Pestel analysis of china

LALA LAJPATRAI COLLEGE OF COMMERCE & ECONOMICS MAHALAXMI, MUMBAI-34

Topic: PESTEL ANALYSIS OF CHINA

Submitted by: T.Y.B.M.S-A

SHRUTI SUDHIR AGARWAL SEJAL DESHMUKH OVES KAPADIA RONAK BOHRA

10111101 10111317 10111138 10111320

Project Guide: Prof. ARUN POOJARI

Year of Submission: 2012-13

Pestel analysis of china

CERTIFICATE

This is to certify that the work entered in this project is done by SHRUTI SUDHIR AGARWAL, SEJAL DESHMUKH,OVES KAPADIA AND RONAK BOHRA of T.Y.BMS, Div A. I, Prof. Arun Poojari, hereby declare that the work done by them is true and original as per my knowledge.

Signature (Project Guide)

Pestel analysis of china

DECLARATION We the students of Lala Lajpatrai College, TYBMS, Div-A hereby declare that we have completed this project of PESTEL ANALYSIS OF CHINAThe information submitted is true and original to the best of our knowledge.

Signature

Pestel analysis of china

INDEX

SR.NO 1

TOPIC 1.1 Introduction of pestel analysis 1.2 PESTEL ANALYSIS- Political factors

PG.NO

2 3 4 5 6

Economic factors Social factors Technological factors Environmental factors Legal factors

Pestel analysis of china

PESTEL ANALYSIS What is PESTEL ? PESTEL analysis is a tool or a framework used by certain individual to analyze different macroenvironmental factors where these factors may effect their business strategy or also the stability of a nation. PESTEL stands for 6 different factors that are known as Political factors, Economy factors, Social Factors, Technological factors, Environmental factors and also Legal factors. Political factor refers to the degree of government intervention in the nation economy where this may vary among nation where different nation conduct different type of economy such as free economy, control economy or free market. The government may also impose policies in conducting the economy. Economic factor refers to the economy component such as economic growth, interest rates, exchange rates and also inflation rate where these factors would impact how the business or nation operate and make decision. Social factor refers to cultural aspects or changes in social trends that can impact the efficiency and productivity of working in an organization or in a nation. As an example, health, growth rate, age distribution, career attitudes and emphasis on safety in an area. Technological factor refers to the changes of technology to a community where these changes can affect lifestyles, cost of production, efficiency and productivity of working entity, and standard of living of a nation. From technological factors we can determine what is the barrier to entry a nation or an economy activity. Environmental factor refers to the climate of the area, weather, and also geographic area where these factors vary among nation. Lastly, legal factor refers to the law abiding from unethical actions either to protect the environment, workers, organizations or the nation economy. Example of common laws used globally is consumer law, labour law, health and safety law, discrimination law and many more. So, this framework known as PESTEL is very useful to analyze a certain events or problems in a large framework or in another word, from a large point of view to identify the different 6 macro-environmental factors. The outcomes from these analyses are we can construct plans, strategies, predict either the business growth or the economy and list down the consequences that affect the business performance based from the factors.

Pestel analysis of china

A briefly examples of PESTEL factors 1) Political factors Stability of government, social policies, trade regulations, tax policies and entry mode regulations

2) Economic factors 3) Social factors

Inflation, interest rates, exchange rates, and economic growth Health, growth rate, age distribution, career attitudes and emphasis on safety

4) Technological factors

R&D activity, automation, technology incentives and rate of technological change

5) Environmental factors

Attitudes towards the environment ( in terms of demand and supply for product, pollution or conserving the nature), climate, weather and natural disaster.

6) Legal factors

Employment regulations, competitive regulations, product regulation, and health and safety regulations.

Pestel analysis of china

PESTEL analysis for China Outlined below is the PESTEL analysis for China as a whole. 1) Political Factors i. Constitutional System China or Peoples Republic of China adopts socialist system or communism in their political system in their decision-making processes in governing the country. The countrys sole political party in power is known as the Communist Party of China. The government have the sole power to control all activities done by their citizen as what have been describe in how communism system worked in governing a country. In other words, the purposes of working in China are to contribute to the nation and also to the government as the government control on all activities in the country.

ii.

Stability of Government The stability of the China government is quite moderate and stable because the administration of the government are not publicize to the public either through the press or on the internet. So, the degree of the citizen involvement in the politics is low because of the heavy restrictions impose by the government. However, the policies impose and the law regulations are quite effective in terms of economy where China is one of the leading countries in the world. In the recent years (2001), China has joined the World Trade Organization and results rapid growth in industrial and manufacturing sectors because of the cheap labor in China. But still problems such as managing environmental degradation, demographic pressure and the extreme immigration from rural to urban area must be faced by the government.

iii.

