FUNDAMENTALS OF

INTERNATIONAL BUSINESS
(UEIM003)
VARIOUS FACTORS INFLUENCING
INTERNATIONAL BUSINESS IN CHINA
SUBMITED BY:
RAHUL PASAWALA
PARIN BODIWALA
DEEPANSHU PATEL
MEET PATEL
BHAVESH PETHANI
YUSUF RAJPURWALA
DEEP SHAH
SHREYANS TALAWAT
SHUBHAM BHANDARI
RAHUL UPADHYAY

(13BCL070)
(13BCL068)
(13BCL072)
(13BCL077)
(13BCL083)
(13BCL089)
(13BCL098)
(13BCL107)
(13BCL108)
(13BCL118)

(Social)
(political)
(History)
(Legal)
(Pre. and fut. Tread)
(FDI)
(Environment)
(Economic)
(Tread Detail)
(Technology)

GUIDED BY: DR. NILAM PANCHAL

Index
1) History

2) Trade Details And Statistics Between India And China

3) Theipresentiandifutureitradeicooperation

10

4) Political Factors To Be Considered For Doing Bussiness In

China

18

5) Economic factors influencing international business in China

22

6) Socio-Cultural Factors

27

7) Technological factors

34

8) Legal Issues in doing business in China

40

9) Environmental Factors

44

10) Foreign Direct Investment

48

1) History

By 13BCL072

INTRODUCTION
China requires special consideration for a number of reasons. It has the population of about
1.2 billion and is the second largest economy adjusting for purchasing power. It has projected to
achieve the largest economy by around the year 2020. The Chinas sheer scale and diversity make
it an economic region in its own right. China's political economy is also very distinctive. This
transition includes a progressive engagement with international business.
China's scale with international business cannot be ignored, even though the ideological and
institutional differences between China and other major economic powers of the world create
numerous difficulties. As an environment for foreigninvesting firms, China presents an unusual
degree of complexity and uncertainty that does not necessarily favor the strategies MNCs pursue
elsewhere. Most of the firms are disappointed with the returns they have secured from this
investment. At the same time, Chinese firms investing abroad have often run into difficulties.
Therefore China's role in international business presents a challenge both for practice and theory.

The Business System in China

The China's industrial structure lies in the relationship between the firms and government.
Through ownership ties and mutual dependence, many firms are integrated with government at
various levels. Scholars have showed this relationship as network capitalism, and it has been
associated with guanxi as a special Chinese cultural characteristic. It has survived in China despite
the considerable changes since the economic reform began in 1979. The multilevel guanxi system
has a fragmented economy in which few firms dominate.
The economy that in 1980 was dominated by SOEs showing 76 per cent of industrial output,
China today has a wide range of firms that are distinctly constituted in terms of their ownership.
According to Nee (1992), and Boisot and Child (1996), there are total four main categories of firm
in China. These are nonmarketized and marketized stateowned enterprises (contributing 28.2 per
cent of industrial output in 1998), collective enterprises (38.4 per cent of industrial output), private
enterprises (17.1 per cent of industrial output), and other types of firm, primarily foreigninvested
ones (22.9 per cent). From the early 1990s, a significant development has been the conversion of
SOEs to jointstock companies (JSCs). The number of such companies increased from 2,751 in
1991 to 12,500 in 1997. By 1996, total of about 530 JSCs were listed on the Shanghai and
Shenzhen stock exchanges, over fifty were listed in Hong Kong, and about twenty in New York
(Lau and Tse 1999b). The conversion of SOEs into JSCs offers new opportunities for international
firms seeking to buy into local companies.
They mostly consist entrepreneurial and small businesses, without the superior technology
and management skills of foreign firms, or the institutional sponsorship afforded to other types of
Chinese firm. The private sector is now one of the fastestgrowing sector in China. Private
3

enterprises now employ over 13 million people. Realizing their substantial economic contribution,
the government in February 1999 amended the country's constitution to provide private firms with
the same legal rights as the publicly owned part of the economy, and so remove their previous
handicaps.
Then further reform of SOEs and the legitimation of private business, will permanently
alter China's business system. Uptil now, Chinese leaders have advanced the reform of SOEs
through greater marketization, as a way of reducing economic distortions, and through increasing
privatization. Instead of building South Korean type Chaebols, the government has encouraged the
breakup of large SOEs into small units for sale to other firms. Mergers are likely to dominate the
business scenario in China (South China Morning Post 1999). MNCs have participated in these
mergers in Internet firms and airlines.
It is expected that some successful Joint Stack Companies and State Owned Enterprises
will capitalize on the opportunity to expand their operations through the input of additional funds,
technology, and even export opportunities. A survey was carried out which concluded that 70 per
cent of the top three brands in fifty consumer product markets derive from local firms (Hong Kong
Trade Development Council 1998). Given the size of the China market, these firms can leverage
their domestic market power to expand internationally. This strategy has proved to be effective
among newly emerged Asian companies such as Acer and Lucky Gold Star. An increasing number
of Chinese firms are expanding into overseas markets was noted. Whether many of the Chinese
firms will catch up the enormously powerful giant global corporations still remains a question to
the entire world. (Nolan 1999).

China is among the most attractive locations in the world. It has now been reached to become
one of the strongest powers in the world. This rise created international business. The legal system
of China has been improved by a larger scale. Foreign investors carry out the business in country
like China mainly because of 3 following reasons:
1. Size of the market
2. The very low cost of labor
3. Chinas growth potential together
We can say that China has become increasingly integrated with the other nations of the world.
It is not easy to carry out and manage international business in China.
PEST analysis is one of the necessary management tool which shows the macroenvironmental factors. It is basically carried out for businesses and projects. The analysis helps
making the decisions. It carries out the analysis under the following factors:
1. Political Factors

2. Economic Factors
3. Social Factors
4. Technological Factors

The main challenges for businesses in China are:

1. Attaining strategic objectives of cost reduction

2. Local differentiation
3. The strengthening of core competencies in certain areas and business activities

2) Trade Details And Statistics Between India And China By 13BCL118

India China trade relations are the most important part of bilateral relations between India and
China. From a temporary decline in the the influx of Chinese imports in the Indian markets, the
scenario seems to have changed - India is enjoying a positive balance of trade with China.
The India China trade relations are regulated by the India China JBC, which ensures a free
exchange of products and services between the two nations.
India China Trade Relations: Overview
India & China signed a Trade Agreement in 1984 which provided for Most Favoured Nation
Treatment and later in 1994, the two countries signed an agreement to avoid double taxation. The
bilateral trade crossed US$13.6 billion in 2004 from US$ 4.8 billion in 2002, reaching $18.7 billion
in 2005. The India China trade relations have been further developed from 2006, with the initiation
of the border trade between Tibet, an autonomous region of China, and India through Nathu La
Pass, reopened after more than 40 years. The leaders of both the countries have decided to enhance
the bilateral trade to US$ 20 billion by 2008 and further to US$ 30 billion by 2010. According to
the Indian Commerce Minister, Kamal Nath, China would soon become India's largest trade
partner within the next 2-3 years, after the US and Singapore.
Chinese accession to the World Trade Organization (WTO.) has further underlined the potential
of the Chinese market. A new era is emerging where India and China while encouraging bilateral
trade and investment relations, will work jointly to establish common negotiating strategies in the
international forum. This scenario brings to for need to exploits the opportunity for mutual benefits
by India and China where ICTC place an important facilitating role .

Drivers of bilateral trade

There are two primary drivers of the burgeoning trade between China and India: differing
comparative advantages of the two countries and sustained, high growth rates in both economies.

Comparative advantages
The different comparative advantages of the two countries provide grounds for strong economic
exchange. Although Chinas economy is three times as large as Indias, its manufacturing sector
is five times that of Indias. Chinese exports to India thus consist primarily of manufactured goods,
especially various types of machinery. Conversely, India has some of the worlds largest reserves
of iron ore, bauxite, and manganese, and its exports to China consist primarily of raw materials to
feed that countrys expanding steel and automotive sectors. Services trade between China and
India remains small. Though India has emerged as a global powerhouse in information technology
(IT) and IT-enabled services, language differences create natural barriers to the export of these
6

services from India to China. Thus, many of Indias larger IT companies invest directly in local
operations within China.

Rapid economic growth

The sheer size and growth rates of these economies have boosted bilateral trade, as bigger
economies have more to buy and sell. In 2008, Chinas economy grew 9.0 percent and Indias
grew 7.3 percentboth faster than any other major economy in the worldand these countries
will likely continue to grow faster than other major economies through 2010, according to
International Monetary Fund projections. The two countries could also remain the worlds two
fastest-growing economies for the next two to three decades. In this context, the prospects for
continued strong growth in bilateral trade appear to be bright.
Imports of lower-priced capital goods from China, such as turbines for electric utilities, can help
India address the infrastructure bottlenecksespecially in roads, highways, ports, and electric
powerthat have appeared as Indias manufacturing revolution gets under way. Because Chinese
capital goods are often much cheaper than those from Western or Japanese manufacturers, such
imports from China can keep costs low, allowing India to modernize and upgrade its infrastructure
more quickly.

