Republic of the Philippines

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

STO. TOMAS BRANCH
Sto. Tomas City, Batangas

COMPREHENSIVE ANALYSIS OF
THE BUSINESS ENVIRONMENT
IN CHINA

In Partial Fulfillment of Requirements in

International Business and Trade (BUMA 20043)

First Semester, S.Y. 2020-2021

Prepared by:

BSA 3-1

Submitted to:

Dr. Concepcion R. Sumadsad

 TABLE OF CONTENTS

Title Page.............................................................................................................. i
Table of Contents ............................................................................................... ii
Executive Summary .......................................................................................... iii
Introduction......................................................................................................... 1
Political Environment ......................................................................................... 2

Brief History ....................................................................................................... 2

Current Situation ............................................................................................... 2

Opportunities ..................................................................................................... 3

Challenges ........................................................................................................ 4

Economic Environment ..................................................................................... 5

Brief History ....................................................................................................... 5

Current Situation ............................................................................................... 5

Opportunities ..................................................................................................... 6

Challenges ........................................................................................................ 6

Legal Environment ............................................................................................. 8

Brief History ....................................................................................................... 8

Current Situation ............................................................................................... 8

Opportunities ..................................................................................................... 8

Challenges ........................................................................................................ 9

Cultural Environment ....................................................................................... 11

Traditional Chinese Arts .................................................................................. 11

Opportunities encountered on Chinese Traditional Arts .................................. 11

Challenges encountered on Chinese Traditional Arts ..................................... 11

Chinese Traditional Values rooting from Confucianism ................................... 12

Opportunities encountered on Values rooting from Confucianism .................. 12

Challenges encountered on Values rooting from Confucianism ..................... 12

The Chinese Negotiating Behavior .................................................................. 13

Guidelines and Recommendations ................................................................. 14

Bibliography...................................................................................................... 16

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 EXECUTIVE SUMMARY

As a country with an extensive history and an economy characterized as

the largest economy and exporter in the world, it is of no doubt that China offers a
lot of market opportunities for foreign investment. Even though the country has a
huge potential for economic growth as it offers access to a large market, caution
must still be observed given the diversities in the political, legal and cultural
environment that implies risks and uncertainties for foreign investors. This paper
analyzes the political, economic, legal and cultural factors that influences business
practices in China.
Chinese politics is constantly changing, from a colonial capitalist era to an
anti-authoritarian anarchy then to a socialist republic exercising a centralized
authority. With Xi Jinping’s “President for life” status, China climbs through a new
era of consolidated influence and control. Various analysts currently see that the
country has been giving more attention and priority for service industries which
entails more job opportunities and foreign investments. Also, its target to be the
leader in exportation offers a great chance to form strong bonds with fellow
emerging economies. However, questions rise with the inflexibility of the Chinese
politics, which would give companies a hard time operating without the
government’s approval. Also, investors doubt the competitiveness of the Chinese
political system as there is no general law that limits the power of the government.
Although regarded to be the world’s next economic superpower, China continues
to face challenges in coping with the global environment skeptical of a more
powerful People’s Republic.
The central goal of the Chinese government was to make China’s economy
relatively self-sufficient. Due to the gradual reformation of the economy, China has
undergone an economic miracle, becoming the second largest economy in the
world. This 2020, COVID-19 has brought the global economy into an immense
shock. Being the pandemic’s epicenter, the country’s economic growth
experienced its lowest, but despite this, China was the first and the only major
economy to recover and enter 2021 with an optimistic outlook, as quarterly growths
return to pre-pandemic levels. Moreover, with its vast population, China became
the foundation for low-cost production, attracting international firms with a need for
manpower. Doing business in China has also become easier due to government’s
steps in stabilizing debt levels. Also, many forms of investment aids and incentives
became available to foreign investors, especially companies operating in China’s
Economic Development Zones and other special trade zones. Although the
country offers a huge market potential, accessing them can be a challenge due to
huge variations in terms of population levels, income levels, spending habits, etc.