Business Freedom The business freedom in China is quite tight because of the regulation impose by the government where they restrict businesses from other countries coming in. But recently, China government open their gate to the outside world to set up business in their country. It takes 37 days to start anew business in China compared to the world

Pestel analysis of china

average 38 days. While it takes 1.7 years from the filling for insolvency in court until the resolution of distressed assets. Examples of business freedom in China are supermarketization and opening market to foreign multinationals company because of the entry of China into WTO. Supermarketization is where the government shuts down the traditional wet market and transform them into supermarket.

iv.

Trade Freedom In the past few decades, China loosen their trade policy to the outside world in their trading, export and import industry. Chinas weighted average tariff rate was 3.9 percent in 2008 based from the web (heritage.org). Factors that affect the cost of trade freedoms are import and export bans and restrictions, import and export licensing, non-transparent tariff classifications, complex regulations and standards, subsidies, state trading in certain goods, services market restrictions, issues involving the protection of intellectual property rights, and inconsistent and corruption-prone customs administration add to the cost of trade. So, Chinas trade freedom score to account for non-tariff barriers deducted about twenty points.

v.

Tax Policies Below are the economic data for China. Tariff Rate Income Tax Rate Corporate Tax Rate GDP (billion) GDP per Capita Unemployment Rate Inflation Rate FDI Inflow (millions) Tax Burden % GDP Government Expenditure % GDP 3.9 45.0 25.0 7900 5962 4.2 5.9 108300 18.3 19.9

Pestel analysis of china

Population (billions)

1300

Based on the rates and statistic given, we can see that China has moderate Corporate Tax Rate and high Income Tax rate. The government encourages more newtechnology business in the market besides allowing foreign institution enters the nation financial institution in providing foreign currency. Because of lower corporate tax rate, many MNC started to open their business in China and the numbers of FDI have increased rapidly. Furthermore, on October 2008, new policies impose where individual income tax is no longer paid on interest on bank deposits. The overall tax revenue as a percentage of GDP was 18.3 based on what recorded in the recent years.

Pestel analysis of china

2) Economic Factors Economic Freedom Score 51.0

Population GDP (PPP)

1.3 billion

$7.9 trillion 9.0% growth 11.0% 5-year compound annual growth $5962 per capita

Tariff Rate Income Tax Rate Corporate Tax Rate GDP (billion) GDP per Capita FDI Inflow (millions) Tax Burden % GDP Government Expenditure % GDP

3.9 45.0 25.0 7900 5962 108300 18.3 19.9

Unemployment Inflation (CPI) FDI Inflow

4.2% 5.9% $108.3 billion

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Economic Freedom vs World Average

i. ii.

Disposable income of buyers Credit accessibility The government has directly and indirectly controls their banks and financial institution. Investment done in China are also control and regulated because of their judicial system is very vulnerable to the political issues and influence

iii.

Unemployment rates Labor force 812.7 million

Labor force by occupation a) agriculture (39.5%) b) industry (27.2%) c) services (33.2%) Unemployment rate 4.2% (2008 est.)

*Official data from urban area only. *Including migrants may boost total unemployment to 9%. *Substantial unemployment and underemployment in rural areas.

iv.

Fiscal Freedom

Pestel analysis of china

China has moderate Corporate Tax Rate and high Income Tax rate. The government encourages more new-technology business in the market besides allowing foreign institution enters the nation financial institution in providing foreign currency. Because of lower corporate tax rate, many MNC started to open their business in China and the numbers of FDI have increased rapidly. Furthermore, on October 2008, new policies impose where individual income tax is no longer paid on interest on bank deposits. The overall tax revenue as a percentage of GDP was 18.3 based on what recorded in the recent years.

v.

Monitory Freedom From 2006 until 2008, the inflation rate is around 5.2% where it is consider moderate for that particular percentage. As what mention where China economic freedom score is around 51 from the full score 100. So, we can see that the economic is a mixture of free market and control market. The price of product sold can be determined by the quantity demanded of the product. But still the government intervenes on certain goods and products to maintain stability of the prices. The government also gives subsidies to small business and industry to compete with foreign goods where they can sell at lower prices.

vi.

Investment Freedom Chinas Foreign Investment Catalogue describe that different foreign investment are group under different types such as encouraged, prohibited, restricted and permitted China laws and regulatory are non-transparency, complex and inconsistently enforced laws and regulations, weak protection of intellectual property rights, corruption, industrial policies protecting local firms, and a legal system that cannot guarantee the sanctity of contracts where these must be face by the foreign investor. Financial transactions are also tightly regulated.

vii.

Financial Freedom

Pestel analysis of china

The financial systems in China are control directly to the government and it is tightly controlled. In China, there are supervised roughly 5,600 financial institutions in 2008 and
China has only two private banks while there are four state-owned banks account for over 50 percent of total assets. This financial system is control and supervised by The China Banking

Regulatory Commission.

viii.

