Brief History of Business in China

For anyone interested in getting a slice of the giant moon cake available in China’s economy right now, there are a few things you may want to consider.


China has an estimated population of 1.3 billion, and a per capita GDP of approximately $5,600 (purchasing power parity) (CIA, 2005). In December of 2001, China was inducted as a member of the World Trade Organization or WTO, something once conceived as nearly impossible. Theoretically, this membership should allow unprecedented access and international comparability to China’s markets. Although many critics still argue about the positive or negative effects that will come from participation in the WTO, both optimists and pessimists agree that change is eminent (“A Dragon Out of Puff,” 2002, par. 2). Beijing officials claim that China’s economy has been growing at 7%-8% in recent years. China’s large population and relatively strong purchasing power parity helped it to become the world’s second biggest economy in 2002, with no immediate signs of slowing down (“Business Environment,” 2005).

Figure 1


In 2004 alone, China attracted an estimated US$60b dollars in direct foreign investment (“Business Environment,” 2005). In the 2005 CIA report on China, “Foreign investment remains a strong element in China’s remarkable economic growth” (p.8) As of 2001, nearly 400 of the top 500 multinational companies had already invested in Chinese operations. Two decades of incredible growth gives China the fastest growing economy in the world (Luo, 2001, p. 18). With a labor force of over 761 million and a current industrial production growth rate of 17.1%, China dominates the world in terms of production and growth (CIA, 2005).


A very important aspect of Chinese business is the concept of special networking and leverage of relationships known as guanxi. Although the concept of networking has existed in one form or another within all of the earth’s societies, it has evolved in Chinese society to become a calculated and consuming science. According to Yadong Luo (2001, p.53), a former associate of the Ministry of Foreign Economic Relations and Trade, China; “[Guanxi] binds literally millions of Chinese firms into a social and business web.”

Chinese culture has stressed the importance of relationships and social order since as early as the 6th century B.C. The Chinese philosopher Confucius delineated the importance and responsibilities of relationships within society. Although traditional Confucian society is no longer commonly practiced in its entirety in today’s China, modern day guanxi continues to help define the importance and responsibilities of various relationships. The two types of relationships that serve as a basis for guanxi in China are familial and social. Although the value and leverage associated with different types of guanxi is a dynamic variable and adapts to the changing environment of China, family guanxi remains as the most important basis for guanxi. Social guanxi is not to be discounted in importance; however the traditional and practical roots of family clearly have first priority in China (Luo, 2001, p.54).

Extending beyond solely social dynamics, the establishment and maintenance of guanxi in Chinese society is mandatory for the success and vitality of any business (Luo, 2001, p.54).

Man Makes the Law

China’s laws come from the ‘top-down legislation’ of the central government. Without the checks and balances that arise from opposing political parties and the general public, regulations and policies from the central government are subject to rapid change (Blackman, 2000, p.170). The speed and accompanying lack of transparency allowed among bureaucratic leaders creates an environment conducive to bias and corruption.
In the book, China Business, The Rules of the Game (2000, p. 33), Carol Blackman shared a story about a partner-invested firm that did not possess the titles to both the equipment and land they needed to use for their business:

    Unless something was done…the joint venture would collapse, as [a] title was required to borrow working capital. The vice mayor said simply, ‘In China we have rule by man. Man makes the law.’ His unspoken implication was: ‘Man can change the law.’

The lack of uniform policy is strong evidence of this system. The sweeping legislation of the national government must adapt to the myriad of different local leaders and ethnicities. Carol Blackman stated, “Exceptions are allowed to almost all Central government regulations” (2000, p.177). The relative nature of these policies and regulations creates a system where adaptation and understanding are mandatory for success.

Business and Government

Business and government bureaucracy are inseparable. Although in recent decades China has begun privatizing many of its state-owned industries, managers and representatives of businesses continue to confront the power of Chinese bureaucracy. In 1998, in a survey conducted by the United States-China business council, government interference was identified as a key problem for foreign invested firms (Blackman, 2000, p.170). Government interference in business remains a primary criticism of foreign investment policy (Naughton, 2004).

The mixture of bureaucracy and business should not be perceived as an obstacle or weed to be exterminated. Rather it is an integral part of Chinese business. Mr. Shawn Hu, a private consultant to the Chinese government, offered his advice about doing business in China when he said, “Many Western companies think they can come into China and do only business—they are wrong. You must work with both government and business if you want your company to be successful” (personal communication, October 19, 2003).

Media and Social Ideology

Chinese nationalism and social ideologies are major components of modern Chinese society. The campaigns of Mao and his successors have a strong history of using excessive political propaganda. For more than 60 years, the Chinese Communist Party has retained all rights to censorship in the media and press in China.

Media control and censorship was a major tool of the government to instill the Maoist ideology into the people. As of today, China has more than 3,240 television broadcast stations. Of these stations, the largest 209 television broadcast stations are owned by the central government, China Central Television (CCTV). Thirty one stations are provincial stations and nearly 3,000 are local city stations (CIA, 2005). China’s efforts towards communication development within its network of more than 280 million television sets (Mcdonald, 1998, par. 35) demonstrate the staggering potential and influence of the government in terms of national communication.

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