PEST ANALYSIS OF CHINA

I . I n t r o d u c t i o n  Nowadays, China has become one of the world’s

most attractive locations and China’s risecarries enormous significant for the international

business communities. China has a very gooddevelopment in term of legal system, the

size of the market, the low cost of labor and China’sgrowth  potential together offer

unprecedented business opportunities for  foreign investor to do business in

China.In t e rna t i ona l   bus ine s s   have  deve loped  ve ry   r ap id ly   i n  Ch ina   and  

t oday ,  Ch ina  become increasingly integrated with other parts of the world and

opened up to a whole range of cross-  border economic activities. Managing an international

business in China is not an easy task andthere are some challenges will be occurred. The

prime challenge for those interested in doing  business in China is achieving their

strategic objectives of cost reduction, local

differentiationand   t he   s t r eng then ing  o f   co re   compe t enc i e s   i n   t he i r   spec i f i c  

f unc t i ona l   a r ea s   and  bus ine s s activities.

China is the formal member of World Trade Organization (WTO) since 2001 and

from thedate, China enjoyed all the rights the WTO gives to other members and full participates

in WTOactivities. China's entry will benefit its national economy, as well as encourage global

economicg rowth   and   t he   improvemen t   o f   t he  mu l t i l a t e r a l   t r ade   sy s t em.  WTO  

member sh ip  opens  up China’s market for more international trade and investment, and

opens up the world economy for China’s exports.This report will cover the reason for doing

business in China, defines and identify the macroenvironment of China in term of political,

economic, social and technology factors in order to do business in China and the impact of China

on joining WTO

China’s economy has experienced a strong annual GDP growth rate of 10% during the last five years. It is

expected to continue its growth momentum and surpass the US in GDP by 2020. A high rate of savings,

abundant and increasingly skilled labor, healthy export business, and potential urban growth is likely to

drive the Chinese economy to sustained growth during 2012- 2017.

Lucintel, a leading global management consulting and market research firm, performed a Political,

Economical, Sociological, Technological, Legal, and Environmental (PESTLE) analysis of China and

presents its findings in “PESTLE Analysis of China 2012.”

As indicated in the study, foreign direct investment (FDI) has proven to be the driving force for China’s

ongoing economic growth. The large and expanding market of China is attracting leading multinationals,

encouraging local innovators, allowing domestic manufacturers to produce lowcost products, and

permitting formation of industry clusters and business groups. Successive governments’ focus on reform

processes and simplification of China’s tax law and FDI procedures makes China an ideal destination for

investment and growth. The report also indicates that large-scale production diminishes production costs,

leading to less-expensive exports. China’s strong presence as an export platform supports income and

employment growth in the economy.

The Chinese economy is plagued by challenges from the European economic crisis that could adversely

affect its growth rate, regional disparity, and growing environmental concerns. Rapid economic

development and accelerated domestic demand in China, however, offers significant opportunities for

growth.

Lucintel’s study outlines China’s need to address several significant challenges and risks, such as its

aging society, rising income inequality, large and growing environmental impact of its industrialization,

and stubborn external imbalances for its transformation into a leader of the global economy.

This unique report from Lucintel will provide you with valuable information, insights, and tools needed to

identify new growth opportunities and operate your business successfully in this market. This report will

save hundreds of hours of your own personal research time and will significantly benefit you in expanding

your business in this market. In today’s stringent economy, you need every advantage that you can find.

Features of This Report:

To make business, investment, and strategic decisions, you need timely, useful information. This market

report fulfills this core need and is an indispensable reference guide for multinational materials suppliers,

product manufacturers, investors, executives, distributors, and many more that operate in this market.

Some of the features of PESTLE Analysis of China 2012 include:

- Trend and forecast of real GDP growth rate

- Trend of savings and investments as well as consumption expenditure in percentage of GDP

- Trend of consumption expenditure as percentage of GDP

- Trend of growth of population and unemployment rate in china

- R&D and technological factor of China 2012

Who Can Benefit From This Report?

This study is intended for material suppliers, investors, executives, and consultants. This multiclient

market study from Lucintel is used by small to multi-national Fortune 500 companies and utilized for a

variety of reasons as follows.

