There are 1.3 billion people in China. There must be something to a country that is so popular. The Chinese Economy is the second largest in the world, after the U.S., and the Chinese GDP in 2009 was growing by 8.7%. Compare that to the sluggish 2% GDP growth that the U.S. has seen over the past few years. China is growing so fast that they are projected to overtake the U.S. as the world’s largest economy by 2030, according to a U.S. National Intelligence Council report.
With all this potential, many U.S. companies are looking to do business with the Middle Kingdom. The government controls in China, however, pose substantial hurdles to foreign business. Lax property rights, censorship, and required technology transfers all pose significant problems for businesses accustomed to U.S. standards. Some companies, such as Microsoft and Google, have interrupted or stopped business with China in response to these disputes. China’s Indigenous Innovation laws pose a problem that turns off many companies. The laws essentially require firms operating in China to transfer their latest technology as a cost of doing business.
General Motors is an example of a company that has had substantial success partnering with China. Out of the major U.S. automakers over the past century, they have made the most aggressive bets on Chinese success. Currently, GM sells more cars in China than the United States. GM is partnered with China’s largest auto maker, Shanghai Auto Industry Corporation (SAIC Motor Corp.), and has a technology transfer deal. SAIC has also directly invested in GM, acquiring a 1% stake in the company.
Around 90% of Chinese businesses are state owned, complicating relationships with private U.S. companies. China has laws on Wholly Foreign-owned Enterprises, Cooperative Joint Ventures, and Equity Joint ventures. Many companies are put in a position where they must partner with native Chinese companies rather than build in China independently. This pushes these companies into an interesting position with their Chinese ventures being partially State owned.
Even with these challenges, China’s emerging middle class is an opportunity too good for many to pass up. China’s retail sales grew 14.9% in November 2012 and industrial production grew 10.1%. About 25% of China’s population is now middle class. This amounts to 325 million middle class consumers, more than the entire population of the U.S., demanding goods which American companies can provide.
One thing is certain: China will be a major global player in the coming years. The long term effects of China’s government on enterprise are yet to be seen. The Middle Kingdom’s increasing industrial production and consumer demand, however, will continue to be a driving force in global markets.
International Finance Corporation Doing Business in China: http://www.doingbusiness.org/data/exploreeconomies/china#
CNN Doing Business in China: http://edition.cnn.com/2011/10/21/business/china-business-investors-culture/index.html
HSBC Doing Business in China: http://www.hsbc.com/1/content/assets/business_banking/110328_hsbc_doing_business_in_china.pdf
The U.S.-China Business Council, China’s Economic Statistics: https://www.uschina.org/statistics/economy.html
BBC, China Sees Both Industrial Output and Retail Sales Rise: http://www.bbc.co.uk/news/business-20657311
ABC News, China Economy to Surpass U.S. by 2030: http://abcnews.go.com/blogs/politics/2012/12/u-s-intelligence-china-economy-to-surpass-u-s-by-2030/
China Daily, China’s GDP to Grow 8.1% in 2013: http://www.chinadaily.com.cn/business/economy.html
World Population Review, Population of China 2012: http://worldpopulationreview.com/population-of-china-2012/
CNN, China’s Growing Middle Class: http://money.cnn.com/2012/04/25/news/economy/china-middle-class/index.htm