Trade Statistics Between India And China

Indias Export to China

Chinese imports from India amounted to $16.4 billion or 0.8% of its overall imports, and 4.2% of
India's overall exports in 2014. The 10 major commodities exported from India to the China were:
1.
2.
3.
4.
5.
6.
7.
8.
9.

Cotton: $3.2 billion

Gems, precious metals, coins: $2.5 billion
Copper: $2.3 billion
Ores, slag, ash: $1.3 billion
Organic chemicals: $1.1 billion
Salt, sulphur, stone, cement: $958.7 million
Machines, engines, pumps: $639.7lmillion
Plastics: $499.7 million
Electronic equipment: $440 million

10. Raw hides excluding fur skins: $432.7 million

Indias Import from China

Chinese exports to India amounted to $58.4 billion or 2.3% of its overall exports, and
12.6% of India's overall imports in 2014. The 10 major commodities exported from the
China to India were:
1. Electronic equipment: $16 billion
8

2. Machines, engines, pumps: $9.8 billion

3. Organic chemicals: $6.3 billion
4. Fertilizers: $2.7 billion
5. Iron and steel: $2.3 billion
6. Plastics: $1.7 billion
7. Iron or steel products: $1.4 billion
8. Gems, precious metals, coins: $1.3 billion
9. Ships, boats: $1.3 billion
10. Medical, technical equipment: $1.2 billion

3) Theipresentiandifutureitradeicooperation

By 13BCL083

Bilateralitradeiagreement:
TheibilateralitradeibetweeniIndiaiandiChinaihasiaipotentialiworthioveriUSDi80ibillioniini
2015ifromiUSDi70ibillioniiini2014.iTheiIndiaiChinaitradeirelationsihaveibeenidevelopedi
fromi2006,iwithitheiinitiationiofitheiborderitradeibetweeniTibet,ianiautonomousiregioniofiChin
a,iandiIndiaithroughiNathuiLaiPass,ireopenediafterimoreithani40iyears.iEconomici
cooperationibetweeniIndiaiandiChinaiinitheilastidecadeihasibeeniairemarkableistory,ifromiveryi
modestibeginningiofiUSDi2ibillioniini2001itoiUSDi70ibillion.iTheileadersiofibothithei
countriesihaveidecideditoienhanceitheibilateralitradeitoiUS$i100ibillionibyi2020.iChinaihasibec
omeiiIndia'silargestitradeipartneriandiIndiaiisiChina'siseventhilargestiexportidestination.

10

Avoidanceiofidoubleitaxation:
Indiai&iChinaisignediaiTradeiAgreementiini1984iwhichiprovidediforiMostiFavorediNationi
Treatmentiandilateriini1994,itheitwoicountriesisignedianiagreementitoiavoididoublei
taxation.

Articlei23
METHODSiFORiTHEiELIMINATIONiOFiDOUBLEiTAXATION
1.iIniChina,idoubleitaxationishallibeieliminatediasifollows:

a.iWhereiairesidentiofiChinaiderivesiincomeifromiIndiaitheiamountiofitaxionithatiincome
payableiiniIndiaiiniaccordanceiwithitheiprovisionsiofithisiAgreement,imayibeicredited
againstitheiChineseitaxiimposedionithatiresident.iTheiamountioficredit,ihowever,ishall
notiexceeditheiamountiofitheiChineseitaxionithatiincomeicomputediiniaccordanceiwith
theitaxationilawsiandiregulationsiofiChina.
b.iWhereitheiincomeiderivedifromiIndiaiisiaidividendipaidibyiaicompanyiwhichiisiairesident
ofiIndiaitoiaicompanyiwhichiisiairesidentiofiChinaiandiwhichiownsinotilessithani10iper
centiofitheisharesiofitheicompanyipayingitheidividend,itheicreditishallitakeiintoiaccount
theitaxipaiditoiIndiaibyitheicompanyipayingitheidividendiinirespectiofiitsiincome.
2.iIniIndia,idoubleitaxationishallibeieliminatediasifollows:

WhereiairesidentiofiIndiaiderivesiincomeiwhich,iiniaccordanceiwithitheiprovisionsiofithisiAgreement,
imayibeitaxediiniChina,iIndiaishalliallowiasiaideductionifromitheitaxionitheiincomeiofithatiresidentian
iamountiequalitoitheiincome-taxipaidiiniChinaiwhetheridirectlyioribyideduction.]

IndianiExportsitoiChinaiunderitheiIndiaiChinaiTradeiRelations:
11

TheiprincipaliitemsiofiIndianiexportsitoiChinaiareiores,islagiandiash,iironiandisteel,iplastics,i
organicichemicals,iandicotton.iIniorderitoiincreaseitheiextentiofiexportingiIndianigoodsitoiChi
na,ihowever,ithereishouldibeiaispecialiemphasisioniinvestmentsianditradeiiniservicesi
andiknowledgebasedisectors.iTheiotheripotentialiitemsiofitradeibetweeniIndiaiandiChinaiareimarinei
products,ioiliseeds,isalt,iinorganicichemicals,iplastic,irubber,iopticaliandimedicaliequipment,ian
didairyiproducts.iGreatipotentialialsoiexistsiiniareasilikeibiotechnology,iITiandiITES,i
health,ieducation,itourism,iandifinancialisector.i

iThei10imajoricommoditiesiexportedifromiIndiaitoitheiChinaiwere:
Cotton:i$3.2ibillion
Gems,ipreciousimetals,icoins:i$2.5ibillion
Copper:i$2.3ibillion
Ores,islag,iash:i$1.3ibillion
Organicichemicals:i$1.1ibillion
Salt,isulphur,istone,icement:i$958.7imillion
Machines,iengines,ipumps:i$639.7lmillion
Plastics:i$499.7imillion
Electroniciequipment:i$440imillion
Rawihidesiexcludingifurskins:i$432.7imillion

ChineseiExportsitoiIndiaiunderitheiIndiaiChinaiTradeiRelations:
TheimainiitemsithaticompriseiChineseiexportsitoiIndiaiareielectricalimachineryiandi
equipment,icement,iorganicichemicals,inuclearireactors,iboilers,imachinery,isilk,imineralif
uels,iandioils.iValueiaddediitemsilikeielectricalimachineryidominatesiChineseiexportsito
iIndia.iThisiexhibitsithatiChineseiexportsitoiIndiaiareifairlyidiversifiediandiincludesiresourcebasediproducts,imanufacturediitems,iandilowiandimediumitechnologyiproducts.iItiisisaidi
thatiifiIndiaiisitoicaptureitheimarketsiofiChinaiandienjoyiprofits,itheniitiwouldihaveitoi
discoverinewimerchandiseiandibranchioutiitsiexportsitoiChina.i
Thei10imajoricommoditiesiexportedifromitheiChinaitoiIndiaiwere:
12

Electroniciequipment:i$16ibillion
Machines,iengines,ipumps:i$9.8ibillion
Organicichemicals:i$6.3ibillion
Fertilizers:i$2.7ibillion
Ironiandisteel:i$2.3ibillion
Plastics:i$1.7ibillion
Ironioristeeliproducts:i$1.4ibillion
Gems,ipreciousimetals,icoins:i$1.3ibillion
Ships,iboats:i$1.3ibillion
Medical,itechnicaliequipment:i$1.2ibillioni

BilateraliTradeiFiguresi(CalendariYear):
Year
2009
2010
2011
2012
2013
2014i(P)

ExportsitoiChina
10.13
14.58
16.54
14.87
14.50
11.98

ImportsifromiChina
28.78
42.26
52.83
51.88
51.38
58.27

TradeiDeficit
-i18.65
-i26.67
-i36.28
-i37.01
-i36.88
-46.29

iIniUSDibillioniiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii[Source:iDirectorateiGeneraliofiCommercialiIntelligenceiandiSta
tistics]

BilateraliTradeiFiguresi(FinancialiYear):
i
Year

ExportitoiChina Growthi(%) ImportsifromiChina Growthi(%) TradeiDeficit

2009- 11.61
2010

24.21

30.82

-5.15

19.21

2010- 15.5
2011

33.27

43.5

41.06

28

2011- 18.1
2012

16.75

54.7

27.22

36.57

2012- 13.57
2013

-25.12

52.24

-5.54

38.66

13

2013- 14.82
2014

9.53

51.03

-2.32

36.21

iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiIniUSDibillion
[Source:iDirectorateiGeneraliofiCommercialiIntelligenceiandiStatistics]

iBILATERALiINVESTMENTS:
iChineseiInvestmentiiniIndia:

2007-iUS$i16imillion
2008-iUS$i49.1imillion
2010-iUS$i33imillioni(Chinasinon-financialiinvestmentiiniIndia)
2011-iUS$i95.90imillioni(Chinasinon-financialiinvestmentiiniIndia)
2012-iUS$i154imillioni(Chinasinon-financialiinvestmentiiniIndia)
TilliDeci2013-US$i2.763ibillioni(cumulative,iChinasinon-financialiinvestmentiiniIndia))
2014-iUS$i243imillioni(Chinasinon-financialiinvestmentiiniIndia)

