PESTEL Analysis of the Chinese Economy

PESTEL Analysis of the Chinese EconomyThere is no doubt that nowadays globalization brings opportunities for companies to dis ecstasyd their vocation activities easily to take advantages of different estates offshoot through with(predicate) place activities. Howalways, before investing to unlike, a bon ton should make a scrupulous exami rural area of the country they are intending to invest in especi whollyy the constancy related to their investment. Examining the relationship between risks go away help to measure the risks the company has to encounter and the teaching is actually helpful for company in decisions making. base on factual country information and financial analysis, this assignment entrust point proscribed main reckons that will impact Soundtech applied sciences general business activities when it starts business in china producing low cost sound dodging for budget cars called Superaudio. This assignment will start with chinaware backg cycles/sec ond information and then six factors in PESTEL model these include political, economic, affectionate, engineering, envbranding ironment, and legal will be presented. In addition, Soundtech Technologys financial overview that includes financial factors as tumesce as sensitive analysis will be conducted based on the data given. Lastly, round recommendations will be make to help Soundtech Technology in making investment decisions.1. china background informations Area 9,596,961 sq. km cosmos (July, 2010) 1,330,141,295. Annual growth locate 0.494 % Ethnic groups Han Chinese is 91.5%, ethnic minority and other nationalities are 8.5%. Religions Officially atheist, Daoist (Taoist), Buddhist, Christian is about 3%-4%, Muslim is about 1%-2%. Languages Mandarin is to a fault called Putonghua is the main language in chinaware, summing up many local dialects. brass Communist servingy-led state. GDP is $4.814 meg (2009) Per capita GDP is $3,678 (2009) GDP real growth rate (2009) 8.7 % Natural resources mineral is plentiful including coal, petroleum, mercury, iron ore, natural gas, tin, tungsten, manganese, molybdenum, vanadium, magnetite, antimony, aluminum, lead, zinc, uranium. Moreover, chinaware is the valet de chambres largest in hydropower potential. Agriculture china is one of the worlds largest producers of rice, wheat, potatoes, corn, peanuts, tea, millet, barley commercial crops include cotton, other fibers, apples, oilseeds, pork and fish produces variety of livestock products. Types of industry China is focusing on mining, ore treat and others mineral such as iron, steel, aluminum, and other coats. Consumer product is one of the nation strongest industries. Transportation, electronics, tele chats equipment as well as commercial space are major celestial spheres. mess Exports (2009) $1.194 one million million million electrical and other machinery, including data processing equipment, apparel, textiles, iron and steel, optical and medical equ ipment. Main partners (2008) United States 17.7%, Hong Kong 13.3%, Japan 8.1%, South Korea 5.2%, and Germany 4.1%. Imports (2009) $921.5 zillion electrical and other machinery, oil and mineral fuels, optical and medical equipment, metal ores, plastics, organic chemicals. Main partners (2008) Japan 13.3%, South Korea 9.9%, Taiwan 9.2%, U.S. 7.2%, Germany 4.9%.Undoubtedly, the electronics is the one of the atomic quash 82 industry in Chinas manufacturing sector. Sales revenue from Chinas electronics and IT industries (not including software) is estimated approximately $772.8 billion in 2008, reaching a growth of 28.3% over 2007. According to a statistical report by Chinas Ministry of Information Industry (MII), sales revenue of Chinas electronic information industry from January to April 2008 increase by 20.5% over the same rate of flow of last year. EE Times-China and ESM-China Market Research Dept predict that from 2006 to 2008, Chinas electronics industry will maintain a CAGR o f 25.5% (global sources.com).2. PESTEL analysisAn analysis of Chinas Political, Economic, Social, scientific, Environmental, Legal factors is essential to the strategic management and carrying out of the project. The positive and negative effect on the projects launching and beginment will be pointed out through the analysis of the impertinent factors.2.1 Political factors2.1.1 General informationCurrently, China establishment is ongoing to recruit regulation of law. After the Cultural Revolution, a legal system to fetter of official authority and revolutionary excesses has been positive. In 1982, the National Peoples Congress issued a new state constitution that emphasized the rule of law beneath which even party leaders are theoretically held accountable.Since 1979, when the drive to ensnare a functioning legal system began, more than(prenominal) than 300 laws and regulations refer about economic areas pee-pee been promulgated. In the 1990s Legal remediate became a political relation priority. Legislation designed to modernize and professionalize the nations lawyers, judges, and prisons was issued. The Chinese constitution and laws provide for fundamental gentle rights, including due process, however in practice these are often ignored. In addition to other legal reforms, the Constitution was modified in 2004 that include the protection