macroeconomic policy.
Consumption is targeted to replace investment as the main driver of
the economic development in China. The government is very likely
to reduce the emphasis on construction in the future. As Chinas
new Five Years Plan indicates that the economy will no longer be
reliant on exports and manufacturing as the economy consolidates
its structure. The forecast for selected indicators in Chinas
construction sector is 5.3% in 2014 and 5.2% in the following year.
In all levels of the government, China is trying to regulate the real
estate market as the Housing bubble and inflation issues strike the
economy. Such actions are aimed to avoid the fast rising property
prices especially in major cities and assets bubble that are
destructive to the economy. Tightening measures were implemented
in 2010 to slow down the overheating of the sector. The government
suppressed the trading of second and luxuary homes, and new
taxes and increased interest rates were also part of the strategy. As
a result, the value and volume of new home sales fall in 2014. The
buying of properties, lower around 7% in average. In conclusion, the
booming housing market is entering a slower phase and hence may
not be the time for a new foreign firm to enter the market.
Despite a strong construction sector in China, foreign funded only
make up 1% in construction servicing. The sector is dominated by
private and state- owned firms. Firms need to re-think their regional
strategies when entering the new market