iii
Other than that, China is rapidly becoming an aging society, decreasing the size
of the working-age population. Its viciously competitive market and more restrictive
government also lifted challenges for international marketers.
With the implementation of its new Civil Code, all existing laws got compiled
into one full code, including the Foreign Investment Law (FIL) which states a set
of rights effected by the government to protect potential investors. One of the
fundamental changes introduced by the FIL is the unification of treatment of
investments and equal participation and protection for both local and foreign
enterprises. This law highlighted the “pre-establishment national treatment and
negative list for foreign investment” which further states a reduction on the number
of industries prohibited for foreign investors. However, problems stem from the
difficulty in access to the Chinese market due to legal procedures. This new law
mandates a change in the organizational forms, governing structures and other
regulation, but firms worry that they will not be able to attain changes within the
five-year limit provided. Also, most investors have their doubts due to intellectual
property issues, as China is known for counterfeiting products and selling them at
a lower price.
Chinese culture is of utmost importance in analyzing the business
environment, given its huge influence in the lives of the Chinese people. Certain
norms and traditions should be studied and carefully considered such as the
spoken and written language of China and the symbolisms expressed in every
form of art. Greatly inspired by Confucianism, Chinese values mostly focus on
spiritual wellness, above all things. Chinese people also values group success
more than individual achievement and puts family and hierarchies in the highest
regard. In terms of negotiations, the use of non-task sounding, or a trusted
middleman is needed, involving lots of bargaining over price and showing modesty
and respect to avoid embarrassment and conflicts.
After conducting these environment analyses, certain guidelines and
recommendations were formed.

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 INTRODUCTION

China (officially the People’s Republic of China) is the largest country

entirely in Asia, both geographically and politically (National Geographic, 2020). It
has a total area of 9,596,960 square kilometers, home to 1.4 billion people and is
a predominantly Buddhist country.
The CIA also characterized China’s economy as the “largest economy and
exporter in the world, but one that continues to pursue state-directed industrial,
trade, and investment policies, including state-support of key sectors.” It has a
Gross Domestic Product (GDP) of $25.36 trillion and was the only country to have
a positive GDP growth rate amidst the COVID-19 Pandemic (CGTN, 2020).
Beginning as a civilization established on the banks of Hwang Ho River, the
Imperial Dynasty era gave birth to numerous scientific discoveries and
advancements, and unprecedented growth and changes in the political and
economic landscape of the country. Overthrown on October 10, 1911, the last
Chinese Dynasty (Qing) ended the rule of the dynasties and was replaced by the
Republic of China on January 1, 1912 with Dr. Sun Yat-sen as its first President.
Leadership challenges and growing internal problems under Chiang Kai-shek
escalated tensions and placed the country under Civil War with the Communists,
led by Mao Zedong. The World War II forced the two forces to unify to ward-off the
Japanese, who took control of parts of China.
The Communists took over the reins of government and took control of
mainland China, following their victory over the Kuomintang forces, who fled to
Formosa (Taiwan) after their defeat in the Chinese Civil War. They proclaimed the
establishment of the People’s Republic on October 1, 1949, with Mao as its first
leader. He was known to have implemented unpopular reforms such as “The Great
Leap Forward” that caused death and extreme famine to the peasants, and the
“Cultural Revolution,” which some foreign observers thought has solidified his “cult
of personality” (Vox, 2020). Mao passed away in 1976. He was succeeded by
Deng Xiaoping. Known as the Paramount leader, he was best remembered in
liberalizing China’s economy. In 1997, the British Government returned Hong Kong
to Chinese sovereignty, while the Portuguese Government turned-over Macao
back to China in 1999 (Grolier, 2000).
With the inclusion of Xi Jinping’s thought in China’s Constitution, he has
become “President for life,” lifting term limits for the Presidency and strengthened
his grip on power (BBC News, 2018). His administration is known for significant
economic progress and was also unpopular for his aggressive actions in the West
Philippine Sea and his response to the Hong Kong Democracy protests.

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 POLITICAL ENVIRONMENT

Brief History
The political development in China has been rooted from a deep historical
progression that significantly and continuously changes over time. Rudd (2020)
said that Chinese politics is constantly changing which may not be obvious for
those inexperienced to this field.
Records of the earliest era of dynasties, Shang Dynasty (1766-1122 BCE)
to Qing Dynasty (1644-1912), show that China has grown to develop tax system,
monetary system, commerce, and centralized government. China was advanced
compared to neighbouring countries as they have developed philosophies to guide
their decisions about life and governance; Confucianism, Daoism, and Legalism.
Emperors who ruled during those times exercised their power by means of
rewards and extreme punishments as a way to control which, in turn, gravely
affected trading back then.
Years after 1911, when the last dynasty officially ended, are marked by a
clash for power between urban capitalist forces and Mao Zedong of the rural
Chinese Communist Party. The colonial capitalism had a long and significant
effect while World War II and continuous Civil wars added to further decline in their
economic conditions. People’s Republic of China has been created through Mao
Zedong’s declaration after war. He launched the Great Leap Forward, which
mandated agricultural collectivization, and endorsed the Great Proletarian Cultural
Revolution, that led to the anti-authoritarian anarchy. Revolutions against
government troops ended after his death in 1976.
In the early 20th century, Deng Xiaoping introduced the “Open Door” policy,
calling for protection of equal privileges for all countries trading with China and
support of Chinese territorial and administrative integrity. China still continues its
authentic situation of being a socialist republic and having predominant power in
Asia and in the world.

