PESTEL Analysis of Chinas Current Economy

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A PESTEL analysis of Chinas current economy

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With China economic growth rapidly, moreand more business people like to invest on

chinese market. Meanwhile, multinat ional

investment is always a good condition f or

economics grow and prosperity as well. In

order to attract f oreign direct investment and run a successf ul business in China, it is important to

analyzing the macro-environment, and identif y the f actors that could aff ect the o rganizations economy,

such as supply and demand and its costs .

A PEST analysis is o ne o f strategic tools f or analyzing the environmental inf luences including political,

economic, social and technological factors on the business. (Porter, M., 1985) In this essay, it is go ing toexplain about current china economy and analyze it with PEST tool, to see if there is a good business

condition for running a business in China.

In addition, there are some recommendations f or local or f oreigner investors and business people, so that

they can access chinese market and share information like high-t echnology, cultural and management skills

with local business people, to create competition and stimulate chinese economy develop faster.

Main Aspects of PEST Analysis:

Political f actors:

Political f actors are related to law, regulatory, and government policy, which inf luence Economic f actors,

and government decisions.

Af ter the eco nomic ref orm in 1978, the eco nomic is gro wing spectacularly in China. The ref orm comprises

of mot ivating the development of private business, f oreign trade liberalization, f oreign direct investment,

and industrial production investment as well as the employment pro f ile. From 1979 to 1994, more t han 42

percent chinese economic rate has been grown up. (Mohsin S. Khan, 1997)

In the labor law, government changes the s tructure of jobs and becomes less st rict, which create

opportunities f or unemployment, such as f or graduated students who have not f ound any jobs, and f or

some people with lower education, so that at least there is a place f or them to work, then being acceptednew skills t raining. Otherwise the higher rate of unemployment, the more so cial problems might cause, that

also discourage investment. As data sho ws, chinas urban unemployment rate reached 4.2% in 2008, since

the employment immigrate f rom rural to urban; and increase to 4.6% in 2009, because o f the world f inancial

crisis leading to export economy more than import. However, since 2008, the central government f inances in

the labor- intensive sector to provide more job availability. (Yingzi T, 2009)

For the consumer rights protection, af ter open up china doo r and the economy reform, people increase

consumers awareness and prot ect their rights. (Shaoping G, 2008) If the consumer protect ion is improving,

the multinational companies will get benef its f rom doing business in china: open market will be prosperity

and the market f or the middle level of consumers are expanding . (Suk-ching H,1997)

When it comes to f oreign trade policy, the private sectors are moving fo rward f ast af ter 1978 refo rms.

Foreign trade opening drives f oreign direct investment increasing. In 2008, the f oreign direct investment is

up to 108 billion dollars in china. (Yadav M, 2010)
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Furthermore, the well-being relationship between different countries is very important for economic

development. For instant , if two countries government or o rganizations have argument causing a war,

which will be unstable in economy and society. Then, people f eel unsecured about government, jobs and

their daily life. If their business have big loss or company closes down, leads to lose jobs. Therefore, they

can not afford to purchase product and make company less profit or loss. It will be a wicked economic

cycle.

However, no matter how develop the do mest ic econo my is, it is

better to keep the environmental survival ability for nextgenerations . The environmental regulations could keep

environmental f riendly and maintain the balance between

economy development and sustainable development.

Economic f actors:

Economic f actors inf luence a business directly, because they

af f ect capital availability, cost , supply and demand. If demand is

high, and the capital cost is low, which attract more investment on the company and produce more product

to make prof itable. However, during economy recess ion period, there is s till chances f or some small

potential corprations accessing business market and competing with others.

Recent years, China economic growth rapidly. Overall, it can be ref lect f rom industrial secto rs. Since f rom

late 1978, China becomes market o riented economy. China gains t remendous in production of agriculture.

Even though, there are more than half people rely on agriculture f or living, the agriculture secto r has less

influence f or gross domestic product. At the same time, labor input decreases in mos t of industries, due to

labor productivity improvement and the migration f rom rural workers to urban areas. In the oppos ite,

through the adjustment of secondary industry and teritiary industry, they become unreplceable roles to

GDP. (Ke-sha G, 2001) It provides activities as knowledge, skills, as well as experience, entertainment to

improve the quality of business. (Sasaki H, 2009) Due to its f oreign trade liberazat ion and investment, the

income has been dramatically rising af ter joining the WTO. Moreover, the demand for material and energyresource is also increasing. They import and process materials, then sell the final products.

In addition, the Bank of China as central bank in china. It uses monetary policy to increase o r decrease

interest rates and cont rol the amount o f money in the economy to achieve steady economic growth.

Normally, government will not lend money to business company directly, it has to deposit money f rom bank

of china f irst. Also , the central bank reduce lending to companies and individuals, according to the

increasing amount o f money they put with central bank. Moreover, the central bank also guide count ry bank

to increase more reserves and its ratio , such as 16.5% f or big bank, 14.5% f or small bank, in case of any

f inancial crisis or loan needs. At the same time, bank of china will cont rol conf lict and surplus, as well as

increase tax for import product . Because if they increase tax, people would rather purchase and import

product with those money, not saving them into bank. (Bradsher K, 2010)

Government expenditure is to purchase goo ds and service, allocate f unds ef f iciently and invest o n doing

domestic infrastructure; for high technology innovation and education, as well as social security payments.

