Business in China: The Risks, Costs and Benefits

Business in China: The Risks, Costs and Benefits

Gabrielle Kasza, Alice Mueller, Jonah Sutton, Victor Van den Heuvel

Universitat Autonoma de Barcelona

We are Samsung from South Korea looking to do business in China. Here is our geographic, cultural, and legal analysis to conclude our risks, benefits, and costs.

1.Geographic Influences

China is the third biggest country in the world, following Russia and Canada. It has a prime location with very diverse landscape. The land consists of plateaus, plains, basins, foothills, and mountains. In the SouthWest, the Himalayan Mountains Give China protection, while on the East there are vast coastlines that border with the Pacific Ocean. In the past, the mountains have protected China from foreign influence, allowing chinese culture to develop stronger. The mountains have also cut off trade routes through the SouthWest, making it more isolated. China has three significant rivers that flow to major parts of the country. This is an advantage for transportation of goods and people.  

2. Major Products and Industries 

The diverse geography of such a large country like China provides great accessibility to natural resources and minerals. China happens to be very rich in natural resources and minerals. The country has 12% of the world's mineral resources. China is one of the biggest mining countries, but is quickly running through its reserves. Production is always going up and more natural resources are being consumed. China is having trouble keeping up with the demand. They have started to outsource to different countries for help. This could be good because it is boosting other countries economies and opens up new mining opportunities in China. They do still have large reserves of coal, Iron, Tin, Copper, Lead, and Zinc. China is still exporting tons of natural resources while also importing and outsourcing.

 China’s geography also makes it a plentiful place for agriculture. China is ranked number one in the world for farm output. They have over 300 million farmers that provide 20% of the world's food. Agriculture is a large industry, but not as large as manufacturing. China is known for its cheap production and high output rate of manufactured products. Around 50 years ago, China was a struggling nation of extreme hunger, poverty, and repression. Manufacturing has created millions of jobs and turned around the country's economy for the better. China now makes and sells more manufacturing goods than any other country on the planet. This can be looked at as a positive and a negative. It is helping the economy while making money off the backs of children and cheap labor. Industry provides 72.8% of China's GDP.

China has trillions of dollars of imports and exports. They are the second largest importer in the world and the largest export economy in the world. China has a positive trade balance of $736 billion, which is great in perspective of how much china imports. The country has $2.06 trillion dollars worth of exports and $1.32 trillion worth of imports. There top imports consist of integrated circuits ($128B), Crude petroleum ($116B), Gold ($62.6B), Iron Ore($58B), cars($44B). Top exports consist of computers($136B), broadcasting equipment($115B), and telephones($84.3B)

3. Current Economic Conditions 

The Chinese economy has been doing very well. The economy has been growing at a constant rate and has secured a spot for the world's second largest economy. The economy really boosted after the economic reforms in 1978. After the reforms, manufacturing was booming and the economy was headed for success.  

You need to show here which factors contribute to this healthy economy. You have mentioned GDP before but you have many other factors missing

 4. Infrastructure

         China leads the world in infrastructure investment and profits a lot from it. The Infrastructure is one of the main drivers for economic growth and opens the door to socio-economic development. China’s network grows very fast, it has more than tripled in length in the last two decades and no country invests more in its infrastructure than China.

The tendency is clear: The economic grows, the population increases (1.379 billion in 2016) and tend to live farther from the big cities: the process of urbanisation isn’t this a contradiction?. In terms of transportation, especially this urbanisation leads to the fact that people ride bicycles less and drive more own cars. Although the government is moving to expand public transport, the transportation in China makes a sustainable challenge for the infrastructure development. In 2011, the GDP was overrun by vehicle ownership rates. And the vehicles are just an example for the overall development: The infrastructure will continue to grow and therefore exceed the overall GDP growth in the next years again (GDP 2012-2016: 7.3%, 2017e-2020e: 5.9%). Infrastructure also involves roads, ports, airports… those are vital for China…

One of the reactions of the government of the People’s Republic of China is the transit-oriented development (TOD). The TOD’s mission is to create compact, walkable, mixed-use communities, which are located around high quality train systems in order to promote public transport and mobility at the same time. This mission could be achieved by following the key principles of the TOD like Quality Public Transit to connect a high number of riders with the city or the Car Use Management, which includes car sharing. Currently, 13 cities in China have one or more subway lines under operations, 54 lines covering 1,700 km. The target of TOD is to create a system consisting of 40 subways by 2020, which covers about 7,000 km. With this aim, TOD makes a huge difference in urban living and a long-term opportunity for the transport system of the People’s Republic of China.

Also in terms of utilities like energy, natural resources and water, China is facing big challenges from the rapid growth in the country. China generates 18% of all electricity globally, not far behind the United States. A big problem for China is the fact that wind and solar energy sources only make one percentage point of the total electricity production. Therefore, they set the target to achieve 20% renewable power production by 2020. Although there is a growing market for energy service companies (ESCO), which are commercial or non-profit businesses who implement energy saving projects, it will be still a tough goal to reach.

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