Mateusz BURNICKI Student ID: 40131854 CB3042 China Business Environment CityU Hong Kong 

S1: Intro 
Why take this course?  government​- very hands on and involved
● 2nd largest economy in the world
● 30% of luxury goods are consumed by
mainland Chinese?
● Largest market of carts and mobile phones
● Misconceptions about China and its market
● Outbound foreign investment overtook
inbound foreign investment in China in
2013
● The philosophy applied to understanding
the West has resulted in a lot of challenges
and difficulties for Western firms in China.
Largest Unicorns in the World- 4 from the top 10 in
China and China has produced more unicorns than
US 206 vs 204 as of 2020.
Ant Group
● China faced many challenges
● Corruption
● Environment issues
● Product safety issues
"China's economy is BIG but not strong..."
"China is full of contradictions"
● Opportunities and challenges
● How important is China to your career
planning?
S2: Cultural & Social Environment  Hu Jintao - ​continued opening up and grow the
Why does China Matter? 
4. Understanding the ​Role of the 
 
historically and divested recently, apart 
from key industries.  
5. Not one definition of China​- different 
across different cities, regions. A lot of 
complexity. All business is local and all 
locals are different.  
5 leaders & policies of China 
Mao Zedong - ​declared certain privileged urban 
youth would be sent to mountainous areas or 
farming villages to learn from the workers and 
farmers there “Sent down Youth”. 
Deng Xiaoping -​ far-reaching market-economy 
reforms, which earned him the reputation as the 
"Architect of Modern China". - The Four 
Modernizations 
Jiang Zemin​- coined the new "socialist market 
economy" to move China's centrally-planned 
socialist economy into essentially a 
government-regulated capitalist market 
economy., Supported the suppression of the 
student-led pro-democracy protests at 
Tiananmen Square. , 
 
economy. Boosted the local consumption 

Xi Jinping -​ reforms to limit the role of 

A lot of progress→ Belt and Road Initiative (One 
government while giving a decisive role to the 
Belt One Road (Chinese: 一带一路) or OBOR for 
market economy, anti-corruption campaign 
short) & some other one idk 
against officials, promotion of urbanization and 
Hukou reforms,  
Video: Top 5 challenges of doing business in 
China: 
China Geographic Situation:  

1. Find out what your motivations ​for 

investing in China.- big difference  Land area= 9.6 million km^2 Capital=Beijing 
between population and a market.  Municipalities: 4 Beijing, Tianjin, Shanghai and 
2. Lack of Information-​ as Mao said  Chongqing, Provinces: 23 Subdivisions + 
crossing a river by feeling stones.   officially autonomous regions: 5 Inner Mongolia
3. Nothing is as it initially seems.​ Always a  ，Xinjiang，Tibet，Ningxia and Guangxi & 
story behind a story, a person behind a  Special Administrative Regions: 2 
person. 

1 
 
 
Tier cities: ​1-through-4   Pre-1978: Urban Workers and Peasants → 
Present: Urban Hukou, rural hukou, Rural 
migrant labor (not entitled to any benefits, 
Tier 1 (Beijing, Shanghai) Tier 2 (province capitals)  education etc. in cities they moved to) 
Tier 3 (large cities in the east and province 
capitals) Tier (4 smaller scale) 
Growing disposable income inequality- now 
largest in the world 
Tier 2 best choice for growth and the right 
market segment ​( wealthy chinese will prefer to 
make a trip overseas for shopping to get better  Students from countryside are shunted into lower 
prices and avoid tax)  quality colleges 

Demographic situation in China   Recently government introduced some policy to 

combat this 

3 regions West, Central, East have hge 

differences between incomes, cultural and  Recently it is easier to get HuKou to certain new 
economic development,  cities 

50-50-ish urban to rural→ But in the 1980s it was  New business opportunities- transportation, 
only 10%!  housing in new cities 

The target is 70% of the urbanized population  Special school for migrant workers Ex: 
expected by 2030.  McDonalds- initiative for medical bills, which 
allowed it to establish a good corp. Image.  

Social Issues 
Aging Population in China 
HuKou System ​(Household registration System) 
More elderly + lower birth rate

Acts as an 
internal 
passport- 
the 
population 
is divided 
into rural 
and 
system.  