Current Situation
Since coming to power in 2012, President Xi Jinping has consolidated
influence and control over the Chinese Communist Party (CCP) and China. His
leadership beyond 2022 has been secured during the Plenum held on October
2020 by the 19th Central Committee, when Xi stated that Plenum’s importance
was politics and not really only about economics. Among the strategies pursued
by Xi’s revolution which tightly control the capital into and out of the country are
centralization of authority, penetration of society, creation of virtual wall of
regulations and restrictions, and projection of Chinese power (Economy, 2019).

2
 David Gitter (2018) mentioned that the Central Committee proposes altering
the paragraph from the third paragraph of Article 79 in the Constitution, which
concerns the presidency and vice presidency, removing the two-term limitation.
With the removal of the two-term limit on the presidency, effectively allowing Xi
Jinping to remain in power for life, China and the world should get used to the new
era of Xi — and all of its implications.
China now stands in a uniquely influential position and tries to clear away
some of the residue of state control and political interference. For Chinese
politicians and businesspeople, the reality of failure poses a specific set of
questions. This gives rise for the need of innovation in political system; where an
effort to introduce more accountability and participation in decision making
must be established rather than having a multi-party system (Brown, 2016).

Opportunities
Opening to the rest of the world in 1978 placed both China and her
exchanging accomplices in a more favourable position. It granted the people with
individual flexibility and encouraged public participation than under the grievous
strategies of Mao Zedong. However, China still has a long way to work on its
vulnerability issues with respect to the security of its people and their property. The
elimination of this vulnerability, through social movement organizations, will
guarantee new freedoms for the Chinese public and will drastically improve helpful
exchanges and ventures China participates into.
Based on the 2019 World Press Freedom Index, the Chinese government
has been giving more attention and priority for service industries, particularly
in sub-sectors such as finance, logistics, education, healthcare. This move will give
way for plenty of job opportunities and foreign investment in the country. Moreover,
the government is also targeting to be the leader in exportation of transport,
tourism and construction while it accepts the same line of service works from
certain nations and offers a great chance to form strong bonds with its fellow
emerging economies in the world.
As Foster (2020) described, the Chinese government proactively enforces
entrepreneurially supportive measures for both local and international
companies. Moreover, young entrepreneurs are given the opportunity by the
government to turn their innovative ideas into tangible outputs and restructuring
within the political system resulted into favourable policies. One of these
favourable government policies include lower tax rates for foreign companies in
inland regions. Also, government's intervention on tariff imposition for imported
goods favoured foreign companies. Since the initiation of market-oriented
economic reform, China ‘s political system has been evolving to a fragmented,

3
but also resilient, authoritarian style and such a setting has created more
political opportunities and social space for multinational corporations to play a
more active role in shaping public policy formulation and implementation.

Challenges
James Dorn (2021) stated, in his article China’s Future Development:
Challenges and Opportunities, that China faces major challenges to its future
development. There is still no genuine rule of law that effectively limits the power
of government, no independent judiciary to enforce the nation’s constitution, no
free market essential for innovation and for avoiding major policy errors, no
competitive political system, and a large state sector that stifles private initiative
and breeds corruption.
President Xi Jinping pushes for tighter control over the political system.
President Xi believes that the CCP which includes state-owned and private
companies must be appropriately handled and disciplined regardless of rank and
social status and are expected to prioritize the implementation of government’s
decisions over its own interests. This depicts how inflexible the Chinese politics
is, and how businesses would have a hard time operating without the approval of
the government even if faced with possible losses (Mankikar, 2020).
According to several economists in Brookings Institution Press (2020),
China was regarded to be the world’s next economic superpower, but faces
immense challenges such as fostering innovation, dealing with an aging
population, and coping with a global environment skeptical of a more powerful
People’s Republic.
The CCP has lost its reputation for superhuman competence in managing
political affairs and became less attractive due to its issues with other countries
such as Taiwan, Hong Kong, Philippines, Vietnam, and the United States. Some
worry that China may suffer political turmoil that could destabilize all of Eurasia,
whilst many more fears that China will use its growing political and military power
to force its neighbours to defer to it (Freeman, 2020).

