Pestle China Political Environment

Political Environment

• The Communist Party of China (CPC) is the only party with power in government, with other parties cooperating in accordance to the CPC (Fogel, 2010). CPC has significant control over business regulation and enforcement.

• China has been ranked 1st in the Political Risk Survey 2015 (Reid, 2015). Misalignment between the Central Government and local governments increases risk (Fogel, 2010), creating difficulties for international companies to enter the Chinese market.

• China entered the World Trade Organisation (WTO) in December 2001. Since then, constraints on international retailers have been lifted, providing opportunities to form wholly-owned foreign enterprises rather than joint ventures (Capdevielle et al., 2007).

Economic Environment

• China has recently become the second largest economy, with GDP growth averaging almost 10% per year. However, it is still classified as a developing country (World Bank, 2015). High inflation and property prices caused economic slowdown, with Chinese household debt having risen to 40% of GDP in the last 5 years (France-Presse, 2016). Inflation rates have remained relatively stable (Reid, 2015).

• The ‘emerging middle class’ annual income ranges from $6,000 - $25,000 and the levels of purchasing power are rising (Cui and Song, 2009).

• The exchange rate has been strongly regulated by the People’s Bank of China, resulting in consistently rising domestic interest rates (Clark, 2016).

• The Yuan will continue to weaken due to continued government efforts to cool housing markets and ease monetary policies, which increases import costs (Hemlin, 2016).

Socio-cultural Environment

Hofstede’s Dimensions

Power Distance

• The power gap