Name

Id

Content

introduction
Culture assessment
A political assessment
A financial assessment
An economic assessment
Conclusion & recommendation
References

Introduction
Chinas financial system reform efforts have had positive
results. Reforms accelerated since 2003, with the Chinese
government adopting a series of policies to enhance financial
sectors resilience and, on the structural side, strengthening a
large part of domestic financial institutions and improving market
confidence. However, risks, challenges and development
opportunities remain. This report points out near-term risks,
reform challenges and development opportunities China confronts
as it continues to modernize its financial sector. China faces
potential vulnerabilities, near-term risks and policy-induced
distortions common to an evolving financial system. The
challenges and opportunities are not unique, and can be
addressed. We propose that the authorities could consider
carefully sequencing the following reforms and development

options: (i) further deepening the commercial orientation of the

financial system; (ii) moving to more market-based means of
controlling monetary and financial conditions; (iii) further
strengthening regulation and supervision; (iv) upgrading the
framework for financial stability and crisis management; (v)
revising the strategy for financial inclusion to achieve improved
access to financial services ; (vi) continuing steps to support a
broad based capital market; and (vii) continue to strengthen and
deepen the insurance and pension sectors and (viii)continue
enhancement of the financial market infrastructure.
Culture assessment
Chinas culture is founded on the 2500 year old Confucius
teachings of the importance of society, the group, and
hierarchical relationships within a society. It is collective in
nature, directly contrasting the individualistic culture found in US
businesses. (Ralston, Holt, & Terpstra, 1997) According to Sullivan
(2002) the Hofstede dimensions are one of the best known means
of examining culture used in international business. Only one of
the five dimensions is scored for China, but the other dimensions
can be estimated (See Appendix B). Chinas degree of
individualism would be on the low end due to its collective nature,
and focus on the group v. the individual. Guanxi, loosely
translated as relationships, is very important in the Chinese
business culture. The bureaucratic, state-owned businesses lend
themselves to the high end of the power distance scale due to
their hierarchical nature. China has an extremely high intolerance
for uncertainty, again stemming from the state-owned
bureaucracy exemplified by a lack of risk or uncertainty. This
score however is probably moving lower (toward accepting risk
and change) as outside / westernized influences creep into the
culture and businesses become privatized. The degree of
assertiveness would be located on the lower end of the scale,
toward nurturing and cooperative living, but also supported by

the hierarchical nature of businesses. Finally, the one Hofstede

score that is provided is for long-term orientation and is off the
scale on the high end, which tracks, since China has one of the
highest rates of savings in the world (40% GDP).
Where the US focuses on individualism, equality, achievement,
change, taking risks, and immediate gratification, China is more
collective, valuing cooperation within a hierarchical structure, the
status quo, and decision making only after careful and detailed
analysis. (Sullivan, 2002). Because China and the U.S. represent
ideological opposites in the work environment, in spite of the
present move toward capitalism in China, (Ralston, Holt, and
Terpstra, 1997, 24), US based companies such as Staples will face
quite a few challenges. Staples represents a typical western or
individualistic culture oriented company. Based on their recruiting
slogan from staples.com, the typical Staples employee is
entrepreneurial, individualistic, risk taking, and assertive. This is
in direct contrast to the classic Chinese employee.
Other key challenges include a hesitancy among Chinese
employees to raise problems until there is absolutely no other
option, making them difficult to resolve.

Where the US focuses on individualism, equality, achievement,

change, taking risks, and immediate gratification, China is more
collective, valuing cooperation within a hierarchical structure, the
status quo, and decision making only after careful and detailed
analysis. (Sullivan, 2002). Because China and the U.S. represent
ideological opposites in the work environment, in spite of the
present move toward capitalism in China, (Ralston, Holt, and
Terpstra, 1997, 24), US based companies such as Staples will face
quite a few challenges. Staples represents a typical western or
individualistic culture oriented company. Based on their recruiting

