Doing business in China is much different than doing business in the United States or other western countries. When meeting with Chinese businessmen it is important to remember that their culture is much different than ours. In China the business matter comes second to the person. To the Chinese businessman taking the time to form lasting relationships is crucial. The relationships potentially could outlive the business. Having relationships in another country also helps the American businessperson to network. Another difference is the way they value time. Here it seems that we hold getting the job done to be the first priority. They are far more liberal in their time management, and the time it takes to do business is irrelevant. It is important to know the ins and outs of your business before doing business in China. They are sure to study your business before you arrive, and you must do the same. Having knowledge and looking into their business practices and the role they have in the community is a must before sitting down with them. Your partner must also have the same level of knowledge; if they appear weak to the Chinese chances are that that would signify the end of any business endeavor. To make meetings run smoothly it is recommended that all materials be translated into both Chinese and English. If you choose to have an interpreter, present him/her with the materials prior to meeting with the Chinese company. (“Chinese Etiquette”)
The Chinese economy has changed greatly from the complete communist control in the 1950’s. China’s economy’s progress is due in part to their “Five Year Plans” which are a series of economic planning and goal setting characteristic of communist governments. (China and the First Five Year Plan). Whereas the government controlled all aspects of the economy before the country has moved into a new period that has been called a “socialist market economy” categorized by focusing on modernization and improving the quality of life throughout China, (Economy). The rapid growth of the country’s economy has lead to it becoming a major world economic power. However, this growth has come with many problems the country now faces. Due to the overwhelming population and its aging population the country is still relatively poor when it come to per capita terms, (China’s Economy). Although rapidly growing the country has presented the country with challenges that China must face if it wants to have the world’s largest economy, (CIA World). China must find a way to gain new entrants to the work force and correct for the environmental damage that the rapid growth has caused.
Prospect as a Trading Partner, Government Policies for
International Trade, Direction and Terms of Trade,
And Foreign Direct Investment for China
China would be a great prospect for a trading partner. With the numerous trading opportunities, a potential trading partner will surely profit. China’s economic reforms have introduced the economy to international trade and investments. As noted in an article in the International Monetary Fund, “China’s increasing integration with the global economy has contributed to sustained growth in international trade”. Now, it is one of the fastest growing economies in the world! China is the United States’ third largest trader and is one of the largest Foreign Direct Investments (FDI) recipients. According to an article from The China Business Review, “the United States’ exports to China have hit a new high”. It has been said that during the last seven years, exports to China have surged dramatically, topping $65 billion last year (2007).
You may notice that the store shelves in the United States are overflowing with products that are made by the Chinese. As stated earlier, China is the United States third largest trader. This is because of many reasons. First, the trade liberalization that followed China’s entry into the WTO (World Trade Organization) was a key attribute. Another significant motive is that China’s currency, which is called “the renminbi”, has appreciated about 20% against the US dollar since the year of 2005. That makes U.S. exports cheaper for importers and consumers.
China continues to grow rapidly. Their imports and exports have grown faster than world trade for over twenty years. China’s share of exports to industrial economies has increased and has become more diversified. They have become very important to regional economies because of their exports. China’s diversification has caused them to become very important within the Asian economy. As a result, China’s international trade has inflated progressively since the opening of the economy in 1979.
Diversification has enhanced China’s exporting. In the early 1990s, products such as footwear, clothing, and toys accounted for more than 40% of their exports. Today, most of their exports include electronics such as office machines and automated data processing equipment, telecommunications and sound equipment, electrical machinery, furniture, travel goods, and industrial supplies.
Just as China’s exporting is vital, their importing is crucial as well. China’s trade has developed rapidly with imports from almost all trading partners. They are the third largest importer of developing country exports after the United States and the European Union. As a significant step toward normalizing its trade relations, China has been permanently granted “most-favored-nation” (MFN) treatment by other World Trade Organization members. As of result, many trading partners have eliminated many of their restrictions on imports from China.
