Table of Contents
Geography and Basic Information
China is located in Eastern Asia. It is the third largest country in the world and has the largest population, estimated to be 1,331 billion people. China borders 14 countries, among which Russia and India take large sections of the border (Facts about China 2012).
China has shown some incredible growth rates in the recent years. The statistics show that its GDP growth was 10.4% in 2010 and totalled $5,745 billion. The Chinese economy is developing rapidly. It shows an average 8% growth annually. It is the second biggest economy in the world after the USA and predictions are that it will become the largest in the nearest future. Chinese unemployment rate is not high and still decreases, staying around 4% (The Chinese Economy 2010).
China’s standard of living is around $2,000 per capita, which is relatively poor as compared to the global standards. However, the system of economic reforms that was implemented in the country in the 1970s-1980s provides a steady growth and diversification of the economy.
The rise of modern China occurred in recent years. The history of China in the twenty first century was very eventful and presents a chain of continuous revolutions, wars and invasions. The country adopted Communist ideas and that led to China’s becoming a Communist state after World War II and resulted in the implementation of the Communist ideology in every area of life.
At first the country was heavily dependant on the Soviet Union in the issues of ideological support and looked up to the USSR as its leader. Mao Zedong, who basically became the country’s leader in 1934, took the course of distancing China from the Soviets (Mao Zedong Biography). He was the founder of the People’s Republic of China in 1949 and its irreplaceable head until his death in 1976. In 1962, the break with the Soviet Union was complete and Mao launched the Great Leap Forward, a movement designed to mobilize peasant masses on order to increase crop production.
The result of this movement was as researches believe the greatest man-made famine in history leading to starvation of 30 million people. Mao launched other experiments like the Great Cultural Revolution that resulted in imprisonment, purges and killings of millions of people. However, he also modernized China and built it into a world power. The country population grew from 550 million to 900 million in the period of Mao's leadership (The birth of Modern China).
After Mao’s death in 1976, another leader, Deng Xiaoping, came to power. He immediately began his program for economic reforms starting with the agricultural sector and then spreading them to the rest of the country. His ideology was somewhat different that that of Mao. Xiaoping believed when dealing with the areas that required professionalism ideological issues had to be put aside.
Core Economic Reforms
Since 1978 China has been going through massive economic reforms which changed the society and promoted growth. However, the political system has not experienced any changes and China remained a one-party state. The Chinese government played a very active role in changing the country’s economy. Its leader, Deng Xiaoping, assisted passing new legislation and programs, which were a turning point in the area of China’s policies for its social and economic development.
Decisions were made that the methods and system of economic management would be changed, cooperation in the economic area with other countries would be broadened, special measures would be taken to adopt the world’s advanced equipment and technologies and educational and scientific work would be greatly supported and elaborated to develop modernization. The following four areas of modernization were stressed: industry, agriculture, national defense, science and technology (Tisdel, 2009, p. 279).
International Business in China
All the changes made by the Chinese government opened the country for foreign business and investments. In 1979, there were only 100 foreign companies operating in China. By 1998, the number changed to 280,000. And by 2007, foreign companies had 25 million employees China. There were such large U.S. companies present there as General Electric, Microsoft and Google. Among other foreign companies there were such well-known enterprises as Volkswagen, Coca Cola, Pepsi Cola, Toshiba, Nike, Citibank, General Motors, Citroen, Cisco, Philips, Microsoft and others. As of 2010, 300,000 foreign companies had made investments in China, the largest investors being: General Motors ($2 billion), Motorola ($1.2 billion) and General Electric ($1.1 billion) (Hays, 2008). By the end of 2010, there were around 690,000 foreign-owned companies in China with total investments made of nearly one trillion USD.
Complaints by Foreign Companies in China
Although foreign companies experience huge growth in China, many complain about several issues that seriously impede their business activities. One of them is the infringement of intellectual property rights. Another complaint is stealing technologies and ideas. The Chinese government insists on sharing technology secrets by foreign companies. They are later used to produce cheaper products and organize unfair competition with those companies. It has also been reported that foreign companies experience increased protectionism in various industrial fields, which leads to blocking of foreign firms. Some companies witness the violation of human rights such as infringement of labor legislation (Anderlini, 2010).
