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The economic environment - an overview

In the world economic arena today, China has become a world-recognised political and economic power that plays a vital role in international affairs. The quality of life has improved greatly over the last two decades but its wealth distribution still greatly favours the coastal provinces.

In 2008, GDP growth was 9 percent. Industrial and services sectors continue to grow at the expense of the agriculture sector. The 'non-state' sector, including private enterprise, continues to prosper at the expense of large state-owned enterprises.

China's currency, the Reminbi or yuan, is currently managed as a semi-floated exchange rate within a range around Y6.7 to the $US. Its comprehensive national strength has grown rapidly, with its gross domestic product (GDP) rising to RMB 30,067billion in 2008. China ranks third among all countries in terms of foreign trade and has forged trade relations with more than 230 countries and regions.

It ranks first in the world in production of steel, coal, cement, fertilisers and TV sets. It is first in the world in the output of electricity, cloth and chemical fibres. It ranks first in the world in the output of grain, meat, cotton, peanuts, rapeseed and fruits. It ranks second in production of tea, soybeans and sugar cane.

The business environment - an overview

China's accession to the World Trade Organisation (WTO) on 11 November 2001 was one of the most significant steps towards re-sculpturing the global economic landscape of the 21st century. Continued economic growth in the coming decades will create enormous opportunities for other countries especially those in Asia. China is being touted by "experts" as the engine for world economic development.

The significant increase in opportunities for businesses interested in exporting to China are due to the fact that restrictions on domestic sale by foreign manufacturing companies (including Hong Kong companies) will be lifted.

Previous requirements of foreign exchange balancing local content and export performance will be abolished. Companies will have the ability to import most products into any part of China three years after WTO accession. Foreign companies will be able to engage in the full range of distribution services over a three-year phase-in period for most products.

Foreign investment restrictions on many important service industries will be relaxed. These include distribution, telecommunications, financial, professional, business, audio-visual and tourism services.

The telecommunication services sector, including the internet, will be opened to foreign participation for the first time. Market access liberalisation for most service industries will be phased in over a period of up to six years. Majority foreign-owned joint ventures and wholly foreign-owned companies will gradually be allowed with quantitative and geographic restrictions progressively removed.

Scope of business will be able to serve both local and foreign clients, in both local and foreign currencies in five years time. There will be a more predictable and transparent trading environment. A rule-based system governing the conduct of trade between China and her trading partners will be accompanied by significant changes in China's domestic legal infrastructure. 

Business opportunities - risk assessment

Comparatively low risk
 The economic situation remains favourable largely due to strong domestic demand. WTO entry offers many opportunities and massive foreign investment continues to pour into China, driven by its huge market potential, and by the likelihood that the country will win new market share abroad.

Though the country's public and external debt is high, its considerable domestic savings and vast foreign exchange reserves should cover these debts. The government must also balance undertaking essential reforms whilst preserving political and social stability. With its valuable assets and quest for modernisation, China is expected to overcome these difficulties and should continue to enjoy robust growth.

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Sara Cheng
Senior Manager, China Practice
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Mike Liu
China Trade Advisor
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