China's economic reforms have been instrumental in significantly reducing its barriers to trade and foreign investment. They are the largest livestock producer in the world and its energy use and reliance has increased swiftly in recent years. They have a governmental policy on international trade with the United States. The Joint Commission on Commerce and Trade (JCCT) was established in 1983 as a forum for high-level dialogue on bilateral trade issues (). In 1994, the United States and China governments strengthened the JCCT by establishing working groups covering trade and investment issues, business development, and commercial law. After the December 2003 meeting with President Bush and Premier Wen, the two agreed the Commission would be co-chaired on the United States side by the Secretary of Commerce and the U.S. Trade Representative. It would be co-chaired on the Chinese side by the Vice Premier that is responsible for foreign trade. According to the statistics and research, China is becoming the new America. China is “booming” in the areas of importing and exporting; therefore, their country would be a great potential trading partner.
Cross-national Cooperation and Agreements, Regional
Trading Blocks, and FTAs
The People’s Republic of China has many trade agreements, mainly with other Asian countries. These include bilateral agreements with Pakistan, Thailand, New Zealand and the countries of the Association of Southeast Asian Nations or ASEAN. China also has trade agreements with South American countries Peru and Chile. In addition to these bilateral trade agreements, China has two CEPA, Closer Economic Partnership Agreements, with former independent colonies Macau and Hong Kong and several less formalized trade agreements with European countries and the United States.
China’s trade agreement with Pakistan began in 2006 and is expected to triple the amount of trade between the two countries to 15 billion US dollars. China will reduce tariffs on livestock, aquatic products, vegetables, mineral products and textiles, while Pakistan will reduce tariffs on cattle, lamb, chemicals and machinery products with the goal of reducing the tariffs by 85% in the first five years and making 36% or the products tariff free within three years with the aim of eventually making 90% of the products tariff free.
In 2003 China signed a Free Trade Agreement with Thailand. This FTA covered fruits and vegetables and is expected to reduce tariffs to zero on over 200 fruits and vegetables. Bilateral trade in produce has exceeded 5 billion US dollars in recent years.
The Free Trade Agreement between New Zealand and China was signed in April of 2008 making New Zealand the first developed country to negotiate a free trade agreement with China. Products exported from New Zealand include dairy, wool, fish, minerals, scrap metal and some fruits. Products exported from China include carpet, clothing, footwear, textile products, steel, plastics and furniture. It’s estimated that this will save 115.5 million US dollars in tariffs.
The ASEAN plus three trade agreement is expected to be completed by 2010. Once completed, it will encompass 1.8 billion people in the countries of China, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. It will be the third largest trade group in the world behind the European Union and North American Free Trade Area. China has two Special Administrative Regions, Hong Kong and Macau. These regions are governed by China but these SARs have more autonomy then the rest of the country. China has entered into CEPAs with both regions. These CEPAs reduce tariffs on goods exported to China, offer the SARs preferred opening to the Chinese market and facilitate the bilateral exchanges of goods and capital.
The European Union sees bilateral trade with China as something of a mixed bag. For many countries, the opportunity to export their products to a market of billions has been a blessing but for those whose products must compete with low priced Chinese imports it’s been a difficult period. While some countries such as the Netherlands and Italy have found trade with China to be prosperous, others have raised questions about Chinese labor practices and a rising tide of Chinese exports to the EU. Overall though, trade between the two EU and China seems to benefit most.
China has a large dynamic economy. In the past it sought to insulate itself from the outside world but in recent years has opened its markets to other economies. With billions of potential consumers and a GDP of 9.9% and rising, countries are lining up to develop regional trading blocks and free trade agreements with China. Even China’s enemy, Taiwan, has signed a trade agreement with them. The future seems bright for China and its trade partners but some in the west think that the trade imbalance that these free trade agreements create will destabilize the economies of many countries around the world. Whatever the case may be, it’s clear that there will be no shortage of potential trading partners chomping at the bit to get into Chinese markets.