IndianiInvestmentiiniChina:

2006iiUS$i52imillion
2007-iUS$i34imillioniini78iProjects
2008-iUS$i257imillioniini92iprojects
2010-iIndia'siFDIiiniChina-i77iProjects;iinvestmentiofiUS$i55imillion.
2011-iIndia'siFDIiiniChina-i130iProjects;iinvestmentiofiUS$i42.17imillion
2012-iIndia'siFDIiiniChina-iiUS$i44imillion
2014_IndiasiFDIiiniChinai-iUS$i50.75imillion
Tilli2014-iIndianiInvestmentiiniChinai(cumulative):iUS$i0.564ibillion

ChineseiProjectiContractsiiniIndia:

2007-iContractisignedi-iUS$i4.56ibillion,iturnoverirealizedi-iUS$i1.99
2008-iContractisignedi-iUS$12.9ibillion,iturnoverirealizedi-iUS$i4.3ibillion
2010-iContractisignedi-iUS$i6.9ibillion,iturnoverirealizedi-iUS$i5.8ibillion.
Jan-Dec,i2011-iContractisignedi-iUS$i14.06ibillion,iturnoverirealizedi-iUS$i7.44billion.
CumulativeivalueiofiContractualiChineseiinvestmenti(Projects)itilliDec,i2011i
wasiUS$i55.61iBillion.iTheioveralliturnoverirealizedifromitheseiprojectsitilliDec,i2011iwasi
aboutiUS$i26.82ibillion.
14

ByitheiendiofiJunei2012,itheitotalivalueioficontractsienterediintoibetweeniIndiaiandiChinai
wasiUS$i57.59ibillioniwithirealizediturnoveriofiUS$i29.78ibillion.
ByitheiendiofiFebi2013,itheitotalivalueioficontractsienterediintoibetweeniIndiai
andiChinaiwasiUS$i60.21ibillioniwithirealizediturnoveriofiUS$i34.3ibillion.
2014-Contractisigned-US$i1.567ibillion,iturnoverirealized-US$i2.536ibillion
Tilli2014-Contractisigned-US$i63.703ibillion,iturnoverirealized-US$i41.06ibillion

iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii[Source:iMinistryiofiCommerce,iPeoplesiRepubliciofiChina]

BankingiLinks:
iManyiIndianibanksihaveiestablisheditheiripresenceiinimainlandiChinaiinitheilastifewiyears.iFo
uriIndianibanks,inamely,iStateiBankiofiIndiai(ShanghaiiandiTianjin),iCanaraiBank
i(Shanghai),iBankiofiBarodai(Guangzhou)iandiBankiofiIndiai(Shenzhen)ihaveibranchiofficesi
iniChina.iAtipresent,itheiStateiBankiofiIndiaiisitheionlyiIndianibankitoihaveiauthorizationitoico
nductilocalicurrencyi(RMB)ibusinessiatiitsibranchiiniShanghai.iBesides,itheifollowingi
representativeiofficesiofiIndianibanksiareialsoioperatingiinimainlandiChina:iAxisiBanki
(Shanghai),iPunjabiNationaliBank,i(Shanghai),iUnioniBankiofiIndiai(ShanghaiiandiBeijing),i
ICICIiBanki(Shanghai),iBankiofiIndiai(Beijing),iUnioniBankiofiIndiai(Beijing)iandiIndiani
OverseasiBanki(Guangzhou)

TradeiFreeiAgreementi(TFA):
FTAsiareiarrangementsibetweenitwoiorimoreicountriesioritradingiblocsithatiprimarilyiagreeitoir
educeiorieliminateicustomsitariffiandinonitariffibarriersionisubstantialitradeibetweeni
them.iFTAs,inormallyicoveritradeiinigoodsi(suchiasiagriculturalioriindustrialiproducts)iori
tradeiiniservicesi(suchiasibanking,iconstruction,itradingietc.).iFTAsicanialsoicoveriotheriareaisu
chiasiintellectualipropertyirightsi(IPRs),iinvestment,igovernmentiprocurementiandi
competitionipolicy,ietc
TheiAsiaPacificiTradeiAgreementi(APTA)iisiaipreferentialitradeiarrangementiformerly
iknowniasitheiBangkokiAgreement.iTheiBangkokiAgreement,isignediini1975iasianiinitiativeiofi
15

theiUnitediNationsiEconomiciandiSocialiCommissioniforiAsiaianditheiPacifici(UNESCAP),
iisiaipreferentialitradeiarrangementiamongidevelopingicountries.iTillinow,isignatoriesitoitheiAgr
eementiincludeiChina,iBangladesh,iIndia,iLao,iRepubliciofiKoreaiandiSriiLanka.iAtithei
FirstiSessioniofitheiMinisterialiCounciliofitheiBangkokiAgreementiiniBeijingioniNovemberi2,i2
005,irepresentativesifromitheimembericountriesiendorseditheireviseditextiofithei
AgreementiandidecideditoirenameitheiAgreementiasitheiAsiaPacificiTradeiAgreement.
iSinceiSep.i1ist,i2006,itheioutcomeiofitheithirdiroundiofitarifficutitalksiwasisuccessfully
iimplementedibyiallimembersiofiAPTA.iAtipresent,itheifourthiroundiofinegotiationsiisiunderwa
yiandiitiinvolvesitarifficoncessionsiofitradeiinigoods,itradeiiniservices,iinvestment,itradei
facilitation,iandinon-tariffimeasures,ietc.

AiFutureiofiCooperationiandiCompetition:
Withianiunresolvediborderiandiaicontentiousihistory,iIndiaiofteniviewsiChinasiactivitiesiini
theiSouthiAsiaineighborhoodiwarily.iYetiChinasiandiIndiasieffortsiiniSouthiAsiaicanioverlap,i
suchiasiinitheidevelopmentiofitheiBangladesh-China-India

Myanmar

economic

corridor

,iopeningiupinewiopportunitiesiforiconstructiveicooperation.iIndiasiActiEastipolicyiaimsi
toifacilitateicommerce,iculture,iandiconnectivityithroughoutiSoutheastiAsia,ianiareaithati
alsoicapturesiChinasifocus.iTheitwoicountriesieffortsiwillilikelyibeicomplementaryisincei
theiregionsiinfrastructureineedsiareisoipressingiandirequireitrillionsiofidollarsiinicapital.
iGreatericonnectivityiwillienableibothiChinaiandiIndiaitoitapifurtheriintoiAsianimarketsithrough
itradeiandiinvestment,ialthoughiIndiaiwillibeihardpresseditoiprovideiproductsiasiinexpensiveian
diplentifuliasiChinaicaniinitheineariterm.Initheiregionsiwestitheicompetitiveiedgeiwillimoreilik
elyigoitoiChina.iWithitheiinternationalitroopidrawdowniiniAfghanistan,iSouthiAsiaifacesisecurit
yichallengesithatirequireicoordinationibetweeniIndia,iChina,iandiotheriregionalicountries.iChina
siconnectivityiplansihaveitheipotentialitoihelpistabilizeiandistrengtheninotionlyiAfghanistanibut
ialsoialliofiAsiaibyiopeningiupitradeiroutesiandicreatinginewieconomiciopportunitiesiandilinkag
es.iShoulditheiChinaPakistaniEconomiciCorridor,iaivisionitoilinkiwesterniChinaibyiroadiandirai
lidownitoitheiGwadarideepiwateriport,icomeitoifruitioniinitheineariterm,iIndiaimayifindiitselfio
nitheioutsideiofiainewitransformationalisupplyichainiinitheimiddleiofitheiregion.iIniaddition,iBe
16

ijingsiinfusioniofiresourcesitoicreateiitsiSilkiRoadiEconomiciBeltiwillipositioniChinaiasiaibene
factoriwithoutiparallel.iItiisitheimajoridonoritoitheiAIIB,ianditoitheireserveifundiofitheiNewiDe
velopmentiBank,iandionitopiofithoseimultinationaliinstitutions,ihasicreatediitsiowniSilkiRoadiF
undiofi$40ibillioniinicapital.iIndiaicanigainifromigreatericonnectivityianditheiredevelopmentiofi
tradeitiesiacrossiAsia,ibutiNewiDelhiiwillialsoineeditoistepiupiitsieconomicidiplomacyiifiitiplan
sitoikeepipace.