slogan from staples.com, the typical Staples employee is

entrepreneurial, individualistic, risk taking, and assertive. This is
in direct contrast to the classic Chinese employee.
Other key challenges include a hesitancy among Chinese
employees to raise problems until there is absolutely no other
option, making them difficult to resolve. This stems partially from
the state-owned aspect of many businesses which has created a
culture with little incentive to take responsibility. These SOEs
guarantee employment and benefits and whenever they run into
issues are bailed out by the government. Under the collective
system, where conformity meant anonymity, and anonymity
meant a peaceful life, there was a disincentive to use initiative or
to take responsibility for a situation. (China Business Desk, 2000,
6)
The good news is that as the SOEs are replaced by privatization,
the values are slowly changing. Job insecurity, the need for
stakeholder management resulting from tightening budgets and
unsecured losses, income for performance and other capitalistic
business practices are slowly being accepted although perhaps
not yet embraced by the Chinese. And entrepreneurship is
becoming a respectable occupation. (Zapalska, and Edwards,
2001, 21)
A political assessment
Politically, the transition from the previous administration was
made with an emphasis on continuity. The Xi Jinping Li Kiqiang
tandem is facing both social tensions (which remain acute
because of growing inequalities between rural and urban area)
and ethnic tensions (deadly attacks in the mostly-Uighur Xinjiang
region). Nevertheless, at the November 2013 Plenum, the
leadership announced a number of emblematic reforms. The onechild policy will be relaxed, re-education-through-labour camps
will be abolished and inequalities between rural and urban

workers will be reduced. Finally major governance shortcomings

persist, especially with regard to access to companies balance
sheets and legal protection for creditors.

Strengths

External accounts benefiting from competitiveness and industrial

diversification
Limited risk of external indebtedness thanks to high level of
foreign exchange reserves and a current account surplus
Sovereign risk contained: public debt is mainly domestic and
denominated in local currency
Gradual move up-market
Infrastructure development boosted by the stimulus plan
Weaknesses

Social tensions linked to rising inequality

Share of consumption in GDP remains weak: rebalancing the
Chinese growth model remains a medium term challenge
Aging population and pool of abundant cheap labour gradually
drying up
Overcapacities curtain sectors
Chinese banks weak, considering the credit dynamism,
uncertainties over the level of non-performing loans and shadow
banking
Environmental problems

A financial assessment
Chinas progress in reforming and developing its financial system
has been considerable (Table 2). This development has been
supported by key banking sector reforms, creation of capital
markets, introduction of a prudential regulatory regime, bank
recapitalizations, and a broad-based opening of the financial
system following accession to the WTO and reforms since 2003.
Joint-stock
reformsincluding
initial
government
capital
injections, and subsequent strategic investor participation
and initial public offerings (IPOs) have boosted large banks
commercial orientation. Banks have diversified their equity
structures; enhanced corporate governance; introduced internal
controls and risk management; and increasingly adopted profitmaximizing
strategies.
Key
securities
companies
were
restructured, and a securities companies resolution mechanism
and an investor protection scheme set up. Insurance sector
reform also progressed.
2. The reform of financial policy is underway but distortions
remain. These are linked to remaining interest rate policies,
quantitative credit guidance, limited investment channels, and
moral hazard related to the perception of implicit state
guarantees. As a result, Chinas system is characterized by: (i) a
low cost of capital that does not remunerate adequately domestic
households; (ii) a propensity for prices to deviate from market
clearing levels; (iii) inadequate incentives to price risk in view of
the
implicit guarantees on large state-owned enterprise (SOEs) debt;
2
(iv) emphasis on minimizing NPLs on balance sheets; (v) high
levels of structural liquidity; (vi) incentives to push credit off-

balance sheet; and (vii) still limited non-state ownership

including foreign shareholder participationin the financial
system. Direct allocation and credit pricing facilitated Chinas
strong growth, when sectors with highgrowth potential were easily
identified, but they also contributed to overcapacity, potential
asset bubbles, and the need for public-funded bank
recapitalizations.
3. Credit is primarily channeled via the banking system, with a
limited role for domestic capital markets (Figure 1). At end-2009,
commercial bank loans accounted for a larger share of total
financial system assets compared to others. Nonbank financial
institutions (NBFIs)including trust investment companies,
financial leasing companies, and finance companieshave been
growing
An economic assessment
A countrys economy cannot grow until sufficient infrastructure is
in place. Chinas infrastructure is very complex (Hand, 2002), and
consists of those services provided by public and private utilities
which foster production, trade, and consumption (Sullivan, 2002,
p. 475). These services include power, telecommunications,
water, sewage and sanitation, piped gas, roadways, railways,
ports, airports, and most importantly banking
Over the past two decades, China has revitalized its
infrastructure. Much of Chinas success stems from its promotion
of the privatization of enterprises, the breakdown of its
monopolies to provide fair competition for all entrepreneurs, and
the creation of treaties, agreements, etc. that promote foreign
business relations (china.org.cn, 2002). Of critical importance to
Staples will be the adequacy of Chinas infrastructure in
transportation, foreign trading, finance, telecommunications, and
the Internet.