In 2009, in the course of economic crisis, the government of China introduced a series of measures targeted at maintaining growth and did its best to support trade and investment. As a result, foreign investments in China decreased less than by three percent in 2009, while world-wide companies lost by nearly 40 percent.
Several measures were taken to improve foreign investment conditions and to assist trade and investment. China introduced many changes into its legal system, thus, facilitating business activity. Further, many new areas in agriculture, manufacturing and service industries were opened to investments by foreign companies. Another change was that the Chinese government paid much attention to protection of intellectual property. The country adopted many special action plans to prevent the violation of intellectual property rights. It is also important to notice that China showed a great interest and took measures to maintain fair competition in strengthening and developing high technology (China Remains Most Attractive to Foreign Investments, 2010).
China's Export Strategy
China’s economy growth relies on external demand and investments. The country’s export-oriented growth is unprecedented. China’s composition of trade has also changed in recent years. The country imports primarily intermediary goods, raw materials and finished capital goods. They are either assembled or go into the production of final consumption goods with the purpose for exports in third countries. Processing trade represents around one-third of China’s imports and a half of its exports. While limited in its early stages, the domestic value added content of exports increased steadily with import substitution and trade in higher-technology. China now exports goods that are more developed, including machinery and electronics, and produce a greater share of the component inputs further in the chain of supply (Guo, 2009, p. 7).
China neighbors with 14 countries of which three are of special interest to the country: India, Russia and Kazakhstan. While the first two have the longest common land borders with China plus serious investment and co-operation projects, Kazakhstan is the place that interests China in the energy sector. China had uneasy relations with almost all surrounding countries, including those that have maritime borders with it. It lead to tensions and even conflicts in the past with the USSR (1969), India (1962) and Vietnam (1979). The country still has unresolved territorial disputes with India, Vietnam, the Philippines and Japan (Shen, 2012). Tensions with China’s important partner, India, seem to have become the thing of the past as both countries are trying to build mutually beneficial relations.
Economic and Strategic Interests
Chinese economic interests revolve around energy sector and supply of mineral resources for the economy that is experiencing a rapid growth. The country’s attention is directed at such regions as Central Asia, the Middle East and Africa. Besides, China is interested in developing its exports and finding new global markets. China’s import of crude oil grows every year. Thus, oil-mining countries in the Middle East and Africa are very attractive for the country. Kazakhstan is also important because it is both a transit route for natural gas from Turkmenistan and a crude oil supplier. China develops relations with Iran and Pakistan. The latter may serve as a transit route for oil and gas supplies from the Middle East (Collins, 2011).
In the period following the collapse of the Soviet Union, China established strong footholds in the Central Asian energy sector. For instance, presently, Chinese companies own around one-third of the energy assets in Kazakhstan (Shustov 2012). It should be kept in mind that the country is the regional heavyweight.
China pursues the biggest energy project in Central Asia to construct the Turkmenistan-Uzbekistan-Kazakhstan-China gas pipeline. Its first phase was completed in December, 2009. The pipeline transports 40 bcm of gas annually. The share of Turkmenistan is 30 bcm of gas with Kazakhstan and Uzbekistan contributing 5 bcm each. It was announced that the infrastructure will be upgraded to achieve the capacity of 65 bcm capacity.
It looks like China's present economic interests in the region of Central Asia are targeted at transit infrastructures. Under the Communist era, the transit routes of the region were traditionally directed northward but that trend is undergoing changes. The primary transit project that China is beginning to implement is the construction of the China-Kyrgyzstan-Uzbekistan railroad. That route is believed to link China with the Middle East and the Persian Gulf areas by way of Turkmenistan and Iran.
Participation in the Shanghai Cooperation Organization (SCO)
The Shanghai Cooperation Organization (SCO) consists of Russia, China, Kazakhstan, Uzbekistan, Kyrgyzstan and Tajikistan. It was originally set as a mechanism to resolve border disputes that existed between the Soviet Union and China. The organization’s two strongest members, Russia and China, have vast economic interests in Central Asia and one of the goals in establishing it was delimiting each country’s involvement in the region and developing joint economic projects. Other organization's activities include intelligence sharing, counterterrorism drills and military cooperation (The Shanghai Cooperation Organization 2009).
