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3 Political Environment

modern china

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3.1 Political environment - who are the decision makers?
3.2 Exploring the market: means of entry

3.1 Political Environment - who are the decision makers?

China is moving towards a fully established market economy. But it is the state that is responsible for guiding the transition. As a result, economic decision making in China can look to the outsider like a confusing patchwork of competing geographical and sectoral authorities, each claiming "stakeholder" status in different business activities, imposing taxes, rents and regulations or requiring consultation before or during the life of a project.

Broadly speaking there are two key trends in economic decision-making. At central government level, the main tendency is a gradual withdrawal by the state from direct control of business and a greater willingness to free business activity from wider policy objectives. This is combined with an increasingly laissez faire approach to foreign involvement in the economy.

Additionally, there is a growing willingness by central government to devolve executive powers down the administrative chain, granting ever-greater powers to local authorities.

The overall effect of this process is to increase the number of opportunities in the market and to lighten the bureaucratic burden on foreign businesses that wish to take advantage of these opportunities. However, the foreign investor is still confronted with a seemingly daunting array of officials and agencies to work through.

China's government is a pyramid shaped structure, at the top of which sits the President, currently Hu Jintao. The role of the Presidency is essentially to provide vision - to set the general course for the country as a whole. Each of China's leaders since Mao has marked his role with a body of thought which all those below are supposed to turn to as general guidance in policymaking.
Below the Presidency is the State Council - China's cabinet - headed by the Premier, currently Wen Jiabao. This eleven member body is the key national policy making group in China. Its laws are passed by the National People's Congress, commonly known as China's parliament, a three thousand member delegate body whose membership is drawn from across the PRC. It meets in general session for two weeks every year.

As in the UK, the day to day administration of government policy is carried out by Ministries, the heads of which report directly to the State Council. One tendency in recent years as the economy has liberalized has been to dissolve or downgrade Ministries, which directly administer industrial sectors and replace these with bodies with a more general administrative remit.
State-level bureaus and agencies play an important and evolving role in administering and enforcing China's growing body of commercial and industrial law, along with its regulations on imports and exports, financial matters and in sensitive areas like intellectual property and environmental protection.

Formerly, state level trading companies had a monopoly on import and export activity in different sectors. As their core functions have been opened up to competition, many of these groups have diversified their range of activities, becoming holding companies or conglomerates, joint venture partners or investment groups. They are still often regarded as the natural partner for multinational groups planning major joint venture projects in the PRC.

Below state level, economic decision-making is carried out by the following groups.
Shi are unitary metropolitan authorities for China's four largest cities - Beijing, Shanghai, Tianjin and Chongqing. These have a very great level of autonomy in economic decision making, including exemptions from national level economic policies.

Provincial level authorities or Sheng are responsible for the administration of each of China's Provinces and "Autonomous Regions" (i.e., areas with large non-Chinese populations such as Tibet and Inner Mongolia). Nominally beneath them are City governments, responsible for China's second tier of cities (which nonetheless can have populations running into millions). Cities are headed by mayors, who in the American style have a great deal of individual power. Traditionally, there has been a good deal of rivalry between Provincial and City level administrations, with Cities looking to maximise their autonomy at the expense of provincial level government and Provinces jealously guarding their prerogatives. This has lessened somewhat in recent years, as the tendency has been to grant more devolved powers to both governments while loosening the strict reporting structure by which many decisions at lower levels had to go upwards for approval.

Tiers of government below city level include counties (Xian), townships (Zhen) and - at the bottom of the chain – villages (Cun).

Even in the most liberalized business sector in China, foreign investors entering the market will find themselves dealing with representatives from one or more sections of China's administrative hierarchy. How many of these representatives the incoming businessperson meets depends on the type of activity undertaken, the sector it is in and the level of commitment involved. Investments above a set amount in certain sectors require higher-level permissions, which can take longer to obtain. All activities in other sectors are closely supervised. Business in special zones may be free of nearly all administrative drag.
More detailed research into the laws and procedures covering the relevant business sector and the planned activities within it should enable the foreign investor to calibrate his or her plans to minimise bureaucratic complication.

Please see section 3 for more details.


6.2 Exploring the market: means of entry

Many cities in the UK are twinned with major metropolitan areas in China. In the North West, there are successful ongoing relationships between the following:

• Manchester and Wuhan (Hubei province capital)
• Liverpool and Shanghai
• Salford and Chengdu (Sichuan province capital)
• Bury and Datong (Shanxi Province)
• Halton and Tongling (Anhui Province)
• Tameside and Bengbu (Anhui Province)
• Oldham and Xishan (Jiangsu Province)
• North West Region of England and Guangxi Province

Relationships such as these are specifically tasked with cementing economic links between the respective cities and on the UK side often have the involvement of relevant Chambers of Commerce and Business Links organisations. In practical terms, they enable UK businesses to establish the first links between themselves and potential partners, explore opportunities and develop the necessary contacts with administrators in China.

Many companies first explore the market through taking part in delegations visiting China. These are commonly organised on a sectoral basis and involve a week or more spent touring companies, meeting counterparts and potential partners and hearing more about the sector as a whole and the specific opportunities within it at seminars and similar events. Sectoral delegations are commonly organised directly by the Department of Trade and Industry, through groups representing industrial and commercial sectors or by organisations like the China Britain Business Council and the 48 Group Club whose aim is to promote Sino-British economic links.

As in other markets, trade fairs are widely used in China as a means of promoting business. In fact, for those entering the market, the main problem is finding which of the many hundreds that take place each year offers the best chance to identify the relevant opportunities. The China Council for the Promotion of International Trade is the main clearing house for trade and investment opportunities in China. It provides comprehensive information on trade fairs direct from its website at

Some trade fairs are sector-specific. Others are more general and organised on a regional basis.

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