Technically, increasing government spending can be met chinas economy development need. By 2002, the

government spending has increased to 5.5% of GDP, which shows a good trend. (Moinar M, 2006)

During inf lation period, the economy is lack of investment, and exports will suff er f rom inf lation, as

inflation increase the price of exports and encourage imports. Also, the most industrialized countries will be

adjusted to increase their interest rates, which will be pay back through loans in the markets, which

demonstrate that govrnement try hard to cont rol f oreign flow-in cash.

Environmental f actors:

The environmental factors af f ect organizations. f irstly, capital

markets is det ermined by chinese government. government


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increase their expenditure, which could increase money supply

f or o rganization and make capital markets boom. Based on

organization performance, the shareholders will decide to

provide more equity funding or sell the shares.

The labour market indicates that the availability of certain skills

and the labour costs at dif f erent regions or industries in China, which are under the power of the t raining

and government policies, as well as the inflation, industries sectors needs, and trade unions.

At last but not the least, China f ocus on being environment-f riendly so ciety. As china daily said, china will

have an internat ional green industry expo in beijing in Nov of 2010, which will let others know more about

domestic corporations and of f er a new stage fo r them, also f oreign companies are likely to explore

chinese green market and develop a green econo my in china, such as clean energy, emission reductions,

low carbon t echnology and so on. (Xinhua, July 2010)

Social:

Income dist ribution is unequal within dif f erent areas and industries. For example, the average income has

2.26 times in east o f china of the west o f china. There are several reasons f or it: the laid-of f people who

do not go ing to work, less desire fo r consuming due to the recession o f economy, less social guaranteef rom chinese government, huge income gap between urban and rural. The more income dist ribution

expanding, the more motivation for economic growth, also can be obstacle for economic growth. Unequal

income distribution and poverty will be barriers f or chinas growth. Thus, government need adjust the

taxation system, reduce income diff erence in dif f erent f ield, improve the social security f or to make people

life more secure. (Jing X, 2007)

As t o lif estyle changing, nowadays, there are more peo ple cho ose working at home, it will be more

connivence and easier for employment who want t o keep balance between family and work. Also , with t he

number of single households increasing, company more like to assign this t ype of employees to work

abroad or other regions where is far away from home. Because they have less responsibility for family and

less homesick. They will more easier to devote all themselves into work and adapt new multicultural work

environment. (Lu D, 2009)

For attitudes of work and leisure, people becomes more understanding and flexible. they are not only focus

on work any more, more like to enjoy life af ter do ne with workload. In company, they will organize leisure

activities f or employees. On the one hand, they can improve the ability of communication and socialization;

on the ano ther hand, they can have health mind, health body.

Moreover, education is becoming more and more important f or everyone. Theref ore, chinese government

encourage international schoo ls join venture with chinese public schoo ls to exchange culture and learning

skills, also as business company, they will organization business presentation for employment, or assignthem to study abroad, to introduce more advanced knowledge and valuable experience f rom people who

are f rom dif f erent culture background.

People can not work well, without good living conditions. So that government pay more ef f ort on housing

amenities pollution with specific policies and regulations to control air/noisy pollution, creating an

sustainable f riendly living environment.

Technology:

Government and industry f ocus on technological eff ort , so government spend large amount of money on

research, to develop and explore high technology innovation, also to speed the technology t ransf er.

In china, the energy demand growth become slow down these years. china consumed less energy then the

U.S. in 2009.Energy consumption growth f ell to 5.2 percent in 2009 f rom 16.1 percent in 2004. Energy use

per unit of gross domest ic product dropped 15.6 percent in the f our years st arted 2006. China wants to


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reduce its energy use per unit of GDP by 20 percent in the f ive years through 2010. to reduce reliance on

energy, china plans to conserve energy and reduce emission. as the sample of more-polluting fossil fuels,

the Chinese government spent $34.6 billion on clean-f uel projects last year, almos t double the $18.6 billion

invested by the U.S. (Xinhua , Aug 2010) High technology information development has a signif icant role in

the china economy. As the internet and technology moving f orward, it drive the success of the china

economy. The trade barriers decrease, which produce more job opportunities in the field of information

Technology. Moreo ver, the expenditure of high-technology consumers are covering all over the world, such

as computer and networking hardware, so f tware and services, that is over than $1.4 trillion in 2005. Also ,

that worldwide IT spending increase by 10 % over every year.

The technology information widely spreading make the whole world become closer and make lif e easier.

they also can do business and do shopping at home, no need even go out, you just can find any

information. with internet , business company like to have online teaching program f or employment to

upgrade their personal profile. they also choose internet for online meeting, consulting, to delivery the

ideas to f ellows, managers, custo mers, and business partners. (Porter, M. ,1985)

Conclusion:

In a conclusion, as well known, china is the f astest developing count ry, which has many potential business

opportunities. However, it is import ant to judge and make sure the investment environment bef ore running abusiness in china. PEST strategy as showed above analyze the external business environment to give a

general picture of the operated business environment. So that company can take advamtage of the

appropriate oppo rtunities and minimize the threats. If company can make correct s trategic planning, it will

of f er a stable and solid environment f or a company to grow into the f uture.

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PESTEL Analysis of Chinas Current Economy