Chinas complex transportation infrastructure consists of old and

new roadways, antiquated railways, undeveloped rural dirt roads,
ancient waterways (along the major rivers), and booming air
traffic, all responsible for moving more than 1.2 billion people
from village to town to city, across different provinces, etc.
(Xinhuanet, 2003). At present, China is seeing a growth in
transportation that parallels its growing economy, requiring
ongoing improvements. Currently, the last section of a doubletrack line on the Beijing-Kowloon Railway (a major North-South
route) is being laid. And plans to continue numerous highway and
railway construction projects are in place. Air travel is another
major mode of Chinese transportation that has also undergone
change. Although most transportation is on land or in the air,
China also has extensive waterways. Chinese shipping companies
are ranked among the world's largest and provide services to all
of the world's major ports (Gates, July/August, 2001).
Chinas telecommunications and Internet infrastructures have
grown and helped to boost the efficiency of communication for
both domestic and foreign businesses. Ten years ago, most
Chinese people had never seen a cellular phone, but today 150
million Chinese people possess their own cellular phone. Staples
should be aware, however, that the development of
telecommunication and the Internet is uneven among provinces,
with growth much slower in the central and west regions.
Chinas financial infrastructure appears to be very strong. In the
past seven years, China has received more foreign direct
investment than any other country in the world except the U.S.
Currently global multi-national companies are actively investing in
China, and more than 400 of the top 500 global companies have
investments in China (china.org.cn, 2002, November 13). Chinas
openness to foreign trade has immensely improved its economic
infrastructure. Over the past three decades, treaties and

agreements, such as the Sino-US Relations, the WTO accession,

etc. have increased Chinese imports and exports.
Despite the states economic gains and success in modernization,
the economic infrastructure is still undergoing many changes and
there is no promise that these changes will produce further
success for China.
Conclusion & recommendation
The country analysis tells us to proceed with caution. Before
making a final determination about expansion into China, we
recommend that a SWOT analysis be conducted along with a
competitive assessment of China. The SWOT analysis must take
into account product offering, distribution methods, marketing
communications,
manufacturing
options,
financing
and
management from a global perspective, specific to China. If the
additional analysis further justifies immediate expansion into
China, Staples should set up a Representative Office to act as a
conduit between the U.S. Staples Corporation and China. The
registration of a representative office is required in order to
lawfully employ Chinese nationals, to open a bank account, to
import personal effects duty-free, to import office equipment
without an import license, to obtain direct telecommunication
lines, to display signs with the company name, or to use business
cards that identify the company's presence in China (Paglee,
1998). This office will provide Staples with time to gain experience
and understanding of the Chinese Market along with the equally
important rules and regulations that must followed to gain entry.
It will also allow Staples to formulate an acceptable exit strategy
based on its entry options.

References
Kwan, Chi Hung. (2011, February 8). China in transition.
Chinese private companies demanding national treatment at
home. Retrieved online 1.6.03 from
http://www.rieti.go.jp/en/china/02080201.html.
Latelinenews.com. (2012, September 26). China reform
delays infuriate local investors. Muzi News [Online].
Retrieved from:
http://news.1chinastar.com/ll/english/1227338.shtml.
Latelinenews.com. (2012, December 1). China launches
opening of domestic share market. Muzi News [Online].
Retrieved from:
http://news.1chinastar.com/ll/english/1236851.shtml.
Latelinenews.com. (2012, December 3). Flow of new China
equity to intensify in 2003. Muzi News [Online]. Retrieved
from:
http://news.1chinastar.com/ll/english/1237139.shtml.