17

4)

POLITICAL FACTORS TO BE CONSIDERED FOR DOING

BUSSINESS IN CHINA
By 13BCL068
1. Introduction

There are many external environmental factors that can affect your business. It is common
for managers to assess each of these factors closely. The aim is always to take better
decisions for the firms progress. Some common factors are political, economic, social and
technological (known as PEST analysis). Companies also study environmental, legal,
ethical and demographical factors.
The political factors affecting business are often given a lot of importance. Several aspects
of government policy can affect business. All firms must follow the law. Managers must
find how upcoming legislations can affect their activities.
The political environment can impact business organizations in many ways. It could add a
risk factor and lead to a major loss. We should understand that the political factors have
the power to change results. It can also affect government policies at local to federal level.
Companies should be ready to deal with the local and international outcomes of politics.
Changes in the government policy make up the political factors. The change can be
economic, legal or social. It could also be a mix of these factors.
The political environment is perhaps among the least predictable elements in the business
environment. A cyclical political environment develops, as democratic governments have
to pursue re-election every few years. This external element of business includes the effects
of pressure groups. Pressure groups tend to change government policies.
As political systems in different areas vary, the political impact differs. The countrys
population democratically elects open government system. In totalitarian systems,
governments power derives from a select group.
Some political factors affecting international business are Bureaucracy, Corruption level,
Freedom of the press, Tariffs, Trade control, Education Law, Anti-trust law, etc.

2. Political scenario in china

China has a socialist form of government where in the political and economic theory of
social organisation advocates that the means of production, distribution and exchange
should be owned or regulated by the economy as a whole.
The Chinese government consists of a system of multi party cooperation and political
consultation under the leadership of the CPC. The CPC is the only political party in power
in China.

18

Under the leadership of the CPC, the eight other political parties participate in the
discussion and management of state affairs, in cooperation with the CPC. Political
consultation means that under the leadership of the CPC, all parties, mass organizations
and representatives from all walks of life take part in consultations of the country's basic
policies and important issues in political, economic, cultural and social affairs before a
decision is adopted and in the discussion of major issues in the implementation of the
decisions.

3. Political factors affecting international business in China

3.1

Political System
According to the Chinese Constitution, "The People's Republic of China is a socialist
state under the people's democratic dictatorship led by the working class and based on
the alliance of workers and peasants." The government is comprised of the system of
people's congresses and the political party system that accords with it is that of multiparty cooperation and political consultation under the leadership of the Communist
Party of China (CPC). The systems of people's congresses, multi-party cooperation,
regional ethnic autonomy, and self-governance at the primary level of society together
constitute the kernel and fundamental framework of China's political system. As one
of China's fundamental political system, the multi-party cooperation system identifies
the status and functions of the CPC and the eight other political parties in the political
life of the state, and the relations between the parties (Background Note: China, 2009).

3.2

Government
The Chinese government consists of a system of multi-party cooperation and political
consultation under the leadership of the CPC. The system ensures that the CPC is the
only party in power in the People's Republic of China. Under the precondition of
accepting the leadership of the CPC, the eight other political parties participate in the
discussion and management of state affairs, in cooperation with the CPC. Political
consultation means that under the leadership of the CPC, all parties, mass organizations
and representatives from all walks of life take part in consultations of the country's
basic policies and important issues in political, economic, cultural and social affairs
before a decision is adopted and in the discussion of major issues in the implementation
of the decisions. Political consultation takes the organizational form of the Chinese
People's Political Consultative Conference. Political consultation is the most important
political and organization form of the multi-party and political consultation system.
Cooperative relations between the CPC and other political parties are based on the
principle of "long-term coexistence and mutual supervision, treating each other with
full sincerity and sharing weal or woe.

19

3.3

Human Rights
The China country reports in the State Department's 2007 Human Rights Practices and
International Religious Freedom Reports noted China's well-documented and
continuing abuses of human rights in violation of internationally recognized norms,
stemming both from the authorities' intolerance of dissent and the inadequacy of legal
safeguards for basic freedoms. Reported abuses have included arbitrary and lengthy
incommunicado detention, forced confessions, torture, and mistreatment of prisoners
as well as severe restrictions on freedom of speech, the press, assembly, association,
religion, privacy, worker rights, and coercive birth limitation. In 2006, China continued
the monitoring, harassment, intimidation, and arrest of journalists, Internet writers,
defense lawyers, religious activists, and political dissidents. The activities of nongovernmental organizations (NGOs), especially those relating to the rule of law and
expansion of judicial review, continue to be restricted.

3.4

Political Risk
China is particularly hazardous with respect to political risk. The possibility of
nationalization of industries needs to be considered. In fact this has already occurred in
China (in 1949). Similarly, there are the risks of confiscation, expropriation, currency
inconvertibility and contract repudiation. Currency devaluation and rampant inflation
are possible scenarios in many countries, wreaking havoc on the adequacy of insurance
limits, as one of many potential problems. There is also risk to company employees of
personal harm or kidnapping, and risk to the firm of extortion attempts. A unique form
of political risk occurs in China, and this is the constant battle between the countrys
central government and the provincial and local governments over applicable law, and
observance or non-observance of it. This makes it difficult for companies operating in
China to know exactly what the rules are (China Political Risk Management, 2009).

3.5

Political Stability
The level of foreign business activity in China after the Tiananmen Square massacre
has fallen off dramatically in many areas, including tourism and foreign investment.
While companies not already involved in China are wary of committing investment to
China, countries already involved in investment activities seemingly are waiting for a
quiet period in which economic progress will begin again and believe that China will
not expel foreign investors in the meantime. There is not much likelihood that extant
joint ventures and foreign manufacturing plants will be closed under the present regime,
but political stability is still a big question to foreign investors.
The United States has conducted 12 rounds of human rights dialogue with China since
Tiananmen. During 2003 and 2004, no progress was made on the commitments China
made at the 2002 dialogue, and we declined to schedule another round at that time. In
20

February 2008, the United States and China agreed to resume our formal human rights
dialogue, with the understanding that the discussions need to be constructive. Outside
the formal human rights dialogue, the U.S. Government regularly raises human rights
concerns with Chinese officials at all levels of government. In his September 2007
meeting with President Hu and in subsequent discussions, President Bush has
emphasized U.S. interest in human rights and religious freedom in China (Foreign
Business in China responds to Political Instability, 1990).

4. REFERENCES

Source: Boundless. Political Environment. Boundless Marketing. Boundless, 08

Jan.
2016.
Retrieved
17
Mar.
2016
from
https://www.boundless.com/marketing/textbooks/boundless-marketingtextbook/the-marketing-environment-3/externalfactors-31/political-environment165-7603/.
http://2012books.lardbucket.org/books/challenges-and-opportunities-ininternational-business/s06-02-political-and-legal-factors-th.html.

21

5) Economic factors influencing international business in China

By 13BCL107
Introduction
China is an emerging economy that offers lot of market opportunities for foreign investment. The
country has a huge potential for economic growth as it offers access to a large market and
considerable savings in labour costs
The following graph clearly indicates the exponential growth china is experiencing in terms of
GDP. The graph also indicates the GDP growth rate of India in the same time frame. Clearly India
has a lot of ground to cover as far as GDP is concerned

Figure: India vs. China GDP

22

Figure: Indias trade with China

The above graph represents total trade between India and China. The graph clearly indicates that
the total trade is in favour of china. The Chinese exports to India far outweigh the Indian exports
to China India-China bilateral trade for 2014 stood at US$ 70.25 billion. Indias exports to China
were US$ 11.98 billion while Chinas exports were US$ 58.27 billion, resulting in a trade deficit
of US$ 46.29 billion.

Figure: Chinese export trend

23

The above graph shows the upward trend of Chinese exports over the years with China accounting
for nearly 12% of world exports in the year 2013.Various economic factors are responsible for this
upward trend. An overview of these factors is given below.

Economic factors
Foreign Direct Investment
China has remained a major receiver of the worlds destination of FDI in recent years. Over 190
countries from around the world invest in China, which includes majority of the Forttune 500
companies. In 2006, the Chinese National Development and Reform Commission (NDRC) had
established a plan. This planes aimed at a better management of FDI
Foreign Exchange Reserve
Chinas foreign exchange reserves were very less in 1978, but the lower imports helped sustain
the economy even with such low forex reserves. However in 1980s, export contributed to the rise
in reserves to $17.4 billion. The economic slowdown in the early 1990s resulted in a sharp fall of
imports, while exports continued to rise resulting in increased foreign reserves. In 1993, the
inbound FDIs increased the forex reserves though there was a trade deficit.
China joined the WTO (World Trade Organisation) in 2001 .This contributed to a rapid growth in
imports, exports which resulted in FDI inflows surpassing the $60 billion mark annually in 2006.
In October 2006, foreign exchange reserves exceeded $1 trillion for the first time. As of now,
China has the largest foreign exchange reserves. The graph shows the increase in forex Reserves
over the years. The forex reserves crossed the $3 trillion mark in 2011 as indicated by the graph
below.

24

Figure: Chinas Foreign exchange reserves

Inflation Rates
Inflation rate is the general rise in prices measured against a standard level of purchasing power.
The graph below shows the diminishing inflation rates over the past 2 years. Though the economic
slowdown of world markets has resulted in lower exports, the decreasing inflation rate has
encouraged consumers to spend more on goods thus sustaining the economic growth of the
country.