4
 ECONOMIC ENVIRONMENT

Brief History
According to a U.S. Congressional Research Service Report, prior to the
initiation of economic reforms and trade liberalization, China maintained policies
that kept the economy very poor, stagnant, centrally controlled, vastly inefficient,
and relatively isolated from the global economy. China, under Mao Zedong, meant
that a large share of the country’s economic output was directed and controlled by
the state. During the 1950s, all of China’s individual household farms were
collectivized into large communes. Private enterprises and foreign-invested firms
were generally barred. A central goal of the Chinese government was to make
China’s economy relatively self-sufficient. Foreign trade was generally limited to
obtaining those goods that could not be made or obtained in China. However, in
1978, the Chinese government decided to break with its Soviet-style economic
policies by gradually reforming the economy according to free market principles
and opening trade and investment with the West. With Deng Xiaoping, bold
reforms which include breaking down the collective farms, welcoming foreign
investment, encouraging business entrepreneurship, establishing Special
Economic Zones and introducing market incentives in the state-owned companies,
were pushed (FocusEconomics, 2020). Within five decades, China has undergone
an economic miracle, rising from one of the least developed countries in the world
to becoming its second largest economy (Froese et al., 2019).

Current Situation
2020 being the year ravaged by COVID-19 has seen the global economy
suffered an immense shock. Its impact on China’s economy, being the
pandemic’s epicenter, is indeed insurmountable. Specifically, according to
Reuters, a global financial news organization, the violent outbreak and spread of
coronavirus likely halved China's economic growth in Q1 2020 compared with
the previous three months — the first time since records began in 1992 (Pang,
2020). Despite this, China was the first and only major economy to recover and
enter 2021 with a relatively optimistic outlook (Zhang, 2021). It is the first country
to experience a COVID-19 outbreak and also became the first country to reopen
and recover from economic downfall. During the second quarter of 2020, China’s
operations were slowly resuming. After having 6.8% GDP reduction in the first
quarter, China’s economy made a sharp U-turn having 3.2% growth in the second
quarter and 4.9% growth in the third quarter (Elegant, 2020). In fact, it is also
estimated that China’s Q4 growth returned to pre-pandemic levels (Zhang,
2021).

5
Opportunities
Thanks to its 1.4 billion population, China is the largest internal market in
the world (SantanderTrade, 2020). The rapid economic growth, accompanied by a
huge and rapid shift to urban living, is rocketing incomes higher and creating a
middle class with significant spending power. This, coupled with an outward-
looking and adventurous attitude toward new brands, including those from
overseas, is potentially a huge new opportunity for U.S. companies (Barton, n.d.).
When it comes to the needed manpower, there is a wealth of employees
and potential partners eager to learn and evolve in China, making the country a
foundation for low-cost production (SantanderTrade, 2020). As opposed to
employing expatriates in senior management positions, a key benefit of hiring a
Chinese manager is the local market knowledge and deeper understanding of
businesses in the country. Not only are salary and insurance costs lower for local
employees, but Chinese employees very often have existing contacts (‘guanxi’)
with suppliers, customers and local government authorities that can be fully utilized
(Hedley, n.d.).
Doing business within China has also become easier thanks to a variety of
recent reforms. The Chinese government has taken steps to stabilize debt levels
through more vigorous regulations and firmer federal control over local government
investment to mitigate risk within financial markets. This has occurred against a
backdrop of greater openness in the Chinese economy. Tariffs have been
lowered, a new foreign investment law has been passed and the country has
revised its negative list for foreign investment entry (WoltersKluwer, 2019). Aside
from this, foreign investors enjoy many forms of investment aid which include
corporate tax reductions, exemptions of tax on dividends repatriated during a
certain period and other tax advantages. Moreover, foreign direct investment
incentives include packages of reduced income taxes, resource and land use fees,
and import/export duties, as well as priority treatment in obtaining basic
infrastructure services, streamlined Government approvals, and funding support
for start-ups. Additionally, companies operating in China's Economic
Development Zones (EDZs) can expect a higher level of autonomy over their
operations, a variety of tax exemptions, subsidies for land and buildings and
preferential employment policies. China also has special trade zones which
provide exceptions to the standard customs procedures and allow tax exemptions
or tax incentives to attract overseas investments (SantanderTrade, 2020).