Interest rates Central bank discount rate Commercial prime lending rate 2.79% 5.31%

ix.

Inflation Inflation rate 5.9% (2008 est.) and -0.7% (2009 est.)

Inflation rate decline vastly from 2008 until 2009 because of the stable currency of China.

Pestel analysis of china

3) Social Factors Population Population growth rate Population Below Poverty Line Infant mortality rate Life expectancy at birth total population: 71.44 years male: 69.71 years female: 73.26 years (2004 est.) Total fertility rate : 1.79 children per woman (2009 est.) : : : : : 1.34 billion (2009 est.) 0.66% (2009 est.) 2.00% (2009 est.) 20.25 deaths per 1,000 live births (2009 est.)

Ethnic groups : Han Chinese 91.5%, Zhuang, Manchu, Hui, Miao, Uyghur, Tujia, Yi, Mongol, Tibetan, Buyi, Dong, Yao, Korean, and other nationalities 8.5% (2000 census) Nationality Chinese : noun: Chinese (singular and plural) adjective:

Religions : Daoist (Taoist), Buddhist, Christian 3%-4%, Muslim 1%-2% note: officially atheist (2002 est.) Languages : Standard Chinese or Mandarin (Putonghua, based on the Beijing dialect), Yue (Cantonese), Wu (Shanghainese), Minbei (Fuzhou), Minnan (Hokkien-Taiwanese), Xiang, Gan, Hakka dialects, minority languages (see Ethnic groups entry) Literacy total population: 90.92 % male: 95.14 % female: 86.53 % (2004 est.) HIV/AIDS - Adult Prevalence Rate: 0.10% (2009 est.) :

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i.

Distribution of Wealth Distribution of income or consumption by percentage share :

Lowest 10% : Lowest 20% : Second 20% : Third 20% Fourth 20% : :

1.80% 4.66% 9.00% 14.22% 22.13% 33.06% 49.99%

Highest 10% : Highest 20% :

China has an extreme gap between the lowest 20% and the highest 20% after 60 years China change their system in their economy. ii. Changes in lifestyles and trends Lifestyles and trends in China change in many ways such as the level of consumption, attitude towards new product especially from the west, changes in the quality of life, and also changing from quantity satisfaction to quality satisfaction. Besides that, changes in trends can be seen from the degree of fashion sense where citizen tend to buy more colourful and striking colours compare dull- coloured clothes. iii. Educational levels The literacy rate for China is around 91.0% was able to read and write at a specified age. While the average years of schooling is 11.2 year. Education expenditures in China is about 1.9% of the GDP. iv. Labor Freedom Ranks Chinas labor regulations hinder overall employment and productivity growth. The non-salary cost of employing a worker is high. Dismissing an employee may require prior consultation with the local labor bureau and labor union. v. Freedom of corruption

Pestel analysis of china

Corruption is perceived as widespread. China ranks 72nd out of 179 countries in Transparency Internationals Corruption Perceptions Index for 2008. Corruption affects banking, finance, government procurement, and construction most severely, and there is a lack of independent investigative bodies and courts. vi. Property Rights Chinas judicial system is weak, and many companies resort to arbitration. Local officials can ignore court decision with impunity. All land is state-owned, but individuals and firms may own and transfer long-term leases (subject to many restrictions) as well as structures and personal property. Intellectual property rights are not enforced effectively. Copyrights, patents, brand names, trademarks, and trade secrets are routinely stolen.

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4) Technological Factors

i.

Science and Technology Through the period, the achievement of science and technology in China are remarkable where they manage to achieve many discoveries in the science field. The major achievements are the discovery of the Daqing Oilfield, building the first atomic reactor, successful testing of atom and hydrogen bombs, synthesis of crystalline insulin, positron and negatron electronic collider, nuclear power stations, carrier rockets, and satellite launching technology. Rapid improvement in science and technology also create more jobs in the manufacturing industry and also make the quality of life better and easier.

ii.

Research and Development The government design many plans and strategies in developing the R&D industry. Many programs to enhance R&D industry are launched such as the Torch Program and the Scaling Heights Program

5) Environmental Factors

i.

Environmental Protection Laws The government takes serious matter on protecting the environment where they impose many regulations and laws in protecting, preventing and controlling industrial pollution and improving urban environment. The government also collaborate with many NGOs in order to maintain the mother nature.

Pestel analysis of china

6) Legal Factors

i.

Employment Regulations Chinas labor regulations hinder overall employment and productivity growth. The non-salary cost of employing a worker is high. Dismissing an employee may require prior consultation with the local labor bureau and labor union.

Pestel analysis of china

BIBLIOGRAPHY
http://www.heritage.org https://www.cia.gov http://globaledge.msu.edu http://www.newsweek.com http://www.china.org.cn