1 - Modern China

1.1 Since 1978
1.2 Land and natural resources
1.3 Government role in business
1.4 Attitudes towards the west

1.1 Since 1978

Since 1978, China has gradually, (but with increasing speed) opened its markets to foreign trade and investment. This process saw China become the world's second largest economy (judged in purchasing power parity terms) by 1998, and culminated in the accession of China to the World Trade Organisation in December 2001.Prior to WTO (World Trade Organisation) accession, economic liberalisation was co-ordinated through a series of five-year plans. Each plan set rules governing foreign involvement in Chinese industry and commerce according to the government's perception of the needs of the sector and varied widely. Regulations covered everything from market access through levels of foreign equity to production for export; ironically, this has contributed to the perception that China was a difficult market in which to do business. WTO accession signals a shift from domestically oriented regulation towards market governance in accordance with the increasingly international orientation sought by the Chinese government. However, the Chinese market still presents a complex set of challenges to outsiders. These challenges not only consist in conforming to China's rapidly changing regulatory environment but in reaching a necessary understanding of the PRC's (People’s Republic of China) history, society politics and culture. It is also necessary for outsiders to dovetail their own ways of doing business with China's rapidly evolving business culture. This in turn has consequences at all levels, from long-term business strategy in the Chinese market to personal interaction with potential Chinese business partners.

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1.2 Land and natural resources

With a total size of just under 10 million square kilometres and a wide variety of climatic and geographical features and conditions, Chinese territory contains every major arable and mineral resource, in quantities worthy of exploitation. These not only form the basis of the Chinese economy but also, along with its population, are a major part of the country's appeal for international business.
Until recently, China practised a policy of self-sufficiency in agriculture and key mineral resources like oil. In recent years it has sought more of these commodities from abroad. This is partly because its growing economy has created a demand that has outstripped domestic supply. Economic growth has also led to creeping urbanisation, industrial pollution and desertification which in turn has put increasing pressure on China's agricultural resources and the water supplies on which they depend. As of now, 13% of China's landmass is suitable for agriculture.

Economically, there are four major responses to these developments:
• maximise international investment in China's resources,
• fill the gaps in domestic production with imports,
• channel economic growth through environmentally friendly business practices, and
• replace basic commodity farming with more lucrative cash crops for international markets.
These policies form an important part of China's economic liberalisation. However, the Chinese government is acutely aware of the potentially catastrophic effects of water or food shortages on its vast population and exerts a greater degree of oversight in these sectors than in less sensitive areas. It follows from this that businesses in these sectors are more likely than others to encounter stricter regulation or possibly become embroiled in disputes between China and bodies like the WTO. At a more local level, a bad reputation as a polluter or the perception that a foreign company is dumping environmentally unfriendly businesses on areas, which need the jobs and investment, can seriously damage corporate reputations in China. It is important for any company in the market to be able to walk a successful line between the promise of economic growth and the threat of environmental consequences.

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1.3 Government role in business

Since 1949, China has been ruled by the Communist Party of China following its victory in the civil war with the Kuomintang (nationalist) forces under Chiang Kai-Shek. Headed by Mao Zedong from 1949-76, China pursued classical socialist policies, limiting both foreign trade and investment and private sector involvement in the economy to an absolute minimum. These policies were interrupted by the periodic adoption by the CCP (Chinese Communist Party) leadership of a radical ultra-leftist line, most notably during the Cultural Revolution of the 1960's.The early 1970's saw China make its first political openings to the West, best symbolised by the visit of US President Richard Nixon to Beijing in 1972. Economic change had to wait until the accession of Deng Xiaoping to the paramount leadership of the Party. Deng's Policy of ‘reform and opening up’ saw the first major foreign investors enter the market. The process continued under Deng, accelerated under his successor Jiang Zemin and continues under the leadership of the new leader, Hu Jintao who became President in March 2003. One of Jiang Zemin's last acts was to allow entrepreneurs and businesspeople to join the Communist Party, a sign that private business within China is now not only tolerated but enthusiastically endorsed. With 72 million members across China, the Communist Party plays a major role in the day-to-day administration of economic policy from Beijing, down through provincial and city governments to township level. Despite liberalisation, the state - and therefore the party - still plays a highly interventionist, by western standards, role in economic development. In fact, the successful management of local

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1.4 Attitudes towards the west

The people of China are strongly patriotic and educated to be aware of China's key role as an early centre of civilisation, arts and culture and source of technological invention. The great strides made in economic development over the past decades are symptomatic of the Chinese desire to assume a leading role on the world stage. Many Chinese patriots regard China’s original fall from great power status during the 19th and early 20th centuries as being a direct result of intervention by Western imperial powers. The ‘unequal treaties’ imposed after the Opium wars of 1856, which opened China up to Western business and other influence effectively at gunpoint, still resonate at a number of levels. Western criticism of China's political system is routinely condemned as ‘foreign interference’. Likewise, a foreigner may be easily suspected of wishing to exploit Chinese people and resources in his or her business, especially if that foreigner comes from Britain or another former imperial power. Conversely, Western technology and know-how is valued in China, but only in its specific applications. It is easy for foreigners to fall into the trap of believing that they are there to ‘teach’ the Chinese how to create a modern economy or society. From the Chinese point of view, you are there to contribute to a process whereby China and its society and economy are strengthened.
All business deals are based on reciprocity. In China, this notion should be constantly reinforced and framed in terms of understanding, co-operation and mutual respect. These qualities should not only be referred to formally, but form the basis of the relationships

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