Figure: Chinas Inflation rate

Trade
China joined the WTO to become competitive in the global market. The main exports of China
are manufactured goods, textiles, garments, and electronics, tungsten, antimony, tin, magnesium,
molybdenum, mercury, manganese, barite, and salt. It is also is the worlds largest producer of
aluminium which is one of the most important industrial metal.
Infrastructure
The liberal economic policies in the 1980s have strengthened Chinas economy. China has
undertaken a major highway construction program and is working to building a world class
infrastructure to make china a lucrative place for foreign investors.
Currency & Exchange Rate

25

China has been keeping the value of Yuan at an artificially low level as the Chinese government
is concerned about the diminishing exports. The graph below shows the low levels of Yuan against
the dollar for the last 2 decades The lower levels of Yuan helps the export driven Chinese economy.

Figure: Dollar vs. Yuan

India-China economic relations

Several institutional mechanisms have been established for enhancing and strengthening economic
cooperation between the two countries. Two mechanisms have been established in this regard.
These are the India-China Joint Economic Group on Economic Relations and Trade, Science and
Technology and the India-China Strategic and Economic Dialogue (SED)

India-China Strategic and Economic Dialogue (SED)

The SED has been taking place between the two countries since 2006. It is a forum for both
countries to discuss strategic macro-economic issues impacting the nations as a result of the
changing international economic and financial landscape. It is a forum wherein both the countries
share their individual best practices in handling domestic economic issues and to identify specific
fields for enhancing cooperation.

26

6) SOCIO-CULTURAL FACTORS

By 13BCL070

Business and its success depend on various internal as well as external factors. One such is sociocultural factors. Socio-cultural factors such as social attitudes, belief systems, education, law,
politics, etc., have a bearing on the prospects of a business. If a business overlooks, or fails to
identify the effects of socio-cultural factors, it runs the risk of alienating itself with its immediate
environment.
Cultural environments consist of the influence of religious, family, educational, and social systems
within the marketing system.
Some examples of socio-cultural factors isReligion and Custom
Change in Preferences
Change in Demographics

SOCIO-CULTURAL FACTORS IN CHINA

With the globalization of word business, China has become an appealing market for foreign
investors. China is one of the fastest developing economies in the world with a huge consumer
market due to its population being the largest in the world, all the companies would like to enter
the China market and take advantages of various situations.
Before the companies enter the market, they should study the sociocultural factors of China as
they influence the international business in a vast way.
The problem of cross-cultural management arises as the cooperation between China and its
culturally different Western partners continues to increase at an unprecedented rate.

Cultural Values
Chinese culture is highly complex. The most important values of Chinese culture include the:

Importance of the family,

Hierarchical structure of social life,
Cultivation of morality and self-restraint, and
The emphasis on hard work and achievement

Chinese culture and society can be defined as collectivist. Basic rule of obedience and self
restraint must be followed.

27

 Religion
China have officially five religion which are

Buddhism,
Islam,
Taoism,
Catholicism, and
Protestantism.

1. Guanxi
China is a relationship-oriented society. Guanxi or the network and interaction, is vital for
business. By building Guanxi, the company minimizes risks, failures and setbacks. Guanxi equates
to: 'It's not what you know, it's who you know', or 'the old boys' network'. Deep guanxi is a strong
feeling of interpersonal relationship, loyalty and trust, and moral obligation to maintain the
relationship from both parties
The Chinese prefer to deal with people they know and trust. First, among the partners should be
established interpersonal relationship, before they can begin to work together. Moreover, it is not
just relationship between companies but also between members of these companies.
The more you will have areas of intersection with the Chinese (family, hobbies, life inspiration),
the easier it will address issues in business.
In business, guanxi must be regarded as a two-way relationship. If you expect Guanxi to deliver,
relationships must be maintained through regular contact.
2. Confucianism
It is necessary to show respect to old age, seniority and educational background.
Confucianism is a set of ethical beliefs developed by Confucious. It has a huge effect on doing
business in China.
The manager should be seen as a type of father figure who receives loyalty and obedience from
colleagues. In return, the manager is expected to take an interest in all aspects of colleagues life.

3. Face

28

Face is derived from the concept of Mianzi. Face is a combination of dignity, pride and public
reputation.
A slight mistake can make the Chinese lose face and it can offend them. The easiest way to cause
someone to lose face is to insult the individual, to criticize in front of others or to treat her/him as
an underling when official status in an organization is higher.
Giving face- means showing respect to someone, giving compliments and doing things that
increase self-pride.Saving face- refers to maintaining a good self image.
4. Collectivism
Chinese culture is collectivist oriented. The grou work is more given respect than individual. It
leads to tighter teamwork, more consensual decision making, more obedience and spread
information sharing.
Chinese are more cooperative within their own group, but organizations usually display a
competitive orientation in their dealing with other organizations.

5. Meetings & Greetings

When meeting businessmen in China, foreigners should display sincerity and respect.
Handshaking has to be very lightly and followed by exchanging of business cards, preferably with
English text on one side and Chinese on another.
It is important to receive cards with both hands and study. When Chinese greet someone they do
not look straight in the eye, but lower their eyes slightly. This is a sign of deference and respect.
There are many things which needs to be taken care of and needs to be studied such as
handshaking, greetings, addressing people, presenting delegates, business card and company
profile, dress, etc. of the Chinese culture.
Greetings
You may be met on arrival at the airport or at the first meeting by the main participant on
the Chinese side, with other participants following in descending order of seniority.
The interpreter will provide the names and titles of the senior Chinese to your delegation.
If you visit a workplace, you may be greeted with applause as a sign of welcome. Respond
by applauding back.
Chinese business people generally appreciate foreigners taking the time to learn some
Chinese and something about China.

29

Handshaking
Shaking hands is now the standard form of greeting in China.
Always shake hands with the most senior person first.
A short, not too firm handshake is the customary start to a business meeting.
If you have an established relationship with someone it is not uncommon to hold a
handshake for longer, or to cover the handshake with your other hand.
Nor is it uncommon to sit close to someone with whom you have an established
relationship.
Normally a man would wait for a woman to extend her hand first.

Addressing People

You should address and acknowledge the most senior person first in meetings.
In China, family names come first followed by given names.
In business / formal settings, people normally address each other by their family name or
title, such as "Mr Chen", or "Director Huang".
In business / formal settings, don't call someone by just their first name unless specifically
asked or if you are long-time friends.

Business name cards and company profiles

Business cards (called mingpian) are essential so have a good supply.

Have your business cards printed in English on one side and Chinese on the other.
Translate your name, job title, company name, special qualifications and your professional
title (e.g. Dr, Professor etc.) on your business card. There is no need to translate the address
into Chinese.

Presentations

Sophisticated PowerPoint and video presentations with multiple illustrations are the norm
for many forward-looking Chinese companies, and it is advisable to take the same approach
to create a good impression. Dual-language presentations and handouts in Chinese are
essential.
Chinese audiences are often more interested in the cost-effectiveness of the product rather
than the product itself. Therefore it is vital during the presentation to show how your
product can save money.

30

Chinese audiences also like to see case studies of operational projects using your product,
preferably in China or a neighbouring country where conditions are similar. Client lists
featuring major players will create good reference points for the Chinese side.

6. Giving gifts
Gifts symbolize good friendship and relationship. Chinese people love to take gifts. One should
avoid gifts if there is no special occasion. One should take care that gift given to Chinese should
be of similar value except the gift given to the most senior person. Gifts should be given with two
hands as it shows that you respect them.
Give gifts to your driver and / or interpreter to help maintain good relationships.
Gifts to be avoided:
Writing anything in This symbolises the termination of a relationship
red ink
Clocks
the pronunciation of the words "to give a clock" sounds
similar to a phrase that means "sending someone to the
grave"
green hat

gifts in sets of four

Cash
Black
or
white
wrapping paper or
ribbons.

Writing anything in
red ink

the Chinese saying "wearing a green hat" means

someone's wife is committing adultery
the number four is considered very unlucky, as the
word is pronounced similarly to the word for death
can be seen as bribery
White and black colours are typically associated with
funerals. Red or gold wrapping paper are best as they
represent happy occasions.

termination of a relationship

7. Eating & Dinner

Dinners, including banquets, are normally held in a private room at a restaurant or hotel. Very
senior people may be present at a banquet. Dinners or banquets generally last for around an hourand-a-half.
The serving of fresh fruit will mean it is the last dish, then the host will announce the dinner or
banquet is at an end. If you are the host, the Chinese guests will wait for you to signal the end of
the dinner with a last toast or a few word.
31

If you are entertaining guests, remember most Chinese are not used to cheese or butter and lamb
is not always popular, so consider omitting these items from the menu.
It's important to accept dishes, there's no compulsion to eat every serving. You can leave dishes
you don't want to eat to one side.
8. Numbers and Colours
There are social taboos related to numbers in certain part of China
Lucky numbers:
3

When pronounced in Chinese, especially Cantonese (spoken in

Guandong province and Hong Kong), sounds similar to the word
for promotion or being promoted

When pronounced in Cantonese is similar to the word for

happiness

168

When pronounced in Chinese, sounds like a similar word which

means prosperity
When pronounced in Chinese, sounds like a similar phrase which
means money flowing in easily

Unlucky numbers to be avoided:

4

250

When pronounced in Chinese, sounds like the word for death

(especially in Guangdong province and Hong Kong)
When pronounced in Chinese, sounds like the word for dumb /
stupid