 
Introduced 
1953 when 
90% of population lived in the countryside   Era of cheap, young chinese labor is over 

Impact of HuKou:  Healthcare and social welfare system issues- 

while good quality there isn't enough supply and 
elderly homes and tourism/entertainment for 
Migrant workers - term forged after 1978- people  elderly in particular are demanded 
couldn't move freely until then 

2 
 
 
Result- the need to find local partners for many 
businesses has been abolished to increase  What Does it Mean to be a Communist State? 
foreign investment 
What are the core elements of communist 
institutions? 
Chinese Culture 
There are 5 political bodies 
❖ 900—1949: Chinese Traditional Culture 
and Western Culture 
❖ 1949-1978: Revolution Culture (马列主义
和毛泽东思想)   
❖ 1978 to present: Revolution Culture, 
Chinese Traditional Culture and Western 
Culture 

Banned Advertisements 
 

● Lebron James Nike advert  ● National People’s Congress 

● Toyota ad with lions bowing and saluting  ● State Prez & VP-  
to a toyota 
● State Council- highest administrative 
body- main task- set ​5 year plans​ for 
Glossary: Guanxi- ​deeper meaning than just  economic and social systems- no law or 
business relationships → is a Chinese term 
meaning "networks" or "connections" that open  requirement but instead just the guide. 
doors for new business and facilitate deals. A 
person who has a lot of guanxi will be in a better  China Nightmare to 1949-1978​- ccp wants 
position to generate business than someone who  absolute power- political, economic, cultural and 
lacks it. 
spiritual which led to persecutions, but goals 
shifted from focus on political power in 1949 to 
S3: Political and Legal System  cultural power to economic power since 1978. 
1978 as the ccp was effectively bankrupt and 
Hierarchical Structure and Firms in 
introduced economic reform and today the 
China  spiritual power takes the stage. ​At different 
periods governments had different priorities. 
Centralised Government with one party- with the 
central government at the top followed by   
provincial → prefecture-city→ county→ township 
local governments.   Legal System 
Direct control → Direct Impact  ● Foreign investment is easy but getting 
money back out of China is complicated 
Giordano example - HK based company that 
● Joint Venture issue 
provided financial support to student protests in 
● Registered trademark in China 
Tiananmen, and was subsequently ordered to 
● Corruption  
close its shops by the Chinese Government.  
 
Political System 
 

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S4: Economic Reform I  How Did China’s Gradualist Reforms 

China’s Economy Prior to Reforms  Succeed? 
(​1949-1979)
● Political System 
A Centrally Planned Economy   ● Decentralization - Allowing the 
nation's economic power to be 
- The government made the economic 
distributed among the provinces ß 
decisions. The country’s economic 
Fiscal decentralization.  
output was directed and controlled by 
the government (set production goals).  
● Key Elements of reform: 
- allocated resources   ○ Agricultural Reform 
- controlled prices   ○ State-owned Enterprise 
Reform 
Lack of competition 
○ Growth of the Non-state 
- High levels of inefficiency  Sector 
- Shortage and limited variety of goods  ○ Opening-up Policy 
- Products with poor quality 
- State-controlled channels of distribution   
- Everything you need----Coupons (票） 
Challenges of SOEs Reforms 
State-Owned Enterprises 
● Lack of experience 
SOEs produced goods according to centrally  ● Lack of strong leadership 
planned output targets. Private enterprises and  ● Decision-making process 
foreign-invested firms were generally barred.  ● Emphasis on accumulating tangible 
Government had dual overlapping roles-- as an  assets to the neglect of intangible 
asset investor owning SOEs, and as an official 
assets 
ministry supervising SOEs. 
● No urgency to make changes 
 
Private Enterprises 
Economic Reform (1979- PRESENT) 
● China has become a startup nation 
  ● 12 000 startups created every day  

  Challenges: 

  ● Changing the business environment: 

  production cost, 
  ● environmental protection. 
  ● Unequal treatment 
● Legal and Bureaucratic Restrictions 
to Entry (energy, 

4 
 
 

● telecommunications, and 
● Economic growth 
infrastructure) 
● Optimization of industrial structure 
● SOEs continue to receive explicit and 
● Opening wider to the outside world 
implicit government subsidies, 
● Deepening reform 
including low effective tax rates, low 
● Outstanding achievements in social 
dividend payouts, and little or no 
development (poverty reduction) 
royalties on resource extraction. 
● China is on the path to global 
  technology dominance 

Future Directions  Challenges 

● Digital China (mobile era, internet  ● Regional Disparity​ (east vs west) 

based innovation emerges) 
Reasons 
● Innovation China (Mobile payment 
leader, Financial revolution, Artificial  1. Economic centers and modern industries 
intelligence pioneer, Social media  in south and east  
powerhouse)  2. Foreign investment and capital injection 

● High-end Manufacture China (Made  3. Natural and transport conditions 

in China 2025)   
● Green China (Sustainable 
● Urbanization ​(mostly east and at 
development) 
different tiers) 
● Open-up China (One belt one road) 
1. The first is scale 
  2. The second is the speed of 
transportation links 
S6: Economic Reform II 
3. The third is that it’s a process that’s still 
Regional Development (Open Door  in transition. 
Policy) 
 
● 80s Special economic Zones 
● 2000 Western Development Scheme  Benefits:  Problems​: 
● 2002 Northeast Area Revitalization Plan     
(inner mongolia etc.) 
● 2013 Shanghai Free-Trade Zone  Driving force in  Environmental pollution 
economic growth 
Loss of agricultural land 
Achievements 
Efficient use of 
infrastructure  Demand for natural 
● Remarkable economic achievements  resources 
in China  Health services 
Housing issues 
  Education   

5 
 
 

● Yangtze river delta 

Uncertainties  ● Pearl River Delta 
● Structural Change​ from Export-led and 
But bargaining power is very low for foreign 
Investment-led economy to a into a 
companies… 
consumption-driven and service-driven 
economy by 2030   Ex: Shinjin required a motorway to be built. 
● One belt, One Road  
WHich was made by a HK company, and 
charged vehicles for use, but the 
government intervened in 1990s after 
complaints, the local government got upset 
after being offered a very high price and 
built its own motorway on top of the old one. 

