chinese business system and its characteristics

8/8/2019 Chinese Business System and its characteristics

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China is shifting from the closed economic model to an open economy since 1979.

This followed Deng Xiao Pings reforms in the area of agriculture, industry, science

and technology followed by the the open door policy

Chinas open door policy started from the end of the cultural revolution (1966-1976)

when the central committee of the communist party met in the famous Third Plenum

in December 1978 and the Right-Wing elements led by Deng XiaoPing were able to

establish effective control.

Chinese market is huge and attractive. There is potential of new business in the

rapidly changing economy of China, but this involve risks as well as opportunities.

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Since 1949, the Peoples Republic of China has been built by the Communist Party ofChina, and the political and government structures have been paid more and moreattention in the world. The political environment in China has played a very importantrole in todays international business.

Whyte (1974) states that whereas Western small groups are driven primarily byinternal processes, Chinese groups are driven by internal and external politicalprocesses. The political environment of the Chinese small group generates itsauthority structure, suggesting a pivotal position for the leader, who informs theother members as to what is socially and politically appropriate. (Confucian 1983,12:19, 13:4; Hsiao 1979) Group members are expected to show deference to theleader as to maintain the Confucian principles of harmony and hierarchy (Bong andWong 1983; Metzger 1977)

The control, the power to compel is a key value in the Chinese political system. Thethree main forces in China are the Communist Party, the Government and the Army.The main political conflict at present is the view of the developments in the PeoplesRepublic as a two-lines contest between socialist and developmental values

After 1984, the Decision of the Chinese Communist Party Central Committee onreform of the economic system was adopted,The governments role has beenredefined to provide guidance rather than mandatory planning, delegate moreautonomy and decision making power to the enterprise and its managers, gradually

allow price reform based upon market forces, establish a linkage betweencompensation and productivity, and further encourage international economiccooperation, including foreign direct investment.

The National Peoples Congress (NPC) is the highest-order section in the government.In fact, the NPC is little more than a rubber stamp body for decisions made by the 13


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With the 1979 economic reforms and Chinas Open Door Policy, China has had toproduce more and more legal guidelines to allow complicated businessarrangements. Alone with the economic reforms came the legal reforms that soughtto provide security to the foreign business trader or investor while at same timeproviding control of these activities by the PRC government through a spate of lawsand regulations.

Legal reforms in China, were initially aimed to providing security to foreign investors,such as Joint Venture Law, but gradually the laws were also developed for thedomestic needs of China. As the Peoples Republic of China is politically dominated bythe Chinese Communist Party (CCP), due to this type of system, the Western notionof the Rule of Law is often subordinated to the will of the Party.

Todays Chinese legal tradition is a collection and reflection of ideas, Confucian andLegalist theories, Western and Soviet legal approaches, and CCP influences, allblended into so called Chinese law.

Before 1979 there was a long period of history where politics was about the law.China as a particular Communist Party country, the most important point in thereforms of the law is whether law should be above or below politics. It is also clearthat the law even in China is always changing; and investment opportunities maychange with the law as risks and benefits are often rebalanced in the process.Business decisions in China cannot be made without some understanding of the

Chinese legal environment. The way to get things done in China and with the Chineseis to do it the Chinese way i.e. processes of business negotiations and theadministration of the agreed-upon contract.

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In the Chinese business world, the Chinese place great importance on personal

relationships; trust between old friends, much flexibility may be possible on

obtaining contracts and the conditions of contracts may change. The relationship withpeople who are in reality above the law in China might effect the way of doing

business. This leads to Corruption. Examples of bribery, abuse personal relationship

with communist party memebers( use back-door).

Recent News: Google threatens to quit China after many Google mail accounts been

hacks. The attacks been described as the next level of hacking (13th Jan 2010) The

search giant says it may well pull out of China after discovering what it called a "highly

sophisticated and targeted attack" on its corporate infrastructure.And while that

attack originated from China, Google did not actually accuse the government oforchestrating it. However you wonder what their suspicions are and their motivation

given that cyber attacks are part of operating on the web.