9. Non Verbal
Non-verbal Communication are an important part of ones personality. Nonverbal communication
includes facial expression, tones of voice, gestures, and eye contact. Few of the non-verbal
communication examples which affect the business are

Many Chinese will not recognize the O.K. sign; instead, the thumbs-up signal is known
and means Everything is O.K.
When beckoning, the curling inward of the index finger is not used in China.
Seating arrangements are important, whether at business meetings or while dining.
32

Posture is important, so do not slouch or put your feet on desks or chairs. Also, avoid using
your feet to gesture or move articles around

10. Business Etiquette and Protocol in China

Relationships & Communication
The Chinese don't like doing business with companies they don't know, so working through
an intermediary is crucial. This could be an individual or an organization who can make a
formal introduction and vouch for the reliability of your company.
Before arriving in China send materials (written in Chinese) that describe your company,
its history, and literature about your products and services. The Chinese often use
intermediaries to ask questions that they would prefer not to make directly.
Business relationships are built formally after the Chinese get to know you.
Be very patient. It takes a considerable amount of time and is bound up with enormous
bureaucracy.
The Chinese see foreigners as representatives of their company rather than as individuals.
Rank is extremely important in business relationships and you must keep rank differences
in mind when communicating.
Gender bias is nonexistent in business.
Never lose sight of the fact that communication is official, especially in dealing with
someone of higher rank. Treating them too informally, especially in front of their peers,
may well ruin a potential deal.
The Chinese prefer face-to-face meetings rather than written or telephonic communication.
Meals and social events are not the place for business discussions. There is a demarcation
between business and socializing in China, so try to be careful not to intertwine the two.

http://www.ukessays.com/essays/economics/a-pestel-analysis-of-chinas-current-economy-economicsessay.php
http://www.businessdictionary.com/definition/socio-cultural-environment.html
http://www.morethanshipping.com/cultural-factors-in-doing-business-in-china/
https://www.legacee.com/the-global-leader/chinese-business-culture/
http://www.kwintessential.co.uk/etiquette/doing-business-china.html
http://www.ibtimes.com/doing-business-china-cultural-differences-watch-411996
http://www.immi.se/intercultural/nr19/tianbo.htm
https://gbr.pepperdine.edu/2010/08/cultural-insights-on-doing-business-in-china/

33

7) Technological factors

By 13BCL118

INTRODUCTION
Important dimension of a rustic is its technological surroundings. The inspiration of a countrys
technological surroundings is its resource base. Some countries, like Australia, Argentina,
and Asian country, endued with a lot of fertile agricultural land. alternative countries, like Asian
country, Republic of South Africa, and Russia, invested with wealthy natural resources like oil,
gold, and Indonesia have plentiful labour provides, whereas alternativecountries, like Iceland and
New island, provision or inaccessibility of resources affects what merchandise created in a
very given country. As a result of their abundance of fertile land, Australia, Argentina, and Asian
straightforward accessibility of affordable labour permits companies in China and Indonesia to
supply labour- intensive merchandise for the globe market. Conversely, companies in Iceland and
that hinders their ability to manufacture labour intensive merchandise productively.
Countriesmight

amendment

or

form

their

technological

environments

through

investments. Several countries, like Canada, Germany, and Japan, have endowed heavily in their
infrastructureshighways,

communications

systems,

waterworks,

so

forth

to create manufacturing and distributing merchandise easier. Similarly, several countries

have endowed heavily in human capital. By rising the data and skills of their voters, countries
improve

the

productivity

and

potency

of

their

workforces.

In India, the net reach is incredibly less and there are several firms cropping up that are
attempting to achieve to every corner of the country. However compare to the present United States
of America, European countries, wherever web property isn't in the least a matter. Thus, e
commerce firm can have a lot of higher come on investment in a very country with sturdy
information measure as compared to a corporation with low internet usage. If the technology of
the business surroundings isn't up to mark, then necessary changes ought to be exhausted the
business.

A major technological downside in China is that the event of the B2C trade doesn't have a
secure and stable on-line payment

system. As Chinese consumers are on high

Uncertainty dodging level andsemipermanent Orientation, the matter is strong. Only

one p.c mastercard penetration in China suggesting that the foremost wide used

34

payment methodology had low acceptance in China and therefore the payment system to
support on-line mastercard dealings is additionally facing low usage.
The advantage of an outsized low-wage force is obvious to everybody, however which
will ne'er bethe inspiration of Associate in nursing economic body politic. True economic
leadership

comes

solelywith

the

flexibility

to

supply

high-quality

high-

technology merchandise and services and to make innovative new merchandise and technologies.
China and India are the 2 most thickly settled countries, accounting for twenty.4% and 17.0% of
the worlds population. Moreover, they're growing over 3 times quicker than the globe average. Al
though the share of persons with education in their populations remains low by developed country
standards.

One of the most variations within the development ways of those 2 giants is that the extent, timing,
and suggests that through that they need noni heritable world data. Its conjointly a part of the
reason for his or her completely different performance and growth ways. As a broad
characterization, China has embraced globalisation and has been benefiting noticeably from this.

TRADE
China began gap up to the globe a lot of ahead of did India and has become rather more integrated
into the worldwide economy. Chinas high degree of trade integration was second solely to
Germanys

among

the

worlds

giant

economies

at

the

time,

and it's seemingly that it's surpassed Germany by currently. Purchases of foreign merchandise and
services are a key thanks to gain access to data embodied in those merchandise and services. in
contrast to China, that has considerably removed tariff and non-tariff barriers to trade as a part
of its connexion the international organization, India remains one in every of the foremost closed
economies within the world. Having to export in competition with the remainder of the
globe conjointly forces exporters to stay up with the new merchandise, designs, and
method technologies, quality enhancements, and even new business models of competitors. Also,
having shut exposure to foreign merchandise and services provides larger chance to repeat.

TECHNOLOGYLICENSING.
China has conjointly been rather more aggressive in licensing foreign data through formal
35

technology-licensing agreements. Chinese royalty and fee payments are over 10 times.
Honeywell UOP and ExxonMobil proclaimed a technology contract with Hainan Handi
Sunshine organic compound Co., Ltd., marking the primary project in China below a
joint selling alliance for premium fuels and lubes between the 2 technology suppliers.
The integrated UOP and ExxonMobil technology platform allows Handi Sunshine to
satisfy growing demand in China for cleaner-burning jet fuel and diesel alongside highquality cluster II/III base oils, that usually employed in premium, high performance motor oils and
industrial lubricants. Honeywell UOPs hydro process technology and ExxonMobils chemical
action lubes de-waxing. The combination of UOPs hydro

process solutions and

ExxonMobils chemical action de-waxing technology provides one, integrated answer for Handi
Sunshine to supply fuels and lubes. This may facilitate meet the growing demand in China
for petrol yet as ultra-low sulphur diesel and jet fuel.

SCIENCE&TECHNOLOGY
Since the adoption of the partial market economy in china the expansion in field of science and
technology has enhanced considerably. The most important achievements embrace discovery of
Daring field, building nuclear reactor, thriving testing and development of atomic and nuclear
weapons. It

additionally includes development

within the

field of communication

and pc. Each nations have achieved success in planning their own super pc. The ascension in
communications and advancements like fast transporting technologies has diode to
form additional jobs and trade between each countries. It's additionally enhanced competition. This
technological growth has diode to additional business opportunities between India and China.

RESEARCH&DEVELOPMENT
The governments have designed several plans and methods in developing the analysis and
development just like the china has launched the Torch Program. Even the countries area
unit giving edges to the businesses WHO support and do analysis in new fields.
Though analysis and development involves ton of capital because it is capital incentive
task. Therefore additional focus is given to developing the native substitutes of the
merchandise that area unit cheaper in value. For developing weapons china has used this method to
supply the foremost advance weapon at terribly low value. Theyll turn out at a less
36

expensive rate as a result of there's not R&D quantity spent for developing that product. This
china created terribly advanced weapons at low-cost value that it sells internationally across the
world. Owing to low solid it succeeded to sell and capture the market up to some extent.
Same

manner

chinas

leading

reverse

designed

Japanese

cars

automobile
that

area

unit

company

BYD

better-known

for

Co

Ltd

the

most

effective and proved technology throughout the globe. Company got comparative advantage by
utilising labour and not paying any R&D cost. Owing to this the automotive became cheap to
several folks and china. Company became thriving by obtaining an oversized client base by
keeping the worth low. Presently the corporate the revenue of the corporate is eight.5 billion
USD that is large.

Though it not needed to reverse engineer thriving product each time as a result of developing
nations like India and china area unit already having comparative advantage of cheaper labour.
Chinese technical school big company like Lenovo did identical it didnt copy or reverse
engineer alternative product though it became thriving due to the competitive costs that they
were

ready

to

supply

owing

to

utilization

of

low-cost

work

forces.

But the cheaper imports of technological merchandise from the china is touching India badly. Its
poignant native businesses it creating adverse result on economy additionally. This sort of imports
of cheaper reverse designed merchandise contribute to the balance of payment negatively.