Major Trends and Events Affecting China’s Standing
In the Global Business Environment
China has major business trends that affect its standing in the global business environment. As China continues to prosper and grow, it is becoming more expensive to manufacture there. Inflation trends have caused the cost of living to gradually increase; thus increasing the cost of labor shrinking profit margins. China is also running out of young able-bodied workers for their factories, as their “One Child Only” policy is starting to reduce their population. Businesses are slowly heading to Vietnam for higher quality good and pulling factories out of China.
In today’s current financial crisis many businesses are evaluating their business in efforts to offset the slowing world economy. Business costs are an essential part of profit margins for all businesses; which in many cases are the reasons most International companies ended up in China. Today China is slowly losing its low cost appeal that drove so many companies there, due to their rising cost of doing business. China’s inflation has caused the prices of some commodities to double in the past years. The trend of continuous rising prices has caused wages to increase about 25% per year in most factory and assembly line jobs. As cost rise in China, multinational companies are seeing their profits further decline.
In 1979 China introduced its one child per family policy, which prohibits families to have more than one child unless the first child is a female or disabled. This policy did help stabilize China’s rapidly growing population, but it has also had other latent effects. China’s workforce is becoming smaller by the year. Many Chinese workers are growing too old to perform excessive demands that employers once demanded. A lot of workers come from rural inland areas that have also seen growth, allowing them to stay closer to family and reduce their travel expenses. Many Chinese workers strive to have a better quality living due to the increased middle class in recent years. These workers are not returning to factory jobs, but instead look for work in other professions. By 2030 China’s workforce 65 years or older will be 235 million, further reducing their declining population.
Many international businesses are turning to other parts of the world, thus taking their business out of China. Vietnam is becoming a popular destination for companies looking for an alternative to China. Real estate prices in the coastal cities of Shanghai and Guangzhou have soared with China’s popularity. Many businesses face the choice of going further inland to reduce cost, pay the higher premiums, or go elsewhere. Each alternative has its advantages and disadvantages, but Vietnam is by far proving to have the biggest advantage. Going inland reduces the already small worker pool of potential employees; and paying more for industrial space and wages reduces profit margins. Vietnam’s coastal cities are in many ways cheaper than China’s inland cities. Vietnam has gone on an increasingly aggressive campaign to pronounce it is not only lower cost city, but it can also produce better quality goods than China.
Like all countries China has seen its skyrocketing growth come to a bubble. Other trends that effect China are social tension among different classes, unbalanced men to women ratio, and the amount of unethical business practices that have come under recent scrutiny. They all play a major role in China’s standing in the global business environment as a “the” go to destination for businesses.
Work Cited
- "Asian Business Code Words." Chinese Etiquette and Ethics in Business. 01 July 2002. 13 Nov 2008. <http://www.apmforum.com/columns/boye53.htm>
- "China and the First Five Year Plan." History Learning Site. 13 Nov 2008. <http://www.historylearningsite.co.uk/china_five_year_plan.htm>
- "China's Economy." Economy Watch. 13 Nov 2008. <http://www.economywatch.com/world_economy/china/>
- CIA World Factbook. CIA. 13 Nov 2008. <https://www.cia.gov/library/publications/the-world- factbook/geos/ch.html#Econ>
- "Economy of the People's Republic of China." Wikipedia. 13 Nov 2008. <http://en.wikipedia.org/wiki/Economy_of_the_People%27s_Re public_of_China>
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- Thailand Trade Agreement: <http://daxinganling.china.com.cn/English/2003/jun/66252.html>
- Pakistan Trade Agreement: <http://English.peopledaily.com.cn/200611/24/eng20061124__3249 18.html>
- Ministry of Foreign Trade and Economic Cooperation: <http://www.moftec.gov.cn>
- State General Customs Administration: <http://www.customs.gov.cn>
- China Inspection Quarantine: <http://www.ciq.gov.cn>
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Background and Culture of China: <http://www.cyborlink.com/besite/china.htm>