Challenges
While it is true that China represents a huge potential market for foreign
manufactured goods and services, how international businesses will be able to

6
access them can be extremely challenging. The country is in no way a uniform and
homogeneous market. There are huge variations between different provinces
which may be in terms of population levels, per capita GDP, average income
levels, consumer spending habits, education levels, literacy rates, lifestyles and so
on (Hedley, n.d.). Moreover, Chinese market is completely detached from those
elsewhere in the world, and many companies have sunk in China because they
failed to consider consumer preference. It is estimated that 37% of products that
pass for the US market fail in the China market (TMFGroup, n.d.).
Attracting and retaining highly qualified personnel has also been one of the
main challenges for foreign companies in China. While the number of college
graduates is abundant, the number of highly qualified talent sought by foreign
firms, particularly at higher managerial levels, remains scarce. In consequence,
highly qualified talent can demand high pay and can easily switch jobs, resulting
in high employee turnover rates. Moreover, the demographic characteristics of the
Chinese domestic labor force are also changing. China is rapidly becoming an
aging society which can be attributed to strict birth control policies (Froese et
al., 2019). As a country’s population ages, the size of the working-age population
gradually decreases, which will then reduce labor supply and increase labor costs
(Zuo et al., 2017).
Exacerbating these challenges is China’s logistics environment being a
highly fragmented industry. Despite the government’s recent progress in its
development, shipping goods to consumers in China may still prove to be costly
and complicated (GMA, 2019).
China market is also viciously competitive, and competition comes not only
from global corporations but also and increasingly from “national champions”
that China aims to build to compete with foreign companies (GMA, 2019). The
Chinese government generally being more restrictive than other big economies
has numerous sectors closed to FDI. State companies and "national flagships" are
protected (discriminatory practices, non-independent judicial power, selective
application of regulations). China has a Negative List for Market Access which
refers to a list of prohibited or restricted industries for foreign investment
(SantanderTrade, 2020). International marketers also face unfair market access
due to strict testing and standard requirements for some imported goods, foreign
manufacturers and services providers, while offering substantial government
guidance, resources, and regulatory support to Chinese industries (GMA, 2019).

7
 LEGAL ENVIRONMENT
Brief History
The Chinese Civil Law tradition finds its historical roots in the late Qing
Dynasty (1902–1911). With further studies, the Chinese property code of 2007 is
found to be based largely on civil law models, particularly the German and Swiss
ones. Years after, the legal system of the People’s Republic of China (PRC) is
defined by the government as a “socialist legal system”, but still, China’s legal
system is based primarily on the model of Civil Law, of which the system of law is
concerned with private relations between members of a community rather than
criminal, military, or religious affairs.

Current Situation
On January 1, 2021, China implemented its new Civil Code that compiled
all its existing civil laws into one full code. In order to comply with the newly
implemented law, China already had its Foreign Investment Law that was passed
prior to the implementation of Civil Code, March 19, 2020. Foreign Investment
Law is a set of rights that Chinese Government implemented to protect the rights
of potential investors in Chinese Market. With this being said, various opportunities
are being perceived by them resulting into an active trading among domestic and
foreign Business owners.

Opportunities
In the past 2 decades, a lot of improvements have happened in the Chinese
Market - numerous foreign businesses prefer to expand their business in different
Asian Countries and China is their first choice. China, being considered as a major
hub for world trade, is a well-known country because it has a huge landmass,
population, a large growing economy, and it lends itself freely to huge international
trade. One of the most fundamental changes introduced by the FIL is that it unifies
the treatment of investments made by all types of foreign enterprises and allows
them to participate in market competition on an equal basis. Having equal
protection, this indicates that the foreign enterprises can also have the same
advantages as local enterprises, such as accessibility of government funds, land
supply, tax exemptions, and even project applications. The new law aims to open
the Chinese market and simplify the regulatory procedures for foreign investors.
The law will expand the scope of national security review of foreign investments
and replace the current prerequisites for foreign investors and ventures to obtain
licenses, permits and endorsements before the establishment and transactions of
a business. In terms of Access on its Rural areas, the inland regions of China have
lower tax rates for foreign companies than the coastal regions, giving opportunities

