Doing Business in China

Course Code: IBU 306

Instructor: Dr. YANG Jun Jie
Associate Professor in Management
School of Economics and Management
junjie.yang@xmu.edu.my
China’s Business Climate
Contents
1. The Geography of China
2. The History of China
3. The Ethnic Make-up of China
4. The Current Government of China and the Political
Situation
5. The Chinese Economy and its Future Prospects
6. Differences and Similarities with Other Markets
The Geography of China: China and the World
The Geography of China: China’s Map
There are 34 such divisions,
classified as 23 provinces,
four municipalities (directly
under the Central
Government), five
autonomous regions, and
two Special Administrative
Regions.
The Geography of China: Province-level divisions
Provinces and capitals Autonomous region and capitals

Anhui (安徽) — Hefei (合肥) Guangxi Zhuang (广西壮族) — Nanning (南宁)

Fujian (福建) — Fuzhou (福州) Inner Mongolia (内蒙古) — Hohhot (呼和浩特)
Gansu (甘肃) — Lanzhou (兰州) Ningxia Hui (宁夏回族) — Yinchuan (银川)
Guangdong (广东) — Guangzhou (广州) Xinjiang Uighur (新疆维吾尔族) — Urumqi (乌鲁木齐)
Guizhou (贵州) — Guiyang (贵阳) Tibet (西藏) — Lhasa (拉萨)
Hainan (海南) — Haikou (海口)
Hebei (河北) — Shijiazhuang (石家庄)
Municipalities
Heilongjiang (黑龙江) — Harbin (哈尔滨)
Henan (河南) — Zhengzhou (郑州)
Hubei (湖北) — Wuhan (武汉) Beijing Municipality (北京)
Hunan (湖南) — Changsha (长沙) Chongqing Municipality (重庆)
Jiangsu (江苏) — Nanjing (南京) Shanghai Municipality (上海)
Jiangxi (江西) — Nanchang (南昌) Tianjin Municipality (天津)
Jilin (吉林) — Changchun (长春)
Liaoning (辽宁) — Shenyang (沈阳)
Qinghai (青海) — Xining (西宁) Special Administrative Regions
Shaanxi (陕西) — Xi'an (西安)
Shandong (山东) — Jinan (济南) Hong Kong (香港)
Shanxi (山西) — Taiyuan (太原) Macau (澳门)
Sichuan (四川) — Chengdu (成都)
Taiwan (台湾) — Taibei (台北)
Yunnan (云南) — Kunming (昆明)
Zhejiang (浙江) — Hangzhou (杭州)
The Geography of China: Geographers’ View
Geographers, economists and others
seeking to segment China have approached
the task in different ways.

North China

Qinling Mountain-Huaihe River Line

(dividing line): running from the east is
the Huaihe River, to the west is the
Qinling Mountains

South China

source: Wu, H., Li, Z., Yu, X., Zeng, Q., Lin, J., Chen, Y., ... & Lin, H. (2020). Empirical dynamic modeling reveals climatic drivers in dynamics of
bacillary dysentery epidemics in China. Environmental Research Letters, 15(12), 124054.
source: Wang, L., & Chen, L. (2016). Spatiotemporal dataset on Chinese population distribution and its driving factors from 1949 to
2013. Scientific data, 3(1), 1-16.
The Geography of China: Economists’ View
Economists also favour a tripartite division, but from east to west.
Eastern region First there is the relatively rich coastal region, which had the initial Special Economic Zones
(SEZs) and the greatest amount of foreign direct investment.
Next there is the central zone, which has been slower to develop but has now received
Central region attention, especially around cities like Wuhan and Zhengzhou.
The Northeast refers to the three provinces, Heilongjiang, Jilin and Liaoning.
Northeastern
region
The west, including Sichuan, which continues to lag behind in terms of investment and
Western development, and the wilderness regions of Tibet and Xinjiang. Some of these latter are now
region receiving high levels of investment.
The major differences: concern things such as
Differences economic output and per capital income, both of which
tend to be higher in the east than the west.
The Geography of China: Economists’ View
According to the economic policies that support
the economic development in the Central and
Northeast China, four regions were divided
(excluding Hong Kong, Macau and Taiwan).
Eastern:
Beijing, Tianjin, Hebei, Shanghai, Jiangsu, Zhejiang,
Fujian, Shandong, Guangdong, and Hainan.
Central:
Shanxi, AnHui, Jiangxi, Henan, Hubei, and Hunan.
Western:
Inner Mongolia, Guangxi, Chongqing, Sichuan,
Guizhou, Yunnan, Tibet, Shaanxi, Gansu, Qinghai,
Ningxia and Xinjiang.
Northeastern:
Heilongjiang, Jilin and Liaoning.