REVERSEENGINEERING
China masters within the art of revere engineering. Reverse engineering is incredibly necessary for
technological development of the developing nations. As a developing nations dont have excess
capital that it will use to speculate for analysis and development within the field of science and
technology.

So they reverse engineer the merchandise developed by alternative nations and turn out it in
mass to cut back value. Owing to low-cost labour on the market in those countries
and production those countries will sell identical product for less expensive rate. By doing so that
they will scale back cost to an excellent extent as a result of they dont need to invest
in analysis of the merchandise. This reduces to form additional jobs and trade
37

between each countries. This technological growth has diode to additional business opportunities
between India and China. Evenit's helped to boost quality of life higher and easier.

DOMESTIC

SUBSTITUTES

AND

LOCALIZATION

FOR

TECHNOLOGIES
Localization of the technological inventions area unit vital for generating high revenue and to form
employment. For example the most important language speaker in china is mandarin. Once the
technological innovations like pc entered into china at that point the folks of china were facing
difficulties in in operation it owing to lack of information of nation language that was used for in
operation those computers. They noticed the answer for that by developing or porting the
whole software package to the native language mandarin. By doing these native folks were ready
to use the capabilities of that technology simply and expeditiously. It even enhanced the potency of
the business as a result of itcreated communications straightforward and quicker. Several task
were simply performed exploitation it that were feverish if performed manually.
The government additionally developed their own programme in mandarin language in order
that native folks will get advantage of knowledge.

Another issue is to create cheaper native alternatives of the merchandise and sell them globally
therefore those who were antecedent powerless to afford it will afford and use it. The export even
will increase the foreign currency reserves and will increase revenue. By localization of the foreign
merchandise value is reduced to nice extent. Indian government has started efforts for localizations
of technological merchandise by introducing create in India initiative. By making cheaper
alternatives has drawn attention of the globe again and again as an example India is understood for
its low value program. Value to launch a satellite is lowest in owing to that a lot of nations chooses
India to launch their satellites. That facilitate to make a name within the world and additionally
generates

revenue

for

the

govt.

China additionally do the localizations of technology and build cheaper alternatives and exports
them to any or all over world.

For example Chinese mobile firms like Xiaomi area unit commercialism mobile at such
low value that not to mention Indian however additionally international firms cant sell at
that value. That has helped them to realize a market share in mobile business. Owing to that Indian
38

firm like Micormax that were once better-known for competitive value cant contend it
and its losing market. For breaking the monopoly the Indian company freedom 251 has created a
really cheaper domestic substitute. So nativeization of product to create it cheaper will facilitate to
extend trade.

39

8) Legal Issues in doing business in China

By 13BCL077

Legal systems plays vital role while doing international business. Not knowing the* law,
doesnt make you innocent. So before doing business in any country, one must research all the*
related law.
China has rebounded from the* recession and is*again developing at a rapid rate.
With the* domestic consumption expanding fast, experts predict enormous market growth in
China over the* next decade. In our practice, we have seen a growing trend for exports to* China
by small to* medium-sized companies in the* Midwest. We are frequently called upon to* answer
the* legal questions arising in the* process of distributing goods in China. China is*an attractive
market for many companies seeking to* expand its distribution network and there are many
reasons to* pursue opportunities in that country. However, as with any new venture, careful
planning and preparation are required to* launch a successful expansion strategy.

Formation of Legal Systems

We compare the* financial systems of the* two largest and fastest growing emerging
economies of the* world China and India to* better understand their very impressive growth
experience with institutions that clearly fall short of developed country standards. The* two
financial systems differ widely in their nature and evolution and yet reflect many common features.
Transiting from a socialist system to* a market-based system, China had no formal commercial
legal system and associated institutions in place when its economy began to* take off in the*
1980s. India, on the* other hand, has a long history of modern legal institutions and financial
markets, and has inherited a set of rich institutions.

Types of Firms
1. The* State Sector

The*se are the* companies controlled by government

2. The* Listed Sector

Includes all firms that are listed on an exchange and are publicly traded.

3. The* Private Sector

40

Includes all the* other firms with various types of private and local government
ownership

Over the* years, Chinas State Sector is*shirking due to* privatization.
China is*not so friendly to* the* companies of Foreign Investors rights.

Judicial System
In order to* have an effective law enforcement system, a country must have an
independent and efficient judicial system with a sufficient supply of qualified legal professionals.
China is*considered poor in law enforcement due to* following reasons
According to* the* Ministry of Justice of China there were 110,000 lawyers and 9,000 law
firms as of 2002, while Orts (2001) estimates that there are 150,000 lawyers in China, roughly
the* same number of licensed attorneys as in the* state of California. Lawyers represent only 10%
to* 25% of all clients in civil and business cases, and even in criminal prosecutions, lawyers
represent defendants in only half of the* cases. Among the* approximately five million business
enterprises in China, only 4% currently have regular legal advisers. Moreover, only one-fifth of
all lawyers in China have law degrees, and even a lower proportion of judges have formal legal
education.
Because of Constant reforms since 1992, new laws are being introduced in China which
are very hard to* enforce. China has single ruling party and cases which involves Government
(Party) are victims of Abuse of Power. So the* judicial system is*not as free as it should be.
Here are some important legal points where China stands out with respect of other countries.
1. Chinas been reforming laws consistently. So the* laws are not as stable as India. Company
should keep an eye on ever changing laws in China.
2. Enforcement of IPR protection laws is*very poor. China is*still reforming but problem
is*not the* law but enforcement itself.
3. Chinas Judicial System is*not that robust so avoid getting in Disputes.
4. Legal Representative of the* company gets to* make decisions even if you are the*
majority shareholder. In China, Legal Representative has much more power.
5. The* majority shareholder of a firm has to* have been at company for three years before
an IPO is*made. This law restricts firm to* go private rapidly like Company in US can do.
41

6. Its not that easy to* fire your employees in China. Fire and Hire at Will doesnt work.
In some cases when an employee has violated some severe rules, the*n its ok to* fire but
else it is*a complicated process. Firing more than 10%-20% staff carries additional
stipulations.
7. China has numerous laws that encourage, restrict and prohibit investments in specific
industry sectors. If you are thinking of investing in China, learn whether any of these laws
apply to* your project.
8. China has not yet completed its transition from rule of man to* rule of law, and recourse
to* Chinas court system often is*not effective. Even more than in domestic business
transactions, business strategies should be designed with an eye to* minimizing the* risk
of disputes with Chinese joint venture partners and suppliers.
9. Many products must be registered, certified or licensed by the* relevant Chinese authority
before the*y can be sold in China. China passed a new Food Safety Law in 2009, which
requires all foreign food manufacturers to* register with the* relevant authority before food
products can be imported into* the country.
10. Chinese law offers comprehensive protection of patents, trademarks, trade secrets and
copyrights, however, the*re is*widespread violation and ineffective enforcement of
law. A company should evaluate what intellectual property is*most important.
11. Depending on the* structure of the* transaction, a foreign company may incur tax liability
under Chinese law. For example, a foreign company may be subject to* Chinas enterprise
income tax for certain China-sourced income such as interest, royalties, capital gains, etc.
In addition, revenue generated from a licensing arrangement is*subject to* a business tax
in China.
12. The* new Chinese Labor Contract Law applies to* both domestic and foreign-owned firms
hiring employees in China. The* law requires that an employer enter into a written
employment contract with all employees and significant penalties can be levied against
employers that fail to* do so.
13. China has relatively strict foreign exchange regulations. Moving currency in or out of the*
country often triggers a settlement, registration or approval requirement, depending on the*
type of transaction. For a distributorship arrangement, in order for the* local distributor to*
obtain the* foreign currency required to* compensate its foreign seller, the* contract,
invoice and certain customs documents must be submitted to* a designated bank for
verification that foreign currency is*required to* meet a valid contractual obligation.

42

14. In China, each company has a specific scope of business that is*set forth in the* companys
business registration documents. This is*the* scope of commodities and/or services that
the* company is*legally allowed to* produce or provide.
15. When contemplating a contractual relationship between, for example, a U.S. company and
a Chinese company, an arbitration clause is*a more effective means to* provide certainty
to* the* dispute resolution process.
16. Preparing Chinese-language employment documents for all employees. This includes
mandatory documents such as labor contracts and company rules and regulations, as well
as optional documents such as confidentiality agreements, non-compete agreements, and
educational reimbursement agreements.
17. Ensuring that IP is*protected in China. This typically begins with figuring out what can
and should be done to* protect trade secrets, trademarks, copyrights, and patents, and the*n
drafting appropriate contracts and provisions with vendors, suppliers, counter-parties, and
employees to* protect that IP.
18. What the* law says in China and how it is*implemented are not always the* same, just as
it is*in the* U.S. Although the* laws have improved, implementation of the* laws
is*sometimes spotty.
19. If you intend to* export goods or know-how to* China, even for use in your own Chinese
operations, the*y are subject to* US export laws. Many exports to* China are not restricted,
but exports of certain products and technology to* China are restricted.