8
for multinationals to open a business in rural area of China. In 2020, China
expanded the encouraged catalogue (National and Regional) to improve the
foreign investor access. The identified industries, mainly on high-end
manufacturing, production-oriented service industries, and investing on China’s
central, western, and northeastern provinces, calls out for more Foreign Direct
Investment (FDI). Investing on the listed industries in the catalogue have
preferential policies such as tariff exemptions on imported equipment, access to
preferential land prices and looser regulation of land uses and lowered corporate
income tax (CIT) which can be reduced by 15 percent. It is also a factor
experiencing the worst of the COVID-19 outbreak in China, because the Chinese
government will significantly shorten negative lists for foreign investment and foster
an enabling market environment in which Chinese and foreign companies can be
treated equally. The FIL highlighted the “pre-establishment national treatment and
Negative List for foreign investment” under Article 4 and Article 28. The Market
Access Negative List 2020, which contains the detailed information of Article 28
of the FIL, further states a reduction on the number of industries that are prohibited
or restricted for foreign investors, specifically, the manufacturing and financial
services in China. Experts look forward through this list as it is expected to be
reduced so investors are advised to be attentive and monitor the changes and
future developments of this section. As Marketing Diversification becomes more
of a trend, The FIL anticipates facilitating investments with a view to creating a
stable, transparent and predictable investment environment. This leads to foreign
investors to consider market diversification where business expands through new
product lines or services. It aids investors to build different markets around China
that can maximize the economy of the host country.

Challenges
However, as every law seems to have their downsides in some various
respects, this law also makes it quite difficult for outsiders to access the Chinese
Market right away due to its Legal Procedures that they need to comply with.
The newly implemented FIL lacks details on how to address the given
problems and is still in further development as of the moment. The provisions are
short and general, and the interpretation of who does it pertains regarding some
sections are only left in the reader’s understanding. Articles 31 and 42 of FIL
address applicable laws in foreign investment, changes in the company law, as
well as the transition from the old to the new foreign investment law for foreign
entities. It highlights the five-year transitional period which serves as a deadline for
entities to make timely changes with their organizational forms, governing
structures, and other operational regulations. Also, there is a great possibility that

9
foreign and domestic investors will not be able to attain necessary changes on
certain clauses within the time limit. Not to mention that China is known for
counterfeiting products then sell them at up to 50% lower prices than the original.
Foreign investors are afraid that their business ideas and information might be
stolen by China. As a result, there are many investors who have their doubts
because of the intellectual property issues. Intellectual Property is the set of
intangible assets, like trademarks, patents, and copyrights, that are owned and
legally protected by a company from being used by other people without consent.
It is significant because it can represent a competitive advantage, where it enables
the company to produce a better and cheaper goods or services than its
competitors. Even there is a continuous update to their laws, there is still a big
problem in the enforcement of those laws that foreign investors are still frustrated
with. In fact, there are some instances reported that Chinese partners are forcing
other potential investors to import their Technology in exchange for a Market
Access (Zubascu, 2020). However, cases like this are somehow being tolerated
by the Foreign Investors themselves and further risk their Business in future
anomalies regarding the Illegal importation of Technology. Another issue that
Foreign Investors are facing is the compliance to the strict Legal procedures. This
includes the registration, Licensing, and certification of their Business application
to Intellectual property agreements that will protect them from potential
infringement of intangible Properties. China, being a well-regulated country, is very
strict about their policies to the extent that still, many Potential Investors are
missing the opportunity to be a part of their Market due to failure of compliance.
It is indeed significant to weigh the opportunities and consequences of their
Business upon doing expansion especially in Foreign countries like China, for it
may lead towards the readiness of the Firm as they conquer a broader Market. As
for China, it is essential to implement such laws like Foreign Investment Law and
the Civil Code in order to protect their existing rights against abusive Investors, if
there are such.

10
 CULTURAL ENVIRONMENT

Gathered from different parts of the nation, the capital became a melting
pot of different cultures that created Chinese traditions we know today. The last
dynasty of China, the Qing Dynasty led some of the most unique parts of Chinese
culture. They put importance on the study of Confucianism, huge growth in
Chinese literature and even established china’s top-ranking institution, the
Tsinghua University. Qing Dynasty lasted for 268 years and on the February of
1912 due to foreign invasion, lack of reformation, development and support from
its provinces, the last Chinese dynasty perished but the rich culture still remained.