More details see official documents in Chinese:

《中共中央、国务院关于促进中部地区崛起的若干意见》、
source:
《国务院发布关于西部大开发若干政策措施的实施意见》
http://www.stats.gov.cn/ztjc/zthd/sjtjr/dejtjkfr/tjkp/201106/t20110613_71947.htm
The History of China: Essential Aspects
In China, history is very important indeed, and is taken seriously by almost everyone.

Many Chinese, probably the majority, believe implicitly in the territorial integrity
The integrity of China of China. (e.g. Taiwan, Tibet)
The Chinese as a nation do not hate or fear foreigners. Genuine xenophobia is
The threat from the very rare. Most Chinese, like most Americans, British or French, are by nature
outside world hospitable and welcoming.

Order is a primary social and political goal in China; it may even be the most
The fear of chaos important goal.

The authority of the What the average Chinese wants is a strong, honest leader who will guarantee
state stability, peace and prosperity.

Paradoxically, despite the fear of chaos and desire for stability, Chinese history is
The just revolutionary full of revolutionary movements and secret societies.
The Ethnic Make-up of China
-China is dominated by the Han (汉) ethnic group, both culturally and in
terms of numbers.
-There are dozens of distinctive ethnic groups.
-Mandarin(普通话) is the language of daily use in business in China, but
those with a command of a second language have an additional card in
their hands.
-The Chinese, or at least those in mainland China, tend to think of all
Chinese, including the huaqiao (overseas Chinese), as being part of the
same cultural family.
The Ethnic Make-up of China: Fifty-Six Ethnic Groups

Fifty-Six Ethnic Groups in China

 The Ethnic Make-up of China: Fifty-Six Ethnic Groups

Legend behind Chinese ethnic

groups

Animation costumes of ethnic minorities

Source: https://www.youtube.com/watch?v=3uF5s3E-9Qs
The Current Government of China and the Political Situation

-Since 1949, China has been a one-party state, governed by the Communist
Party of China.
-Travel and work restrictions have been greatly relaxed, and there are more
personal opportunities for enrichment and growth than probably at any
time in China’s history.
-The emerging Chinese middle class is growing rapidly.
-The face of government is continuing to change, though not in the way
that many in the West expect or want.
The Current Government of China and the Political Situation

How does China’s political system work?

Source: https://www.youtube.com/watch?v=Qu4QTxl9GVw
People's Republic of China

What is democracy in China?

Source: https://www.youtube.com/watch?v=ArvnEpIKmAs

How do Chinese leaders get elected?

