National Business Environmental Risk Report on China

China’s Business Environment Risk ReportAuthor’s NameInstitutional AffiliationTable of Contents TOC \o "1-3" \h \z \u 1.Introduction PAGEREF _Toc24395304 \h 22.Business Environment in China PAGEREF _Toc24395305 \h 22.1Political Environment PAGEREF _Toc24395306 \h 22.1.1Political Stability PAGEREF _Toc24395307 \h 22.1.2.Level of terrorism. PAGEREF _Toc24395308 \h 32.2Economic Environment PAGEREF _Toc24395309 \h 32.2.1Foreign Investment Policy. PAGEREF _Toc24395310 \h 32.2.2Economic stability. PAGEREF _Toc24395311 \h 42.3Regulatory Environment PAGEREF _Toc24395312 \h 42.3.1.Tax laws. PAGEREF _Toc24395313 \h 52.3.2Environment protection. PAGEREF _Toc24395314 \h 52.4Social/Cultural Environment PAGEREF _Toc24395315 \h 62.4.1.Social structure. PAGEREF _Toc24395316 \h 72.4.2Language. PAGEREF _Toc24395317 \h 73.1Benefits PAGEREF _Toc24395318 \h 83.2Challenges PAGEREF _Toc24395319 \h 93.3Suggestions PAGEREF _Toc24395320 \h 104.Conclusion PAGEREF _Toc24395321 \h 105.References PAGEREF _Toc24395322 \h 12
China’s Business Environment Risk Report
1 Introduction
China is the fastest-growing economy of the world. Despite the fact that it reached its maturity stage, economy is still thriving at an incredible pace. It provides immense opportunities to the business community across the world to make lucrative investments. Businesses in China are largely affected by political, economic, regulatory and socio-cultural environment of the country (Grosse &Ling, 2015).The business environment of China is analyzed below to evaluate the investment opportunities for foreign enterprises.
2 Business Environment in China
1 Political Environment
The political environment of China is favorable for foreign investment. The foreign policy of the country is now directed towards building strong ties with potential world markets including Africa, Latin America and Middle East. Political reforms and modernization are playing critical role in developing political environment of the country. Despite huge political and military conflict, United States is the largest trading partner of China. The political system prevailing in the country is collectivism which prefers collective goals over individual objectives.
2.1.1Political stability. The communist party is ruling the country for decades. The one-party rule makes Chinese political system rationally unstable. The legislation, institutions and regulations are under complete influence of the government. China has no explicit policies or rules questioning the transparency of the business regulations in the country. The business environment in China endorses guanxiwang which is about building relationships and social networks to carry out business activities within country. Collectivism is associated with socialist theory where state holds the ownership to produce, supply and distribute. The industries are controlled and supported by government entity with the focus on boosting the economy of country. The role of military cannot be ignored in the Chinese political system. The state could also use military force to achieve specific objectives and factional gains (Hannan, 2019).
2.1.2.Level of terrorism. The level of terrorism is minimal in modern China. Terrorist activities are rare in the country making it one of the most attractive markets for foreign investment. The last notable terrorist activity took place in China in the year 2014 (People’s Daily, 2014). The era, in which modern organizations fear terrorist activities in the area of its operations, China provides safe business environment.
2 Economic Environment
The Chinese economy is said to be the socialist market economy. The socialist theory is about public ownership where the corporations are predominantly state-owned. The economic growth observed uplift since 1979. The GDP of the country progressed at an annual rate of 10% making it one of the fastest-growing economies of the world (Congressional Research Service, 2019). China has Free Trade Agreements with several countries of the world. The country is main trading partner of EU, ASEAN, and World Trade Organization.
2.2.1Foreign investment policy. The foreign investment policy of china is not investor-friendly because it protects the interests of domestic businesses. According to Deborah (2019), China has recently proposed new foreign investment policy. It focuses on the “Pre-establishment National Treatment” which is to grant same favor to the foreign investors as the local investors. The emphasis is on providing easy and open access to foreign companies into the Chinese market. Government has formed a formal reporting system pertaining to foreign investment information. It makes the foreign firms obliged to provide all the information related to investment (Wu & Burge, 2018). A national security review system has also been designed to ensure that foreign investment decision does not have any impact on national security. Chinese government ensures the national security and sovereignty of their country as per their cultural values (Natlaw, 2019). The investment policy has strict procedures but it ensures the benefits for both the foreign investor and the country’s economic prosperity.
2.2.2Economic stability. China has integrated itself completely into the international economy. China constantly sends positive signals regarding the stability of its economy. The global economic recession has also impacted the Chinese economy and the country is undergoing institutional and structural challenges. Despite all the challenges China has been able to uphold its monetary and fiscal policies ensuring economic stability. This resulted in a steady local and international investment and stability in foreign trade (Sheng, 2019). The confidence in its economy, production capacity, the influx of foreign investment and economic globalization makes China the leader in global economic context.
3 Regulatory Environment
The legal system of China has been under severe criticism due to non-transparency, non-implementation of laws and regulations and fragile law enforcement capacity. The country has a weak judicial system. Corporate laws protect local businesses. However, the government is taking extensive measures to improve the situation and it takes only 9 days in China to register a new company (Fitch Solutions, 2019). The housing and real estate regulations are imposed on foreigners. The government has also defined strict labor laws and regulations for international businesses. Digital media and its content are entirely controlled by the state with strict censorship policies (Rashed & Nesha, 2016). The government is taking measures to ease the legal restrictions and improve institutional environment to give further boost to international investment.
2.3.1.Tax laws. China has well-formulated tax laws which are clearly defined. Taxation is an important element of the macro-economic policy of the country. Taxes are to be paid by individuals and corporations. They are significant for the development of infrastructure and public welfare program. Individual income tax is to be paid on the income earned by individual annually. It also includes worldwide income which is taxed ranging from 3% to 45% based on the earnings. The business corporations, both local and international are required to pay corporate tax of 25%. The tax range for local small businesses is 10% to 20% according to different regions within country. High technology firms are given benefit by limiting their tax rate to 15%. The foreign firms have to pay additional 10% of tax on the capital gains produced by the business in the Chinese market (Tax Law, 2019). International enterprises operating in China are obliged to present an interim report on quarterly basis. The tax rate in China is relatively higher for individuals and businesses.
2.3.2Environment protection. The economic growth in China has been tremendous for the last two decades. China has improved quality of life but at the cost of environmental deterioration. The exploitation of natural resources to meet industrial needs is the primary reason. The overutilization of energy and water resources resulted in deficit. Likewise, a huge depletion of forests and natural atmosphere is underway. Pollution in China is the key concern of the local and international environmentalists. Chinese government is taking measures to improve the environmental conditions in the country but environmental bureaucracy is not as effective. State Environmental Protection Administration and other concerned organizations are making their efforts to improve the worsening condition. Government has involved media, general public, NGOs, local communities, domestic and international agencies and the foreign firms to protect the environment. The authorities are unable to achieve the desired results due to weak policies and non-implementation of guidelines (Idris & Chang, 2018). It is crucial for the government to take strict action in this regard to avoid further degradation of environment. The cooperation and joint efforts are required to be made with international environmental protection agencies.
4 Social/Cultural Environment
The socio-cultural environment of China comprises of profound value system, strong relationships and social networks. Chinese give high regard to religion, faith and belief. The cultural environment of China is somewhat complex for foreign enterprises. Their strong cultural value system is required to be understood by foreign inv...