Traditional Chinese Arts

Comparing to the very verbal and low context society of the Americans,
Chinese are a high-context, non-verbal society. The Chinese rely heavily on
facial expressions and voice tone in determining emotions. They also show little
or no facial expression when speaking or being spoken to and avoids eye contact
as it is a sign of disrespect. Cantonese and Mandarin are the two main dialects
that are spoken by the Chinese people. The dialect refers to pronunciation of
words, not how the words are written.
Moreover, in Chinese culture, every color has its own meaning and
symbolisms. Red represents the nation color. Yellow represents power. Black
stands for immortality, authority and knowledge. Blue symbolizes advancement
and green represent harmony. Symbols like the Dragon (long) that represents the
most important animal and the Phoenix (Fenghuang) represents peace and
prosperity.

Opportunities encountered on Chinese Traditional Arts

• Mutual understanding due to knowledge of Chinese verbal and nonverbal
communication will help establish a well-connected correspondence
between businesses.
• In the article “Cultural Industries in China and their Importance in Asian
Communities”, Li (2018), argues that the unique combination of Chinese
traditional culture and new media will have an important impact on cultural
industries.
• Brands can take advantage of variety of China’s culture to incorporate into
their products as a way to connect with their consumers.

Challenges encountered on Chinese Traditional Arts

• When speaking Cantonese or Mandarin, you need to speak cautiously. The
same word said in the wrong tone can have an entirely different meaning.

11
 • Using these colors and symbolism heavily or in a wrong context will
certainly lead consumers to thinking the brand is tacky or out of touch. This
also applies in symbolic imagery like dragons and phoenixes. It is better not
to rely too much on ancient symbols and instead focus on the modern
consumers’ unique tastes. (Lou, 2019)
• Misunderstanding the culture might lead into making the business image
as tacky or insensitive, or worse, getting kicked out of the market entirely by
boycott. (Lou, 2019)

Chinese Traditional Values rooting from Confucianism

Chinese culture and industry are pervaded by Confucian influence. The
interests of a person and his material interests were outweighed by moral ideals
and the benefit of the society. Business life in China was dominated by Confucian
ideals —goodness, benevolence, harmony, and respect for tradition. It is also said
that profit was less important than spirituality.
China stands out due to its individualism/collectivism difference and the
reason behind this is because of Confucian values (Yu et al. 2003; Robertson
2007). The Chinese business community abroad has also achieved popularity that
reflects to Confucian thought (Chen, 2003).
The Chinese are greatly inspired by Confucius. To form business
organizations with Chinese people, we must develop a deep understanding of the
principles to know the behavior they are coming from. From then on, we can create
business arrangements with them and have the expansions of trade worldwide.

Opportunities encountered on Values rooting from Confucianism

• Chinese believes in the principle of mutual benefit, cooperation, and win-
win development. They focus more on group success instead of individual
achievement.
• Confucian teachings present the daily use of unfailing courtesy. This will
lead Chinese to have that kind of trust to rely on of which ethical business
practices will make a stand. This will enhance the interest and willingness
of Chinese people to engage in business matters with other races.
• Subordination of women has been changing with them taking on higher
roles and professions. Businesses took this advantage to spread the
message of breaking norms. (DeGannaro, 2021)

Challenges encountered on Values rooting from Confucianism

• Hermann-Pillath’s research shows that Chinese have minimal trust for
those they have met for the first time, and an equal distrust of foreigners.

12
 • Inspired by the teachings of Confucianism, many parents and
grandparents expect their children to do exactly as they are told. With this,
children often remain close to family in adulthood and those who are
required to work away from the home tend to decide abruptly to “take a
break” and quickly notify to their employers. These “breaks” often lead to
a permanent resignation which result to high turnovers.
• Companies tend towards the hierarchical structure which entails higher-
ranked officials demanding and expecting certain degree of respect from
their subordinates. If these were not met, employers might feel
embarrassed, which would mean potentially losing “face” in co-worker’s
eyes.