- Business development

- Strategic planning

- Business presentation

- Determination of market size and trend

- Competitive analysis

- Personnel training

- Budgeting

- Investment decision 

STRENGTH

WIND AND SOLAR ENERGY

"China's government has passed a renewable energy law which is intended to increase production of

energy from sustainable sources. The law, which will come into force early next year, seeks to increase

the usage of solar and wind power to 10% of China's total consumption by 2010. This would equate to

around 60 gigawatts. China's wind market is one of the fastest growing in the world with the exception of

the US. A recent study by the Global Wind Energy Council predicted it may have installed capacity of 122

gigawatts by 2020, equivalent to the capacity of five Three Gorges dams."

POPULATION/ CHEAP LABOUR

Today, China has a population of 1.3 billion people, or about 4 times larger than the population of the

United States. China's current labor force is a little over 800 million. Over 40% of those 800 million

workers still work in agriculture. This means over 300 million Chinese workers are still low tech farmers, a

number that is greater than two times the total work force of the United States. So as you can see china

still has a large untapped source of cheap labor and compared with most other developing countries, the

Chinese population has a much higher literacy rate (for example, China's 91% versus India's 61%

according to the CIA World Fact Book) making china a source of highly trained labor as wel

A PESTLE Analysis On Chinese market (E-Commerce Sector)February 25, 2013 - Sample of English Assignments By Chinese Students - Tagged: A PESTLE Analysis

On Chinese market (E-Commerce Sector), Economic analysis, Environmental analysis, PESTLE

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The PESTLE Analysis is a common approach for examining the general business environment

in order to manage the future opportunities and threats from probable changes in the

environment (Mullins 2002) by analyzing the Political and legal conditions, Economic

conditions, social and cultural conditions, technological conditions and environment related

issues. In the following we will execute a PESTLE Analysis on the E-Commerce sector of the

Chinese market. And as proposed by Neil Botten (2008, p.39) that there are no pure factors

because these factors are interlinked.

Political and legal analysis

 

Political factors include government regulations and legal issues and define both formal and

informal rules under which firm must operate. And it is claimed that the political force is

probably the most turbulent force in the environment (Fahey & Narayanan 1986). In the past

one decade, the Chinese government attaches great importance and focus to the

development of e-commerce in the most populous country, for example, on issuing the

Summaries of the Middle/Long Term Science and Technology Development Plans of China

and the Development of Information Industry Plans in the Eleventh Five-year and Long Plan

in 2020 Years in The Ministry of Information Industry, the “application of e-commerce

platform technology” has been listed as a key point (Li 2010, p.260).

 In term of the legal system, the Chinese legal framework for e-commerce is still in its

nascent stage and has already experienced several problems. China has limited experience

with drafting e- commerce legislation for issues such as transactional security, intellectual

property rights protection and tax. And regulations supporting areas critical to the

development of e-commerce such as the privacy, consumer rights, and validation of

electronic contracts and recognition of digital signatures have yet to be written

(Kariyawasam 2011, p.270). But the legal system of China does develop quickly to meet the

needs of the e-commerce.

 Economic analysis

Any development in the economic part of a country’s environment could have significant

impacts on the SMEs and their activities. These factors include the total GNP trend, GDP per

head, inflation rate, exchange rate, energy and raw materials availability and cost,

employment level, interest rate, monetary and fiscal policies, banking policies an investment

and so on (Analoui & Karami 2003, p.75).

Figure 2 Growth of China GDP per capita in the new century

Source: The World Bank Group 2011

Above is the growth trend of the GDP per capita of China in the new century, similar to the

indicator GDP, the country has sustained a continual rapid growth in term of GDP per

person, indicating that each people is creating more and more values to the society

resulting in the increase of the individual consumers’ purchasing power. Though the

economic situation is seems to be good, the economic development does slow down a little

and also with worrying trends such as high inflation rate and high property prices. According

to the most recent news, the consumer price index rose 6.1 per cent from a year earlier in

September, down from a three-year high of 6.5 per cent in July. Politically sensitive food

prices, however, increased by more than 13 per cent. The overall economy has now slowed

for three consecutive quarters – largely the result of BeiJing’s efforts to cool growth and

dampen inflation. The central bank of China, the People’s Bank of China, has increased

interest rates five times over the past year and increased the reserve requirement for

commercial banks for nine times, and at the same time also asking banks to reduce lending

and imposing limits on home purchases to curb property and consumer prices (Anderlini

2011).

