This revision presentation looks at key aspects of the external environment for firms outside China looking to do business with China. It highlights key issues relating to: urbanisation; wealth, poverty & inequality; demographics in China; pollution & energy; Working conditions; corruption and protectionism

1. China – Social, Environmental,
Ethical and Political Issues
AQA BUSS4 Research Theme 2014

2. The external business environment in China is
complex and challenging
• China is still a communist state
• China is going through a process of rapid and
substantial economic and social change
• The pace of change in China has created
significant social costs
• China has set itself ambitious targets for growth
and international expansion
• The political and legal environment in China is
particularly volatile for businesses outside China

3. Key themes to explore in the external environment
for businesses looking to trade with or in China
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Urbanisation
Wealth, poverty & inequality
An ageing population
Pollution & energy
Working conditions
Corruption
Protectionism

4. China is undergoing a massive programme of
urbanisation

5. The scale of forecast urbanisation is stunning
Around 1bn living in China’s cities
15 cities with 25m+ population
200+ cities with 1m+ population
170 new mass transit systems built
40bn sq km of floor space built
Source: China Regional Forecasting Service, EIU

6. Urbanisation is closely linked with China’s
massive investment in infrastructure

7. Some infrastructure investment has led to the
creation of ghost cities

8. Urbanisation is pushing up consumption and
increasing income per person

9. A billion urban population in China?
If current trends hold, China's urban
population will hit the one
billion
mark by 2030.
In 20 years, China's cities will have
added 350 million people more than the
entire population of the United States
today. By 2025, China will have 221
cities with one million–plus inhabitants—
compared with 35 cities of this size in
Europe today—and 23 cities with more
than five million. For companies in
China and around the world, the scale
of China’s urbanization promises
substantial new markets and
investment opportunities.
http://www.mckinsey.com/insights/urbanization/preparing_for_urban_billion_in_china

10. The growth of the consumer “middle class” in
China is driving phenomenal purchasing power

11. …although it depends on how you define
“middle class”

12. However, income inequality between different
regions in China has become a growing problem

13. As it usually does, economic growth has amplified
the differences between rich and poor in China

14. …and many Chinese feel left behind by the
drive towards urbanisation

15. Millions in China are getting rich and they look
likely to get richer…

16. By 2015 China will account for over 20% of the
world’s demand for luxury goods

17. Many Western brands are exploiting the
opportunities of China’s new rich
http://www.businessinsider.com/presentation-on-china-and-luxury-brands-2013-7#-6

18. But it is China’s vast and growing middle class that
represents the biggest change and opportunity

19. China’s middle class are now seen as vital to the
health of the global economy!

20. An ageing population: will China get old
before it gets rich?

21. China demographics in 2010

22. China demographics in 2025

23. What are some implications of an ageing
population in China?
Decline in size of labour force
Loss of China's "demographic
dividend" - lots of cheap, young
labour
Relocation of manufacturing in
China away from the coast
Increased demand for healthcare
& housing
Increase in savings & pensions impact on consumer spending

24. One interesting effect of changing population
on China’s factory workforce…
Tightening labour market that is
pushing up wages
Nationwide shortage of young
workers due to demographic
changes
Chinese companies moving inland
where they can pay cheaper
wages
Women in poorer provinces have
less reason to leave home
Young women in China now have
different ambitions

25. China is addressing environmental issues in a country
where air pollution kills up to 1.3m people a year

26. Economic growth is literally choking the
Chinese population

27. Pollution has significant social and economic
costs for China

28. As a result, China is now the world’s largest
investor in renewable energy

29. China is investing massively in solar and windgenerated power

30. However, China has been accused of actively
“protecting” its solar power industry

31. Product health & safety are also increasing concerns
amongst consumers & the Chinese government is acting

32. As industrialisation took hold, China became
known as the “factory of the world”
China…
produces nearly 17 times as many air conditioners per person than the rest
of the world
manufactures more than 40 times as many personal computers per person
than the rest of the world
has over 11 times as much solar cell production capacity per person as the
rest of the world
makes more than seven times as many pair of shoes per person as the rest
of the world
produces more than six times as much cement per person as the rest of the
world
http://www.businessinsider.com/chinese-manufacturing-stats-versus-rest-of-the-world-2013-8

33. The use of cheap labour by Western brands in intensive
factory production some came under scrutiny

34. Nike was one of the first global brands to be
accused of using sweatshops in China
“the Nike product
has become
synonymous with
slave wages, forced
overtime, and
arbitrary abuse.”
Phil Knight
Nike Chairman
1998

35. Apple and its main supplier Foxconn were
highlighted in 2011

36. There is plenty of evidence that significant
problems in working conditions persist

37. Despite putting in place more stringent controls
over suppliers in China, issues still emerge

38. Conditions in China’s factories are now
subject to intense scrutiny by pressure groups

39. Key implications for businesses outside China
• Can suppliers be trusted?
• What controls and supplier audits
need to be in place?
• Potential for brand damage if found
to be using sweatshops?
• Can supply be sourced from outside
China?

40. Any business wanting to operate in China can
expect some kind of corruption?
“Anyone doing business in China is likely to encounter
or hear of corruption in one form or another.
Historically, practices such as facilitation payments,
bribes and giving and receiving expensive gifts in
order to develop relationships were often regarded as
a part of doing business. This is still the case in some
areas, although the problems vary according to sector,
type of business and region.”
Source: China-British Council
http://www.cbbc.org/guide/getting_started/bribery_corruption

41. Addressing the problem of widespread
corruption is firmly in the spotlight

42. China’s healthcare system is, perhaps, the best example
of an industry with high levels of corruption

43. …with potentially devastating consequences
for Western multinationals if caught

44. Is China’s anti-corruption drive unfairly
focused on multinationals?

45. Protectionism is a potentially significant issue
for any firm wanting to do business in China

46. China ranks 70th globally for ease and cost of
trading across its borders

47. The European Union (EU) has raised some
specific concerns about protectionism by China
China is one of the world's largest economies and an important trading partner for the EU.
China is also an increasingly important political power. China's accession to the WTO in
December 2001 was a major step. It required China to take bold reforms and liberalise
important parts of its economy. Both China and the wider WTO membership have benefited
greatly from China's integration into the global economic order. Yet while China has made
good progress in implementing its WTO commitments, there are still outstanding problems:
• Industrial policies and non-tariff measures in China which may
discriminate against foreign companies
• A strong degree of government intervention in the economy, resulting
in a dominant position of state-owned enterprises, and unequal access
to subsidies and cheap financing
• Inadequate protection and enforcement of intellectual property rights in
China
Source: http://ec.europa.eu/trade/policy/countries-and-regions/countries/china/

48. There is also concern that China will increasingly
use dumping as a method of protectionism

49. Overall, the external environment appears to be more
threatening for businesses outside China wanting to do
business inside China

50. However, 21% of multinationals still expect China to
be their biggest market within 5-10 years