References
1. Law, Institutions and Finance in China and India paper by
Franklin Allen , Rajesh Chakrabarti , Sankar De, Jun QJ Qian , Meijun Qian
2. http://www.uschinabiz.com/TopTens/ChinaBusinessLaw.a spx
3. http://www.redherring.com/startups/top-five-chinesebusiness-laws-everyone-shouldknow/
4. http://www.out-law.com/en/topics/projects-construction/communityinfrastructure1/doing-businessin-china-part-1---overview/

43

9) Environmental Factors

By 13BCL098

Introduction
China is a diverse land including deserts, mountains and fertile river basins.
Much of western China is mountains with the Tian, Pamir and Himalaya ranges. Also Western
China has a large desert. Central China consists of mountainous regions. Mountains & Rivers also
play a major role in China, both for irrigation and for transportation. Much of the rice fields and
wheat fields are irrigated with use of rivers.

Geographic Features
Most chines people still work as herders or farmers. Major crops in china is rice and wheat. Also
fishing is a major industry along the coasts.
China has natural resources including lead, zinc, copper, coal, tungsten and gold. Also China has
considerable oil reservoirs.
China has many regional climates. Northern China have severe winters with temperatures below
0o centigrade. Central China have mild temperatures 0o centigrade in the winter to 26o centigrade
in the summer. Eastern China have hot and wet summer and the western desert have temperatures
of 35o centigrade. Monsoon season in chine is between May to October. Annual avg. temperature
and rainfall is show in below map:
44

Annual Average Temperature

Annual Average Precipitation

45

Environmental issues in China are very severe and it affect biological Environment and Human
Health.
Rapid growth of industry, and lack environmental oversight are the main reason for these pollution.
According to World Bank survey among Worlds most 20 polluted city, 16 cities are in china.

Environmental Factors Influencing Trade Relations In China

Applicable regulations on environmental protection may cover both the protection of domestic
natural resources as well as bans on the importing of the good that may be harmful to the
environment, such as vehicle with excessive emitting polluted air, also products which contain
heavy metal compounds such as mercury, cadmium, arsenic, chromium, thallium, nickel and lead,
very noisy machines or vehicles and devices that may be harmful to the environment.
Because of raising environmental protection standards of given country very wide effect on foreign
trade practice. It effect especially in following sectors: Agriculture, Fishing, Forestry, Transport
and Heavy industry such as chemical production, metallurgy and mining.
These effects are usually two sided:
Trade of goods which harmful to environment is reduce. This goods are usually belongs to
industrial sectors which are mentioned above and are known as raw material absorbent. It do
negative impact on import and export between country and foreign trade partners.
On the other hand because of raising standard of environment tread is towards to cleaner
technological production with use of changing production resources and technique which will
achieve international standards. And in long run rise in export.
Because of more pollution china made new environment protection provisions in January 2015. In
this provisions environmental agencies will be allowed to take strict penalties and seize property
of polluters. Companies which break the rule will be named and shamed and companys
executives subject to prison sentences of 15 days. In this law upper limit of fine is not define;
previously fine was very cheaper for companies to pay the meagre fines provisioned by the law
than install anti-pollution measures. Because of deferent environmental regulation company must
change their production technique, production instrument and raw material. In India no strict rule
for environment and also not follow the role but in chine it is strict so we must change according
to it and also consider the extra cost of it.

46

China has many regional climates some part of china is very colder and some is hot and some is
humid so we consider this climate for storing period of raw material, transportation method,
packing technique etc. And also according to climate some product has more demand and some is
not so we study climate and then decide the product.

References
1) https://www.scribd.com/document/289341601/269-279
2) http://www.kidport.com/reflib/oldWorldGeography/China/China.htm

47

10)

Foreign Direct Investment

By 13BCL089

China always has remained ahead in terms FDI globaly. FDI accounts for 27% of the value added
production, 4.1% of national tax revenue, and 58% of foreign trade. Over 190 countries from
around the world invest in China, which includes 450 of the Worlds Fortune 500 companies.
That means about 90% of Fortune 500 companies does business with china, i.e Hong Kong,
Britain, Japan, South Korea and the United states are the leaders in the contributors of FDI.
In 2006, the Chinese National Development and Reform Commission (NDRC) had established a
plan to better manage FDI investment in the economy. The plan addressed the relationship between
national security investment and foreign investment. It instructs China to gradually relax
restrictions on foreign holding of domestic enterprises. The NDRC is asking for MNCs to increase
investment and setup production, assembly, and training institutions in China. The goal would be
to
enhance
the
independence
of
innovation
for
Chinese-enterprises.
Outbound FDI has also been increasing as Chinas economy continues to grow and prosper.
Xinhua News Agency of China reported that Chinas outbound direct investment reached $73.3
billion by the end of 2006. The majority of Chinese outbound direct investment came from
overseas acquisitions. Hong Kong and tax havens, such as the Cayman Islands and the British
Virgin
Islands
received
81%
of
the
total
outbound
investment.
The top sources of outbound FDI from China are costal and border provinces. Fujian, Guangdong,
Heilongjiang, Jiangsu, Shandong, Shanghai, and Zhejiang account for 62.5% of Chinas outbound
FDI. The service sector received 50% of the Chinese FDI, 23% targeted manufacturing, 22%
covered wholesale and retail, and 17% was invested in the mining industry (Foreign Investment in
China, 2009).
Chinas investment in India :
China is booming in terms of foreign direct investment (FDI) in India during the first two years of
the Narendra Modi regime, pumping in $956 million in sectors including automobiles,
metallurgical industry, electrical equipment and power.
The country is ranked 18th on the list at present, but it is close to top ten if just the last two years
are considered. Since 2014, it has outpaced Hong Kong, Italy, Caymen Islands and South Korea,
all of which rank higher in cumulative investments made between April 2000 and March 2016.

48

There is a pull factor which is favouring India since it has been a better performing economy.
China is now investing in newer sectors like e-commerce and telecommunications and also
manufacturing.
China had committed investments of over $20 billion in India in the next five years during
President Xi Jinping's visit in September 2014.With a GDP growth rate of 7.6% during 2015-16
India is seen as the bright spot in a bleak global economy.
Chinese companies have shown interest in sectors ranging from telecommunications, renewable
energy, manufacturing, electrical equipment and infrastructure to e-commerce and industrial parks
in the past two years
Companies including Shanghai Automotive Industry Corporation, Chint Group, Sopo Group,
Dingshen and Shanghai Electric Company have proposed bigticket investments in India. Chinese
real estate firm Dalian Wanda Group has proposed setting up industrial parks in India at an
investment of $10 billion.
India has been pushing for Chinese investments in capital intensive sectors through several
initiatives including Make in India, the Smart City programme and Digital India.
The government has taken several steps to ease the FDI norms by putting many sectors on the
automatic route. According to the Department of Industrial Policy and Promotion, FDI in India
grew 42% between June 2014 and March 2016 on the back of initiatives such as Make in India
and liberalised FDI policy.
During 2015-16 FDI inflows grew 29% to $40 billion from $30.93 billion in the previous fiscal,
recording highest FDI inflow in the country since 2000-01.
In order to boost services trade India is also looking at a comprehensive relaxation for visa norms,
especially in sectors such as healthcare and tourism.
India was the top destination for foreign direct investment (FDI) in 2015. Asias third largest
economy raced past Chinawhich was at the top for many yearswith $63 billion worth of
foreign investment, according to fdi Intelligence, a unit of the Financial Times group.
An increase in the number of investment projects in coal and power in India helped the country
surpass China. The number of projects in the country rose 8% to 697 in 2015 over the previous
year. This is still lower than Chinas (789 projects) which indicates that the value of investments
was much higher in India.
China, on the other hand, is battling slow economic growth, overcapacity, and high debt. Beijing
is adding to the debt to ease the slowdown. In February, the country announced a massive layoff
49

of 1.8 million workers to downsize its coal and steel industries. Because of a weaker yuan and a
slowing economy, an estimated $1 trillion moved out of the country in 2015, the highest in the
past decade.
India replaced China as the top destination for FDI by capital investment following a year of highvalue project announcements, specifically across the coal, oil and natural gas and renewable energy
sectors.
A couple of high-profile projects were announced during the year. For instance, SunEdison, the
Missouri-based power company, said in January 2015 that it will invest $4 billion to build a solar
panel factory in Indiathe biggest in the country. Foxconn, the Taiwanese manufacturer which
makes iPhones, has also said it will invest $5 billion over the next five years in a manufacturing
unit in the western Indian state of Maharashtra.
Meanwhile, Gujarat received the highest FDI in the country. Of the total inflows to India and
China, the western state received 10%, with $12.4 billion in investments. The home state of Modi,
Gujarat was ranked the 14th most popular state for investment in India and China in 2011. After
four years, the state is now at the top.
Even though India has reached the top, there remain issues on the ground level that need to be
remedied to attract more inflows. For instance, important pro-industry laws like the goods and
services tax and the land acquisition bill have not been passed. Additionally, the governments
unclear stance on issues like retrospective taxation concerns foreign firms

50