The Chinese Negotiating Behavior

Understanding Chinese behaviors as influenced by their culture will gain
you an edge in attaining strong-built relationships, accomplished legalities, and a
signed contract at the end. To successfully secure a deal, the use of “non-task
sounding” or trusted middleman is needed. One should possess a sincere
attitude and altruism to prove your interest and dedication in doing business.
Negotiating with Chinese people also includes a lot of bargaining over price
which implies the element of thrift. Showing modesty and respect towards the
people you are negotiating with is important as the Chinese do not want
embarrassment or creating any conflict. Too much emotion in the process of
negotiating is considered an embarrassment.
In conclusion, Chinese business negotiations continue to be heavily after
Confucius and Lao Tzu’s philosophies and their core values of collectivism,
honor, respect, obedience, and harmonious relationships. China’s high distant
authority amongst others adds one block of complexity to negotiating behavior that
sets the tone for doing business with outsiders. The western business practices
admitted through China’s open-door have paved the way for smoother
communication during business negotiations, albeit sometimes constrained by
conflicting concepts or values.

13
 GUIDELINES AND RECOMMENDATIONS

Based on the environmental analyses conducted, the researchers

collectively recommend that a Filipino business should consider expanding and
investing in China due to the following reasons:
• Favorable Government Policies — China is a good expansion target for
foreign businesses, especially under President Xi Jinping, since there is
political stability and good governance. The Chinese Government
implements supportive measures for international market, which helps the
companies incubate their ideas to foster growth in the business industry.
• Opportunity of Creating More Jobs – Since recruiting and retaining
human resources on board is still a major challenge for foreign companies
in China, investing more in human resources is one tool to help ensure the
quality of the people it hires. Investing more in training and providing the
skills and resources required will benefit both countries and businesses.
• Lesser Taxes in Rural Areas — China plans to narrow the gap between
the wealthiest coastal regions and less developed regions. To achieve this,
rural areas in China imposed lower tax rates to attract foreign investors.
This is an opportunity for multinational corporations to invest in rural areas.
• Feasible Opportunities amidst Legal Challenges – It is evident that there
could be difficulties when it comes to adapting to new laws, since there is
an insufficient transition period and intellectual property is not given much
importance. Despite this, China offers opportunities especially in the field of
warehousing and distribution and many more, thus it is still feasible
cultivating right relationships while adapting to changes in laws.

Meanwhile, for the role to play by the Chinese government, the researchers
recommend the following:
• Remove the barrier between China and other industries – China’s
prohibition on certain industries to invest within the country is likely to cause
limitations in terms of its economic growth. If China will not refrain these
foreign investors to freely collaborate with them, there will be higher
chances of having a positive outcome. It will lessen the hassle of entering
the market to reach and to be reached by more investors globally.

On the other hand, the following highlights some guidelines Filipino

companies need in entering the Chinese Market:
• Invest while the Political landscape is changing – While President Xi
Jinping consolidates his control and transforms China into an authoritarian

14
 regime, it is considered a best moment to take advantage of these changes.
The policies of the Chinese government may not change for a long time,
thus ensuring a growth prospect for businesses who wish to expand.
• Take advantage of the ambiguity of Foreign Investments Law – Since
FIL’s regulations are generalized, investors, especially Filipinos, who are
looking to expand their business should look for local experts who could
help them enter market as soon as possible. The earlier they could enter
the market, the more tolerant it could be in terms of its policies because they
are still developing the guidelines and it is still subject to interpretation.
• Provide wider choices for consumer preferences – Since China has an
appealing market for business expansion, it is a challenge to account the
differences of its population in terms of their income and per capita GDP.
Businesses planning to expand should consider adapting, developing, or
innovating a product which is preferred by most of the Chinese market.
• Focus on Service-Type Businesses – Chinese government has been
giving more attention and priority for business inclined in the service
industries, particularly in finance, logistics, education, healthcare. As the
government concentrates on these enterprises; numerous job opportunities
have opened for its citizens. In addition, the country's policy on foreign
investment may also give way to economic development in this sector.
• Familiarize in China’s Culture first – Chinese culture is a sensitive matter
because it was known to be traditional, so it is important for a Filipino
business owner to study first and be familiar with these culture and other
traditions to avoid any mistakes in the future. It is better to “test the waters”
by trying to adapt in the place where you will conduct your business.
• Set prices of products in the most reasonable rate – As Chinese people
are greatly influenced by Confucianism, they live by the principle of mutual
benefit, where businesses should focus on providing the society’s needs
rather than on just making a huge profit. They tend to lose interest in
businesses that are taking advantage of the consumers by setting high
prices for higher income.
• Seek for a trusted, sincere and altruist middleman – It is significant to
have someone, with deep understanding of Confucian ideals to act as a
middleman, since it still influences China’s way of doing business, to help
investors build a good and lasting business relationship with the Chinese
people. Modesty and respect will prove the investors’ interest and
dedication in doing business.

15
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