Investing in China: Opportunity and Barriers in a Complex Chinese Economy

Introduction: China’s economy has exploded since the introduction of free market policies which brought the populous nation to the world stage. China now boasts the second largest economy in the world and will overtake the United States in the near future. The easing of restrictions on foreign direct investment (FDI) allows foreign businesses to enter the marketplace easier than in the past, which is making the switch to China easier for businesses. Obstacles are still prevalent in the communist controlled country, which can cause trouble for businesses not properly prepared for the move into the Chinese economy. However, there are numerous major advantages companies are weighing in deciding whether or not to expand their business to Asia’s largest economy. Barriers to Consider: China is still in the transition to a market economy, but there are still signs of the old state-controlled economy found throughout the economic landscape. Restrictions on FDI are still present in particular industries, which causes investing in these areas to be more difficult or even impossible. State-run industries are considered off-limits for foreign companies either through strict regulations or through government support of state owned companies. Companies must also consider the Anti-Monopoly Law which also is deterring larger foreign businesses from entering China. The law has been heavily criticized for targeted foreign firms while protecting domestic companies. Furthermore, the government regulations and officials often put pressure on foreign companies and many times participate in corrupt practices. Many of the barriers can be avoided though careful research and planning done well in advance. Advantages and Disadvantages: China has placed itself in a spot which encourages continued growth while providing a multitude of benefits to foreign firms. Consumerism has grown considerably over the past years, and many foreign firms are looking to capitalize on the rapidly growing disposable income found in the urban population. In addition, the industrial infrastructure inside the country has expanded to accommodate a variety of industries. Industrial parks and Economic Development Zones (EDZ) host a variety of benefits, which foreign firms should closely consider when investing. While China has become substantially more business friendly, disadvantages still occur in multiple areas and must be considered. IPR violations and government ownership problems frequently occur with businesses operating within China. These continue to plague companies while the government struggles to mitigate the problems. Future Outlook and Recommendations: While China continues to transition to a market economy, the future is still uncertain with many factors possibly impeding growth in the sector. Political dealings largely stand to hamper economic progress in the region. To mitigate the potential pitfalls of starting a business in China, there are multiple steps that can be done proactively. Through careful research and planning, deciding to open a business in China can secure massive profits in a rapidly expanding market