Central Asia is a unique energy-rich region. Six nations: Azerbaijan, Iran, Kazakhstan, Turkmenistan, Russia and Uzbekistan that border the Caspian Sea account for about 45% of the world's natural gas reserves and 21.4% of the world's oil reserves. The SCO member states have made attempts to develop greater energy cooperation. However, the SCO countries pursue their own goals and failed to produce energy or natural gas cartel. The competition between Russia and China is an obstacle for the effective energy cooperation in the SCO framework.
China has certain security challenges that shape the country’s security interests. There are several fundamental characteristics that define its security environment. They are the following: a long and vulnerable border with 14 countries, the presence of many potential threats, such as ethnic tensions and territorial disputes, a domestic political system that is based on quasi-Communist and quasi-capitalist principles and the self-image of great power (China’s Security Problem n. d., p.9). The current Chinese border stretches for 10,000 miles, which makes it impossible to provide a total control over what enters the country and what leaves it. The situation with national minorities, such as the Uyghurs and the Tibetans, is also quite complicated with those ethnic groups aspiring to establish the independent states.
However, with the economy growth and need for energy and mineral resources, the Chinese government will seek to protect its oil and gas supplies. Rapid expansion of economy and increase in energy consumption presents a real threat to China’s energy security. The time of energy independence that China enjoyed before is gone. The country's need of oil pushes the Chinese government to launch aggressive search of international sources of oil supply, which leads to a drastic increase in oil prices. As a result, that affects the Chinese economy and also leads to international tensions (Daojiong 2006, p.1).
Politically, there are two views of China’s present status: as the “innocent giant” and the “patient hegemon”. The latter view refers to expecting the time when the country will realize its power and will move to reconfigure the existing international order. The second view is referred to the time when China’s peaceful rise will end and the country will stop putting up with the status quo (Legro, 2007, p.6).
China remains a country run on the basis of the Communist ideology. However, the support of the government does not rely on the ideology but on economic performance. Contemporary Chinese foreign policy is conditioned by economic considerations. The country’s activity is also based on the fact that it is the major power status and it will not be manipulated by developed economic countries like the USA and Japan.
Economically, China will stay strong in the future if the local government debt and inflation are contained and investments in infrastructure will be continued and managed by the central government. The present growth is expected through 2016 and suggests that China’s annual average growth will stay strong, but will go down to about 7 or 8% in the current decade. Growth will diminish due to a decrease in exports. This is in part because of the consequences of the global financial crisis and present euro area crisis since it produces a decrease in global external demand (Hamid, 2012).
Despite the impact of the global economic crisis, China maintained a rapid pace of growth and became the world’s second largest economic entity. Being the third largest country in the world and having the largest population, this country showed 10.4% GDP growth in 2010. The rise of modern China began in the 1970s. Deng Xiaoping, who came to power in 1978, immediately began his program for economic reforms starting with the agricultural sector and then spreading them to the rest of the country. He put economic interests ahead of ideological principles. The following four areas of modernization were stressed: industry, agriculture, national defense, science and technology. All the changes made by the Chinese government opened the country for foreign business and investments. By the end of 2010, there were around 690,000 foreign-owned companies in China with total investments made of nearly one trillion USD.
In 2009, in the course of economic crisis, the government of China introduced a series of measures targeted at maintaining growth. China’s economy growth relies on external demand and investments. There are some challenges for the Chinese economy such as oil and gas prices and supply markets as well as exports markets. The country’s export-oriented growth is unprecedented. Chinese economic interests revolve around energy sector and supply of mineral resources for the economy that is experiencing a rapid growth. The country’s attention is directed at such regions as Central Asia, the Middle East and Africa and China strives to build strong economic ties with the countries located in those regions. The present growth is expected through 2016 and suggests that China’s annual average growth will stay strong.