Source: https://www.youtube.com/watch?v=twKhCqfjffQ

Chinese Communist Party

The Chinese Economy and Its Future Prospects
-It is big and getting bigger.
-A welcoming business climate (FDI).
Over the short term, the government of China faces a number of
difficulties. How it deals with them will impact directly on the business
environment.
-The problem of managing and stimulating growth
-The problem of regulation
-The problem of reforming state industries
-The problem of reforming the agricultural sector
-The problem of reducing regional disparities
The Chinese Economy and Its Future Prospects: Growth
-A common issue: how to get enough economic growth without having either too much or
too little.
-In the initial reform stages, there was an attempt to control growth very tightly, by limiting
many activities to the Special Economic Zone (SEZs) and restricting the numbers and location
of these.
-By the mid-1980s, however, it was seen that the advantages of faster growth outweighed the
disadvantages and risks, and many controls on foreign investment and internal
entrepreneurship were lifted or reduced.
-Even before the Asia Crisis (in 1997) broke, the central government was putting the brakes
on. Rates of growth are good, but that growth is heavily dependent on exports. There is a
need to stimulate the domestic economy and encourage more consumer spending.
-More recently, there has been no need for demand to be stimulated; demand has been
roaring away on its own.
-China’s economic growth has been relying on export, investment and consumption.
-The Chinese have discovered that economic management in free markets is largely crisis
management.
The Chinese Economy and Its Future Prospects: Regulation
Chinese government
VS
The Chinese government
wishes to keep control of
the pace of economic
reform, to ensure that there
is no corresponding social
breakdown or unrest.
Foreign companies
Chinese authorities use
regulation as the
Foreign (and domestic) principal tool to control
the economy
companies investing in
China wish to earn profits.
The Chinese Economy and Its Future Prospects: Regulation

2001 China’s business and economic regulations have been

brought into line with those of the international business
world more generally in order to comply with WTO
requirements.

Why the US isn't winning the trade war with China | FT?
https://www.youtube.com/watch?v=56xo7fZLi4U

What about the China-U.S. trade war after four years?

https://www.youtube.com/watch?v=mbnHS08S8Eo
The Chinese Economy and Its Future Prospects: Regulation

“Trade between the world’s two

biggest economies has ballooned
in recent decades, bringing
significant benefits but also
frictions over China’s state-led
development and calls to rethink
the relationship.”

Source: Council on Foreign Relations, 2022

The Chinese Economy and Its Future Prospects: Regulation
RCEP (Regional Comprehensive Economic
Partnership)

November 15, 2020, signed by 15 members

30% of the world’s GDP

CPTPP(Comprehensive and Progressive Agreement

for Trans-Pacific Partnership)
March 8, 2018, signed by 11 members

UK, China, etc., applied to join in 2021

Source: https://www.iseas.edu.sg/media/commentaries/affirming-aseans-east-asian-centrality/
The Chinese Economy and Its Future Prospects: Industries
-State-owned enterprises (SOEs) are still pillars of China
SOE reform -This does not mean that attempts at reform are not made, but they are gradual and
subtle.
-In 2003, The central government created the State-owned Assets Supervision and
Administration Commission (SASAC), which is supposed to represent the government
in its role as the owner of state enterprises.
-In 2006, the SASAC identified seven “strategic industries” where the state kept
Industries “absolute control” (defence, electricity, petroleum, telecommunications, coal, aviation,
and shipping) as well as “pillar industries” where the state maintained a “strong
influence” (machinery, electronics, information technology, automobiles, steel,
nonferrous metals, chemicals, and construction). Private capital are rising in many
other sectors…
See: China's State-Owned Enterprise Reforms: Then and Now.
https://hbr.org/product/chinas-state-owned-enterprise-reforms-then-and-now/NTU117-PDF-ENG

A look at China's state owned enterprises(SOEs)

Source:https://www.youtube.com/watch?v=TrR_oTmdEaE
TOP 10 Chinese Companies, 2018 Fortune Global 500 TOP 10 US Companies, 2018 Fortune Global 500
Ran Companies Revenues Profits Rank Companies Revenues Profits
k (USD) (USD) (USD) (USD)
2 State Grid 348.9bil 9.5bil 1 Walmart 500.34bil 9.86bil

3 Sinopec Group 326.9bil 1.5bil 9 Exxon Mobil 244.36bil 19.71bil

4 China National Petroleum 326.0bil -0.7bil 4 Berkshire Hathaway 242.14bil 44.94bil

23 China State Construction 156.1bil 2.7bil 11 Apple 229.23bil 48.35bil

Engineering
26 Industrial & Commercial Bank of 153.0bil 42.3bil 13 McKesson 208.36bil 60.38bil
China (ICBC)
29 Ping An Insurance 144.2bil 13.2bil 15 UnitedHealth Group 201.16bil 10.56bil

31 China Construction Bank 138.6bil 35.8bil 17 CVS Health 184.77bil 6.62bil

36 SAIC Motor 128.8bil 5.1bil 18 Amazon 177.87bil 3.03bil

40 Agricultural Bank of China 122.4bil 28.6bil 20 AT&T 160.55bil 29.45bil

42 China Life Insurance 120.2bil 0.3bil 21 General Motors 157.31bil -3.86bil

The Chinese Economy and Its Future Prospects: Industries

What are the differences between the two tables?