of individual human rights as well as the legally-obtained private property, but it does not catch about how nearly of these provisions will be implemented. Since this modification, there declare been new promulgations in bankruptcy law and anti-monopoly law, and modifications for both company and travail law. Although additional safeguards to citizens bring been provided in new criminal and civil laws, previously debated political reforms, including fatten uping elections to the township level beyond the current trial basis, make been put on hold.2.1.2 Recent political eventsSince Tiananmen, 13 ro unds of human rights confabulation between the U.S and China has been conducted. In May 2010, the most recent round was taken placed topics were turned around religious freedom, the rights of labor, freedom of expression, rule of law, the discrimination of race, and multilateral cooperation as well. A foundation to continue these rounds in the future was adopted by The U.S. and China leading to unanimous applause for the next round of dialogue in China in 2011.The meetings in Lhasa on March 10th 2008, marking the 49th anniversary of the Tibetan uprising turned violent, and led to protests and unsecure state throughout Tibetan areas and others surrounding provinces. The army and police force monitored strictly Tibetan areas for the sentry go of the 50th anniversary in 2009 and 51st in 2010 and security was tightened in the frame in with Nepal.Armed uprising was ongoing when ethnic violence broke out in Urumqi in Xinjiang Uighur Autonomous Region on July 5, 2009. Security pull wires significantly increase in Urumqi and its surrounding areas and as the result several(prenominal) mosques in Xinjiang were neighboringd. As of early 2010, Urumqi was still under a solemn police control and most Internet and international phone communication were totally cut off.In recent eld, riots make weewee supply been happened in China that has forced the unstable condition for foreign companies investment in China. However, China Government has taken strict measures to prevent and stop this situation that creates safe milieu for foreign investors.2.2 Economic factorsChinas frugality has been reformed and opened since 1978. A more pragmatic thinking on many political and socio economic problems has been sanction by the Chinese leadership and therefore the role of ideology in economic policy has been partly reduced. China has transformed its economic into the market-oriented that positively impact not only on China but also on the world. These economic reforms Ch ina has implemented over the past 2 decades accept profoundly affected both individual initiative and entrepreneurship. As the result the poverty has been significantly reduced and the average income has reached to highest level ever seen. At the beginning of 2010China is ranked as the second-largest economy in the world after overtaking Japan to capture this position. An average economic growth has been sustained over 9.5% for the past 26 years. In 2009, its economy reached to $4.814 trillion was about one-third the size of the U.S. economy. The high economic growth along with higher national income growth may encourage demand for Soundtech Technologys products this is large-minded opportunity for the firm to develop its business.In the 1980s, the combination of central planning with market-oriented reforms were tried to implement in order to increase productivity, living standards, and scientific quality but not lead to negative effect on inflation, unemployment, and budget deficitsIn addition, Chinese Government pursued untaught reforms, raze the commune system and introducing a household-based system that provided peasants great decision-making in agricultural activities. anyways that nonagricultural activities like village enterprises in rural areas were also encouraged. Similarly, the governing body promoted more self-management for state-owned enterprises in order to increased competition in the marketplace, and create opportunities for Chinas internal enterprise directly contact with the foreign ones.On twentieth June 2010, Chinas central bank note the yuan exchange rate at higher level after committing to increase the flexibility of exchange rate of its currency. Reference exchange rate of the day was set at 6.7980 yuan on USD 1 its strongest level since kinsfolk 2008, up 0.43% compared with the level of 6.8275 Yuan on 21st June 210. A stronger Yuan would make Chinese exports more expensive, help redress trade balances and bring seve ral(prenominal) reliefs to foreign manufactures struggle to write out. The increase of Yuan exchange rate creates disadvantages for Soundtech Technology when they export their products to overseas markets because it raises the price in term of foreign currency.Especially, in recent years the cooperative relationship between China and Singapore have been alter within related global and regional organizations such as the ASEAN plus China, Japan and South Korea, the Asia Pacific Economic Cooperation Forum (APEC) and the World Trade Organization (WTO). At the same time, both China and Singapore have conducted beneficial cooperation and put efforts to offer training sessions to a third country and to help their companies or enterprises explore and exploit the world market.The 20th