China Market

by SME & Entrepreneurship Malaysia

China is the world's most populated country with over 1.3 billion people. Administratively China is divided into 23 provinces, 5 autonomous regions and 4 municipalities. For centuries, China stood as a leading civilization, outpacing the rest of the world in arts and sciences. However, in the 19th and early 20th centuries, the country was beset by civil unrest, major famines, military defeats and foreign occupations. After World War II, under the leadership of Mao Ze Dong, China once again established and ensured its sovereignty. After 1978, Deng Xiao Ping and other leaders focused on market oriented economic development and by year 2000, output had quadrupled. For most of the population, living standards have improved dramatically and room for personal choice has expanded.

Since 1978, China 's economy has been performing exceptionally well, averaging 9% in GDP growth. Fueled by exports expansion, China's economy saw a GDP growth of 9.5% to US$ 1.65 trillion for the year 2004. In the same year, China's foreign trade increased by 35.7% and reached US$ 1.15 trillion, while foreign direct investment (FDI) increased 13.3% to US$60.6 billion. This makes China the leader in attracting FDI. From the year 2000, China underwent its second phase of economic development as new opportunities arise in the domestic market from its large population, growing affluence of the middle class, and its strong purchasing power/desire. This has replaced the 1980 -1990s development phase, where China focused on export driven investment and hence concentrated in coastal cities.

In the early stages of China economy development, the focus was on coastal provinces and cities namely Beijing, Tianjin, Shandong, Shanghai, Jiangsu, Zhejiang, Guangdong and Fujian. These locations are able to attract major foreign investments as they have more transparent system, higher familiarity in dealing with foreign investors and excellent geographical location. After many years of development, the coastal region has seen less infrastructure development projects, higher business cost, labour shortage and more competition. Despite this, the high development level of the region also creates new opportunities such as high-tech business, service sector, regional HQ, etc.

In recent years, China's focus of development is on two areas: Western and Northeast China. China's western region is made up of 11 provinces, autonomous regions and municipalities. They have a total land area of 5.4 million square km which is 57% of China's land area. Despite the substantial land area of western China, it only has 23% of China's total population of 285 million. Inaccessibility of Western China greatly hindered its growth, causing imbalanced development between the eastern and western coast. In 1999, to achieve a more balanced growth and reduce income disparity throughout China, the Chinese goverment launched the "Go West" campaign. Despite attractive points of the "Go West" campaign including special incentives, low cost, abundant rescources and less competition, this national policy has yet to yield significant results.

The Northeast provinces of China, known as the "Industrial Cradle of China", played a vital role in the country's industrial development from the 1950s to the early 1970s. However, from 1970s onwards, there has been a gradual decline in the industry output of this region, from 16.5% of the nation's industrial output in 1978 to only 9.3% of nation's industrial output in 2002. Today, the past heavy investment by the state has become the region's vulnerability. Northeastern provinced have the highest concentration of state-owned enterprises (SOEs) among all of China's regions. With China's WTO accession, SOEs' outdated plants and inefficient managements represent a huge challenge. To tackle this issue, the Chinese goverment has started the "Revival of the old industrial belts of Northeast China" campaign. This will provide opportunities for infrastructure development, logistics and education/ training.

In the 21st century, China is widely regarded as the main growth engine of the global economy. Not only does its massive population provides huge growth potential, its substantial workforce also produces much of the world's products. Furthermore, China's attractiveness as an investment destination is enhanced by the growing affluence of its population. However, prospective foreign investors should be recognize of China's Business environment. Considerations include China's culture, values system, labour relations, and political stability, amongs others, before embarking on a Business venture.