Doing Business in China IThe Environments of Chinese Business

Doing business in China is a much needed series on one of the contemporary forces affecting the global economy. Will China rule the world? If so, what will be the implications? China is now the second largest economy in the world, measured by purchasing power parity GDP, and will, by... read moresome estimates, overtake the USA by 2017. What does that mean for the globalization of the Chinese economy and its impact on the rest of the world?

The globalization of the Chinese economy has been a conference topic organized at Harvard University for five years in a row (see www.chinagoesglobal.org) producing the China Rules. The fact that China will surpass the United States in the figure most used to compare economic might means that increasingly China is boasting more influence on the global stage, backed by a growing military, and that it will exercise more say in international organizations such as the International Monetary Fund and the World Bank. By some measures, even now, China has already surpassed the United States.
For instance, in the demand for new autos and the consumption of various resources China indeed now rules. China’s large population, high economic growth rates and its reputation as to some degree a still unexploited market ensure that it is a country foremost in the minds of international investors and globally expanding businesses.

One key drawback to business in China is governance. Governance is the way a country implements and enforces rules, controls corruption, limits political risk, and provides voice and accountability to its citizenry. The weakness of Chinese governance can be a hindrance to sustainable growth. According to the World Bank governance indicators, China is far below global averages in most dimensions.

China’s GDP per capita is also relatively low. Large percentage increases in some areas do not necessarily translate into a great market. Addressable markets in China are, in fact, much smaller than some companies predict. Engaging, marketing and negotiating in China merit a discussion of key success factors. Historical, cultural, economic and political antecedents to contemporary Chinese business help understand the enigma, fascination and fear surrounding the debates about China. When the Chinese GDP eclipses that of the USA, it would be perhaps the first time in history when a developing country was also the leading economy. International political relations, business opportunities and risks, cultural encounters and the world economy in the 21st century will be shaped by the emergence of China.