 

  Social and cultural analysis

 

To understand the social and cultural environment involves close analysis of the society.

Demographic changes such as population growth, movements and age distribution will be

important, as will changes in cultural values and social trends such as family size and social

behaviors (Dransfield 2005, p.60). Such factors could include:

Consumer lifestyles

Environmental issues

Demographic issues

Education

Immigration/Emigration

Religion

 

With the rapid economic growth, there are growing people having Internet access and use

the Internet to do shopping. Many people have called themselves the Taobaoer by spending

much of their monthly expenditure on Taobao, the largest B2C e-commerce website. In

2010, China’s online shopping industry had a turnover of $80bn, and grew 87% year-on-

year. China’s 420 million Internet users spend around a billion hours each day online and

last year, 185 million made at least one online purchase. According to Boston Consulting

Group, the volume is expected to increase fourfold by 2015. And E-commerce has already

been changing the way Chinese consumers think about shopping: online, it is more social

than a hard sell. It’s a new engaging experience to savour (bbc.co.uk 2011). But like many

other physical shopping, cheating and fake products are common in the online shops though

the most populous shops tend to sell quality and price competitive products to the

customers or will state clearly the possible quality problems of the products in the

introduction of the products in the pages. And also according to Patricia Ordóñez de Pablos

and Miltiadis D. Lytras (2009 p.406) In Chinese business there is often a need and

expectation for face to face contact to exist in order to build up a sense of trust which is

related to the Hofstede’s notion of individualism-collectivism in which the Chinese culture is

considered as having a high collective scores (Hofstede 1997).

 

 Technological analysis

 

Technological factors include areas such as new products being developed, new purchasing

mechanisms (intranet, extra-net), new production technology, new distribution mechanisms

(Internet) and new methods of working (e.g. mobile telecommunications) (Botten 2009,

p.39). One technological problem that hinder the development of the Chinese B2C industry

is the lack of a stable and secure online payment systems and this problem is further

strengthened by the Chinese consumers’ preference for high Uncertainty Avoidance Index

(UAI) and high Long-Term Orientation (LTO) (Hofstede 1997). What is more, based on the

perspective of Ortolani (2005) there had been only 1 percent credit card penetration in

China suggesting that the most widely used payment method had low acceptance in China

and the payment system to support online credit card transaction is also facing low usage.

And the lack of safe online credit card payment system is one of the key reasons behind this

low usage and penetration.

 

  Environmental analysis

 

Environmental factors refer to all the factors directly related, influenced or determined by

the surrounding environment. This includes, but is not limited to weather, climate,

geographical position, climate change and even insurance (Heldman 2011). Despite the fact

that the environmental protection work is still low in China because the majority of focus and

priority had been attributed to the alleviation of poverty and economic development which

result in the low public participation in the environmental protection work, in the recent

years, with the substantial economic advancement and raised living standard, income level

and also the degradation of environment in the country, the Chinese government has

started educate the public about the environmental protection. And with a joint effort from

the non-governmental organizations (NGOs) and media such as newspapers, radio and tv,

we are witnessing an increasing environmental awareness in the public resulting in changes

in the consumer behaviors to put environment protection in a higher importance level

(Heggelund 2004, p.157).

 

  Conclusion of the PESTLE analysis

 

As proposed by Björn Möller (2010, p.6), with the help of the PESTLE, companies would have

the possibility to understand the external macro-environment in which they operate and

might operate in the future. Here based on the analysis we have above, we are able to draw

some conclusions. Firstly, very stable political conditions and rapid economic growth has

made the e-commerce industry in China attractive to investors and the increasing

awareness of environment protection also promote the way of e-commerce as it creates less

pollution and damage to the environment; secondly, there are also risks such as lack of

trust, stable and secured online payment systems and lack of legal protection that create

challenges and uncertainties to the players in the industry.