China – Social, Environmental, Ethical and Political Issues


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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

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China – Social, Environmental, Ethical and Political Issues

  1. 1. China – Social, Environmental, Ethical and Political Issues AQA BUSS4 Research Theme 2014
  2. 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. 3. Key themes to explore in the external environment for businesses looking to trade with or in China • • • • • • • Urbanisation Wealth, poverty & inequality An ageing population Pollution & energy Working conditions Corruption Protectionism
  4. 4. China is undergoing a massive programme of urbanisation
  5. 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. 6. Urbanisation is closely linked with China’s massive investment in infrastructure
  7. 7. Some infrastructure investment has led to the creation of ghost cities
  8. 8. Urbanisation is pushing up consumption and increasing income per person
  9. 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.
  10. 10. The growth of the consumer “middle class” in China is driving phenomenal purchasing power
  11. 11. …although it depends on how you define “middle class”
  12. 12. However, income inequality between different regions in China has become a growing problem
  13. 13. As it usually does, economic growth has amplified the differences between rich and poor in China
  14. 14. …and many Chinese feel left behind by the drive towards urbanisation
  15. 15. Millions in China are getting rich and they look likely to get richer…
  16. 16. By 2015 China will account for over 20% of the world’s demand for luxury goods
  17. 17. Many Western brands are exploiting the opportunities of China’s new rich
  18. 18. But it is China’s vast and growing middle class that represents the biggest change and opportunity
  19. 19. China’s middle class are now seen as vital to the health of the global economy!
  20. 20. An ageing population: will China get old before it gets rich?
  21. 21. China demographics in 2010
  22. 22. China demographics in 2025
  23. 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. 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. 25. China is addressing environmental issues in a country where air pollution kills up to 1.3m people a year
  26. 26. Economic growth is literally choking the Chinese population
  27. 27. Pollution has significant social and economic costs for China
  28. 28. As a result, China is now the world’s largest investor in renewable energy
  29. 29. China is investing massively in solar and windgenerated power
  30. 30. However, China has been accused of actively “protecting” its solar power industry
  31. 31. Product health & safety are also increasing concerns amongst consumers & the Chinese government is acting
  32. 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
  33. 33. The use of cheap labour by Western brands in intensive factory production some came under scrutiny
  34. 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. 35. Apple and its main supplier Foxconn were highlighted in 2011
  36. 36. There is plenty of evidence that significant problems in working conditions persist
  37. 37. Despite putting in place more stringent controls over suppliers in China, issues still emerge
  38. 38. Conditions in China’s factories are now subject to intense scrutiny by pressure groups
  39. 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. 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
  41. 41. Addressing the problem of widespread corruption is firmly in the spotlight
  42. 42. China’s healthcare system is, perhaps, the best example of an industry with high levels of corruption
  43. 43. …with potentially devastating consequences for Western multinationals if caught
  44. 44. Is China’s anti-corruption drive unfairly focused on multinationals?
  45. 45. Protectionism is a potentially significant issue for any firm wanting to do business in China
  46. 46. China ranks 70th globally for ease and cost of trading across its borders
  47. 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:
  48. 48. There is also concern that China will increasingly use dumping as a method of protectionism
  49. 49. Overall, the external environment appears to be more threatening for businesses outside China wanting to do business inside China
  50. 50. However, 21% of multinationals still expect China to be their biggest market within 5-10 years