anniversary of the establishment of diplomatic corporation between China and Singapore is pronounced in year 2010 as well as the event of Chinas club in the ASEAN Free Trade Area (FTA). By taking advantages of all the opportunity from the partners, China is ready to work with Singapore to lift two-sided relations to a new level and bring more self-colored benefits to the citizens of both countries. For this reason, China Government always makes the best condition to take Soundtech Technology to invest in China.2.3 Social factorsWith a population officially over 1.3 billion and an estimated growth rate of 0.494%, China is very come to about its population growth and has attempted with mixed results to implement a strict birth limitation policy. The governments goal is to stabilize the population in the first fractional of the 21st century, and 2009 projections from the U.S. Census Bureau are that the Chinese population will peak at around 1.4 billion by 2026. It can be said that China has huge population that bestow to the market a profuse workforce which is an opportunity for Sountech Technology to expand its business in China.Another affecting factor that can be considered is the trend of employment with relation to the unemployment level. The current unemployment rate in China in January 2010 is 4.3% which demonstrates that this project would help the society and in turn the economy by creating positive job opportunities.Source tradingeconomic.comRecently, China Government has increased the minimum wages. On 1st April Guangdong increased the provinces minimum wages by an average 13%. Moreover, the southern China province produces about 13% of Chinas economic output, the most among the countrys 32 provinces. Minimum wages in the big(p) city Guangzhou reached to 860 yuan increased $120 per month from 780 yuan, Wages of other cities in the province would also get a boost, with those in most inland cities up nearly 18%. China Government has increased the minimum wages that is a challenge for Sountech Technology because they have to nonrecreational more for labor costs that will decrease business profit.2.4 Technological factorsChinese science strategists realize Chinas greatest opportunities in technology palm such as computers and biotechnology, where creates a chance for China to make existence in these areas. It cannot be denied that a dense network of trans-Pacific contact have been built by most overseas Chinese students that will boost the cooperation between U.S. and China scientific in coming years. The U.S. space course is regarded as the standard of scientific modernity in China is held annually. Chinas humbled but growing space program is national pride of China when its third manned orbit was totally successful in September 2008.Technology Agreement is the model for bilateral cooperation between The U.S and China in science field. In April 2006 the Science and Technology Agreement was extended by a 5-year agreement was signed. The agreement which includes approximately 60 protocols, memoranda of understanding, agreements, and annexes, is considered as the longest-standing between U.S.-China accords. The agreement en compasses cooperation between U.S. and China in variety handle like marine conservation, renewable energy, and health. Besides the U.S China also has close relationship with Japan and the European Union in science and technology cooperation.Based on the data supplied by the State Development grooming Commission, during the Ninth Five-year figure period from1996 to 2000, China has significant proficient development. 50,000 projects have been set up under the Spark Plan. Started in 1986, these projects were actually a technological program in order to enhance the IT level in rural areas.Since 1996 a total of CNY192.9 billion has been invested in the Spark Plan in which CNY3.5 billion was from the Governments Funds, CNY41.9 billion were from loans of banks and CNY147.5 billion from private and other social sectors. Since 1996 the Chinese government has invested CNY3.19 billion in the industrial sector to develop technical innovation projects. In addition, since 1999 the government has been focusing on technological innovation of State-owned enterprises by spending CY19.5 billion worth of treasury bondsA number of districts for high-tech development have been established for researching and developing technological purpose. For example in 1996 the Silicon Valley was built with an CNY101.5 billion investment in the infrastructure construction. Up to now there have been approximately 17,000 high-tech enterprises operating in those districts, with the employees more than 2.2 million.2.5 Environmental factorsUndoubtedly, along with Chinas fast industrial development are the serious negative impacts on environment these include increasing pollution and decreasing natural resources as well. In 2007, China became the worlds largest emitter of carbon dioxide and other gases leading to greenhouse. WTO conducted a report on the quality of air in 272 cities worldwide, pointed out seven out of the ten cities that are the most contaminated in the world were in China. In addition based on Chinas own evaluation, two-thirds of the 402 cities which have been air polluted two-thirds of them moderately or severely so. According to environmental