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1) On 8th Feb 2010, China has closed down the countrys biggest training website for hackersafter Google threatened to pull out of China unless government relented on censorship.Google launched a Chinese language search engine in 2006 but was widely criticised for

agreeing to censor politically sensitive information. It currently holds 1/3 Chinese searchmarket with nearly 340 million Chinese people are now online (compare with 10 million onlya decade ago), still far behind Chinese search engine Baidu.com (more than 60% marketshare)Google, like Yahoo and Microsoft and a myriad companies have always said this is the pricethey have to pay for doing business in China with prospect of accessing tens of millions ofpotential customers. Right now, Google is planning convince Chinese government let itoperate an unfiltered search engine. Although this is unlikely to happen, Google still able togain more fans in Washington by putting a hard line with China.

2) Gordon brown and Chinese premiers WenJiaBao have agreed to boost trade by 50% by

2010. Mr. Brown has also offered China 50m to help the country tackle climate change.Both leaders agreed a joint target of increasing two-way trade to $60bn over next 2 years.Mr. Brown told BBC: Its not one waywere selling China banking, services, financialservices, luxury goods, environmental technology, sports goods etc.

3) Mr Clissold said one of the most difficult things to accept is that in Western context, acontract is a contract. Life is china is a constant negotiationits a game. He went on talkabout his experience of firing this Chinese manager. At first, he couldnot fired this generalmanager because Chinese directors failed to attend the broad meeting. Even after fired themanager, he refused to leave result to have a newly hired manager conflicting with formalmanager and causing chaos in business. However by adapting a Chinese way of running

business basically difference firing process in this case of leaving no errors by sacking amanager in privately and quickly informed the decision in a broad meeting and call companyon cell to arrange any legal documents changes relate to the sacked managers status.

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1) Chinese urban property prices increased 7.8 per cent in December from a yearearlier, versus a rise of5.7 per cent in November, the National Development andReform Commission said on Thursday. Beijing renewed its pledge to curb excessivelyfast real estate price rises in some cit ies on Thursday, on concerns an asset bubblewas forming. Property prices rose 1.5 per cent in December on a month-on-monthbasis, the commission said in a statement on its website.Property inflation especially in Shanghai & Beijing over recent years. Goods becamemore expensive than average income. Many people see Shanghai as the newLondon. The expensive property driven foreign investors move from PoXi (mostdeveloped part ofShanghai) to PoDong (less developed area). Many investors haveincrease put out businesses in China

2) See graph next slide

3) Copyright: Ikea and Homebase examples

4) Overheat economic: Chinas economy surges 10.9% in 2009s fourth quarter.Chinas economy grew at 8.7% in 2009, some worries this growth is not sustainablelike bubble waiting to burst. Despite the global recession, China economy has grownfaster than predicted.The danger now is its economy is overheated. Many observers worry Chinas growthrate is unsustainable as it has largely been underpinned by government spending andits economy may be vulnerable to a downturn this year.

5) Problems created by continual power struggles between both people in thegovernment and the ruling communist party and their orders to those in charge ofthe business. Also difficult to explain power conflicts to investors who believe theyowned the companies.

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Chinas Unemployment Rate: Chinas Unemployment rate has dramatically decreased

from before 1980 towards around 1985 however continually climb up since until

2009. Experts says that such unemployment rate likely to decrease for the next fewyears. However the trend have not yet show the stable decline in Chinas

Unemployment rate.

China Consumer Price Inflation Graph: Chinas inflation rate has climbed to a twelve

year high with consumer prices 8.5 per cent higher than they were a year ago. Much

of this is the result of the spiraling cost of food (22 per cent higher over the last

twelve months). For the moment the key challenge for the Chinese authorities is to

engineer a slowdown in growth to avoid the risks posed by demand-pull and cost-

push inflationary pressures.

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China, as a fast developing country has huge and attractive market for the foreign

investments with over 1.3 billion potential customers.

There are some culture, legal, language differences between the Chinese and the

Foreigners, therefore, understand and respecting each other would be an important

issue in the way of doing business.

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chinese business system and its characteristics

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