The Chinese Economy and Its Future Prospects: Industries

What are the differences between the two tables?

-Most Chinese firms were State-owned/controlled.

-Chinese firms and US firms were in different sectors, the latter were
more diverse.
The Chinese Economy and Its Future Prospects: Agricultural Sector

-The agricultural sector remains important in China.

-Wages are low and conditions for workers are extremely hard.
-Progress is being made in this direction, but is still slow.
-”The Three Rural Issues(三农)”: agriculture, rural areas and
farmers.

Rural Revitalization(乡村振兴): China’s New Strategy To Lift Millions

Out of Poverty With the Help of Tech
Link: https://www.youtube.com/watch?v=a0TzuN738HU
The Chinese Economy and Its Future Prospects: Regional development

-Although economic development zones have been set up

across the country and the government is pushing hard to
channel foreign investment into the centre and west, most
foreign companies prefer the eastern coastal belt and the big
centres of Guangzhou, Shanghai, Beijing, Tianjin and their
satellites.
-Natural Resources, technology, labor costs/skills, transport,
regional policies, etc.
China’s city clusters

-These three clusters, in

the Pearl River Delta, the
Yangtze River Delta, and
Beijing-Tianjin-Hebei, will
be the most innovative and
internationally competitive
ones.
- More medium-sized and
small-sized clusters are
becoming world-class
clusters.

Xiong’an New Area

(雄安新区)

Source: Preparing for China's urban billion

https://www.mckinsey.com/featured-insights/urbanization/preparing-for-chinas-urban-billion
 The Chinese Economy and Its Future Prospects: Regional development real Share of
GDP Nominal GDP PPP GDP
Provinces Rank growth total GDP
(CN¥) (US$) (Int'l.$)
(%) (%)
Mainland China 82,712.17 12,250.39 23,589.29 6.9 100
List of Chinese Guangdong 1 8,987.92 1,331.19 2,563.36 7.5 10.87
provinces by Jiangsu 2 8,590.09 1,272.27 2,449.90 7.2 10.39
Shandong 3 7,267.82 1,076.43 2,072.79 7.4 8.79
2017 GDP Zhejiang 4 5,176.83 766.73 1,476.44 7.8 6.26
Henan 5 4,498.82 666.31 1,283.07 7.8 5.44
Sichuan 6 3,698.02 547.71 1,054.68 8.1 4.47
Hubei 7 3,652.30 540.94 1,041.64 7.8 4.42
Hebei 8 3,596.40 532.66 1,025.70 6.7 4.35
Hunan 9 3,459.06 512.32 986.53 8.0 4.18
Top5 ( almost Fujian 10 3,229.83 478.37 921.15 8.1 3.90
40% of total) Shanghai 11 3,013.39 446.31 859.42 6.9 3.64
Beijing 12 2,800.04 414.71 798.57 6.7 3.39
Guangdong (E) Anhui 13 2,751.87 407.58 784.84 8.5 3.33
Jiangsu (E) Liaoning
Shaanxi
14
15
2,394.20
2,189.88
354.60
324.34
682.83
624.56
4.2
8.0
2.89
2.65
Shandong (E) Jiangxi 16 2,081.85 308.34 593.75 8.9 2.52
Guangxi 17 2,039.63 302.09 581.70 7.3 2.47
Zhejiang (E) Chongqing 18 1,950.03 288.82 556.15 9.3 2.36
Henan (C) Tianjin 19 1,859.54 275.41 530.34 3.6 2.25
Yunnan 20 1,653.13 244.84 471.48 9.5 2.00
Heilongjiang 21 1,619.99 239.93 462.02 6.4 1.96
Inner Mongolia 22 1,610.32 238.50 459.26 4.0 1.95
Jilin 23 1,528.89 226.44 436.04 5.3 1.85
Shanxi 24 1,497.35 221.77 427.05 7.0 1.81
Guizhou 25 1,354.08 200.55 386.19 10.2 1.64
Xinjiang 26 1,092.01 161.74 311.44 7.6 1.32
Gansu 27 767.70 113.70 218.95 3.6 0.93
Hainan 28 446.25 66.09 127.27 7.0 0.54
Ningxia 29 345.39 51.16 98.51 7.8 0.42
Qinghai 30 264.28 39.14 75.37 7.3 0.32
Tibet 31 131.06 19.41 37.38 10.0 0.16
Sources: https://www.imf.org/en/Publications/SPROLLS/world-economic-outlook-databases
The Chinese Economy and Its Future Prospects: Regional development
China's 2017 GDP per capita and
GDP growth by province