report, there is water polluted in almost all of the nations rivers to some degree and half of the population is lack of clean water for daily life. By some estimates, there are approximately 300 million people have to use contaminated water for drinking every day.Water scarceness also is considered as an issue taking severe water scarcity in Northern China as an example that is actually a serious threat to sustained economic growth. Thus, the government has been working on a project for delivering a large-scale of water from the Yangtze River to northern cities, including capital of Red China and Tianjin. Some research estimate pollution costs hold the Chinese economy from 7% to 10% of GDP per year.Currently, like any Government, Chinas leaders are increasingly paying attention to environmental problems in the country. Realizing the historic of environmental protection, The State Environmental Protection Administration was officially upgraded to a ministry-level agency, the Ministry of Environmental Protection in 1998. Recently, Chinas environmental legislation has been strengthened and some progress in stemming environmental deterioration has also been made. China took part the Asia Pacific Partnership on Clean Development in 2005, which unites industries and government to implement common strategies together that reduce pollution and global clime change. Campaign about pollution control was great invested that a factor contributing to a successful Olympic Beijing 2008, though some of the benefits were just temporary in nature. Thanks to these campaigns the quality of air in some cities has been improved recently.It can be said that China is dynamic actively in climate change talks as well as other multilateral environmental negotiations, especially discussions about how developed coun tries deal with serious environmental issues that help developing countries to a greater extent. China has signed the Basel Convention about transporting and treating hazardous waste the Montreal communications protocol about the Ozone Layer Protection and other major environmental agreements.As long as China is huge country thus water scarcity is regarded as a big issue that also is the projects disadvantage. Besides that, climate change is considered as one of the major systematic risks for Soundtech Technology because climate change is affecting how companies operate and the products they offer.2.6 Legal factors2.6.1 Laws support foreign investorsIn order to encourage foreign companies to invest in China, China Government has gradually set up a relative complete law system. In 1979, The Law of the Peoples Republic of China on Chinese- international loveliness Joint Ventures was published. 20 years later, the Chinese government has promulgated and issued a series of laws and stat utes about the establishment, operation, termination and liquidation of foreign-invested enterprises. The main laws and regulations include the triad basic laws The law on Chinese-Foreign Equity Joint Ventures, The Law on Chinese-Foreign Contractual Joint Ventures, and The Law on Wholly Foreign-Owned Enterprises detailed rules for the implementation of the three basic laws The Company Law of the Peoples Republic of China The Income impose Law of the Peoples Republic of China for Enterprises with Foreign Investment and Foreign Enterprises interim provide for Guiding Foreign Investment Industrial Catalogue for Foreign Investment Interim Provisions Concerning the Investment within China of Foreign-invested Enterprises, Provisions Regarding the Merger and Separation of Foreign-invested Enterprises, and Liquidation Measures for Enterprises with Foreign Investment. These provide legal bases from which to insure the independent operation rights of foreign-funded enterprises and to pro tect the legitimate rights and interest of both domestic and overseas investors.Currently, the Chinas government is considering its existing laws and statutes in accordance with the model of the WTO. It has abolished current obsolete laws and regulations, and will gradually revise the laws and regulations that are incompatible with the rules of the WTO.2.6.2 China Tax RegimeTax law is one of the most outstanding issues that SoundTech Technology needs to understand as the tax regulations have a direct impact on STs business activities. China is known as one of the most attractive incentives packages in Asia. Tax incentives and other facilities for the manufacturing sector are provided for in the Promotion of Investment.The data infra demonstrates the tax that a medium-size company must pay or be withheld in a given year, as well as measures of the administrative burden in paying taxes. These measures include the number of payments an entrepreneur must make the number of hours spen t preparing, filing, and paying and the percentage of their profits they must pay in taxes.2.6.3 Procedures to starting new business in MalaysiaWhen foreign investors want to set up business in China, they have to wait for approval from the Government for a long time. The challenges of launching a business are shown below which include the number of steps entrepreneurs can expect to go through to launch, the time it takes on average, and the cost and minimum capital required as a percentage of gross national income (GNI) per capita.