Takeaway: Local governments in 

well-developed cities, are focused on high 
brand and high tech- not money.  
●  
● US-China Trade War   

  Approach to market entry- 3 questions 

S7: Foreign Investment  1. Should we enter? 
● Many local companies in CHina Owned 
Look at market size, potential growth, 
by foreign companies 
government regulations 
○ Ex Alibaba 
● China 2nd largest recipient of FDI  2. How should we enter? 
● Mostly in manufacturing 
● Followed by real estate  Many entry options…? 
● Concentrated in HK 
3. WHY should you enter China? Why not? 
● Shanghai Free Trade Zone 
● Companies benefit from TAX FREE  Pros:  
PERIOD OF 10 YEARS 
● One stop application processing  Large market, 

platform 
Good growth prospects 
● A lot of firms have set their 
manufacturing plants   Cons: 

-After 40 years we have 3 more economic  Political environment and legal context 
regions that account for over 50% of 
Regional differences 
China’s GDP: 
Lack of transparency, corruption and weak 
● Beijing-Tianjin  intellectual property rights protection 

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Cultural differences in business practice may be  Consumer Market 

difficult for foreigners to manage 
Consumer Analysis - Why is China different? 
E-Commerce 
● Multi tier cities 
Restrictions on Foreign Investment  ● Social Class 

What should foreign investors pay attention to 

when planning their China entry? 

Negative lists directed at foreign investors; 

● The Special Administrative Measures on 

Access to Foreign Investment 
● The Free Trade Zone Special 
 
Administrative Measures on Access to 
Foreign Investment   
General negative lists​, which are applicable to 
Emerging Consumer trend 1:​ Urban 
all enterprises, including domestic enterprises. 
consumption in lower-tier cities as a new 
● The Negative List for Market Access  growth driver 
(2018 edition) (“2018 MA negative list”) 
A Shift to Domestic Brands 
● The Guidance Catalogue of Industrial 
Structure Adjustment (2011 edition) (2013 
● They appeal to the right niche and 
amendment) (“2011 guidance catalogue”) 
cater to local consumers' specific 
needs. 
● They develop innovative products 
and concepts 

Emerging Consumer Trend 2: ​A new 

  frontier of opportunities unearthed by 
Generation Z 
Encouraged ​(High-end manufacturing, High and 
new tech, Environmental protection, New  Consumer Market in China 
energy,) 
● Chinese millennials grew up in a 
Restricted ​( Wholesale and retail, Financial 
rapidly changing economic and 
services, Real estate development, Education) 
social environment 
Prohibited ​(Postal services, Media )  ● Chinese millennials are the world’s 
most ultra-connected consumers 
 
S9: Consumer Market 

7 
 
 

● Chinese millennials participate in a 

Smog- Air pollution 
unique commercial ecosystem that is 
dominated by e-commerce   Government Response: 
● Chinese millennials are eager to be  ● Coal control Measures 
seen as global citizens  ● Beijing bans highly polluting cars 
● In 2018, Beijing released the China 
Emission Standard, which is more 
Ecommerce in China  stringent than the Europe Emission 
Standard. 
Emerging Consumer Trend 3: ​The evolution  ● China has become the largest electric 
of digital platforms to appeal to digital- savvy  car market in the world 

Chinese consumers   

Emerging Consumer Trend 4: ​Inexorable  Water Pollution in China 

shift to online-based consumption post  ● 78 % of the water from China's rivers 
COVID-19  is not fit for human consumption. 
● up to 200 million rural Chinese have no 
Emerging Consumer Trend 5: ​Supply chain  access to clean drinking water. 
● China is the largest polluter of the Pacific 
reconfiguration and the rise of C2M model  Ocean 

Emerging Consumer Trend 6: ​Seeking  Social Issues 

return on health and sustainability  ● Chin​a has become the world’s largest 

  importer of waste 

S10: Sustainable Development   Government’s action: China in 2010 created 

"Sustainable development is development  E-waste Processing Planning (2011-2015) 

that meets the needs of the present without  Government’s action: China bans import of 

foreign waste to stop pollution 

compromising the ability of future 
● Media’s role 
generations to meet their own needs”  ● NGO’s role 

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