Top 5
Beijing (E)
Shanghai (E)
Tianjin (E)
Jiangsu (E)
Zhejiang (E)

Sources: https://www.forbes.com/sites/salvatorebabones/2018/02/12/china-quietly-releases-2017-provincial-gdp-figures/#79a9bce520dc
Sources: https://www.reuters.com/article/us-china-economy-provinces-idUSKBN29X1A9
Differences and Similarities with Other Markets
Some of the characteristics that determine these differences are:
China is a very large country; cultural and economic differences between regions are
Size often wide. In addition, lack of logistics solutions and internal trade barriers make
some markets difficult to access.
China is not yet a fully developed market economy and systems and institutions can
Market development
be lacking or immature. Aspects of the planned economy continue to influence some
industries.

Cultural factors Chinese people relate to each other, and to the environment, in ways that are subtly
different from Westerners.

All of these factors, taken together, mean that things do not always happen as quickly and easily as one would hope.
Endurance, patience, and carefully considered long-term objectives are key.
Differences and Similarities with Other Markets
Some especially salient “China factors” that will become more relevant world-wide as a
result of globalization are:
The real revolution is happening in the social and psychological environment. Values,
Rapid change attitudes, ways of life are in flux. This happens everywhere as societies adapt to
globalization with the resulting increase in competition, complexity and international
contacts.
Most businesses are Business in China is usually about rapidly building and growing to keep up with the
relatively new market, rather than streamlining and consolidating an existing organization.

Growth will be This means that, for most companies, taking and consolidating market share should
high-speed be one of the main business objectives even in bulk industries such as energy and
commodities.
The market is hyper- Although some industries in China are protected or heavily regulated, the majority
competitive are among the most open in the world.
Reading
Drysdale, P., & Armstrong, S. (2021). RCEP: a strategic opportunity for multilateralism.
China Economic Journal, 14(2), 128-143.
Lee, B. S., Peng, J., Li, G., & He, J. (2012). Regional economic disparity, financial
disparity, and national economic growth: Evidence from China. Review of
Development Economics, 16(2), 342-358.
Shaffer, G., & Gao, H. (2018). China's Rise: How It Took on the US at the WTO. U. Ill. L.
Rev., 115.
Zhou, W., Gao, H., & Bai, X. (2019). Building a market economy through WTO-inspired
reform of state-owned enterprises in China. International & Comparative Law
Quarterly, 68(4), 977-1022.
Group Discussion and Presentation
Each team choose one of the questions from the following (post your
choice of question to the MS team private channel for tutorial to avoid repetition):
1. Select one of the policies for coordinated development between
regions, discuss the effectiveness of the policy and explain why.
2. Find two sectors in China in which SOEs and private firms are
dominant separately, explain why and analyse the latest trend of
ownership changes.
3.Discuss the impact of WTO accession on China, the recent debate
on WTO reform relating to China and explain why.
4. Discuss the RCEP's possible impact on doing business in China and
explain why.