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N.

L Dalmia Institute of Management


Studies and Research
Macroeconomics
PESTEL Analysis of China

Group Members:
Nikhil Pawar (139)
Muntazir Rajkotwala (141)
Karan Shah (143)
Mohit Shah (144)

China is among the most attractive locations in the world. It has also grown to become one of the
strongest powers. This rise boosted international business. The legal system too has been
improved. Foreign investors seek business in China mainly because of 3 things. They are:
Size of the market
The very low cost of labour
Chinas growth potential together
China has become increasingly integrated with other parts of the world. It opened itself to an
array of cross-border economic activities and is it not easy to manage international business in
China.
PESTEL analysis is an essential management tool which assesses the macro-environmental
factors. It is generally conducted for businesses and projects. The analysis helps decision-making
and other management processes. It studies many elements under the following factors:
Political Factors
Economic Factors
Social Factors
Technological Factors
Environmental Factors
Legal Factors
The main challenges for businesses in China are:
Attaining strategic objectives of cost reduction
Local differentiation
The strengthening of core competencies in certain areas and business activities
You are perhaps aware that China is a formal member of WTO. While Chinas entry into the
world market benefits its national economy, it also boosts global economic growth.

Political Factors
Political factors which impact China are:
Government regulations
Both formal and informal rules, which firms must abide by, impact the country. Many people
claim that the political force is the most unsettled force. Over the past few years, the government
focused on the development of e-commerce.
Legal issues
The legal framework for e-commerce is still in its early stage. China has little experience for
drafting e-commerce legislation for topics like intellectual property rights protection and tax.
There arent any regulations supporting the privacy, recognition of digital signatures, consumer
rights and validation of electronic contracts yet.

Economic Factors
Over the past five years, Chinas economy experienced significant GDP growth rate. Reports
suggest that if China continues to excel at this rate, it ill surpass US GDP soon. Some factors
which might help are:

Sigh rate of savings


Abundant and skilled labor
More export business
Potential urban growth

Any economic development could have a major impact on the SMEs and their actions. Chinas
GDP rate suggests that each citizen is adding more and more value to the society. This is in turn
increasing consumers purchasing power. The labour cost in China is also extremely low. This is
why leading companies like Apple are inclined to hire workers from the country.
The growth rate is impressive, but it can slow down. Some of the worrying trends in China are:
High inflation rate
High property prices
The Peoples Bank of China has increased interest rates. The reserve requirement for commercial
banks is also nine times higher now. Moreover, the central bank is urging banks to lend less and
impose limits on home purchases.

Social Factors
The social and cultural aspect of China plays an important role as the demographics constantly
change. For example, population growth and age distribution fluctuate. These can alter social
trends and cultural values. Family size and social behaviour often impact how decisions are
taken. Other social factors are consumer lifestyles, education, religion, and emigration. China is a
collectivistic culture, based on Geert Hofstedes value dimensions.
The literacy rate in China is over 90%. China emphasizes on education and majority of the nation
are literate.
There are 420 million Internet users in the country. As there is internet access, Chinese people
often shop online. Taobao is the largest local e-commerce website, and many people buy a lot of
their things from the site. Boston Consulting Group predicts that the volume will increase in near
future.
E-commerce has changed how local consumers shop. However, there is still a group who wish to
avoid the perceived risk associated with online shopping. They prefer physical shopping and like
the face to face contact.

Technological Factors
Some common technological factors studied in PESTEL are:
New products being developed
New purchasing mechanisms such as the intranet and extranet
New production technology
New distribution mechanisms like Internet
New methods of working like mobile telecommunications

A major technological problem in China is that the development of the B2C industry does not
have a safe and stable online payment system. As Chinese buyers are on high Uncertainty
Avoidance level and Long-Term Orientation, the problem is strengthened.
What is more, based on the perspective of Ortolani (2005) there has been only 1 percent credit
card penetration in China suggesting that the most widely used payment method had low
acceptance in China and the payment system to support online credit card transaction is also
facing low usage. And the lack of safe online credit card payment system is one of the key
reasons for this low usage and penetration.

Environmental factors
Undoubtedly, along with China's rapid industrial development are the serious negative impacts on
environment these include increasing pollution and decreasing natural resources as well. In 2007,
China became the world's 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 polluted in the world were in China. In addition based
on China's 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 nation's 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 scarcity 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 Beijing and Tianjin. Some research estimate pollution costs hold the
Chinese economy from 7% to 10% of GDP per year.
Currently, like any Government, China's leaders are increasingly paying attention to
environmental problems in the country. Realizing the importance of environmental protection,
The State Environmental Protection Administration was officially upgraded to a ministry-level
agency, the Ministry of Environmental Protection in 1998.
Recently, China's 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 climate 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 participating actively in climate change talks as well as other
multilateral environmental negotiations, especially discussions about how developed countries
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
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
project's 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.

Legal factors
Laws support foreign investors:
In 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 People's Republic of China on
Chinese-Foreign Equity Joint Ventures was published. 20 years later, the Chinese government has
promulgated and issued a series of laws and statutes about the establishment, operation,
termination and liquidation of foreign-invested enterprises. The main laws and regulations
include the three 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 People's Republic of China; The Income Tax Law of the People's Republic of China for
Enterprises with Foreign Investment and Foreign Enterprises; Interim Provisions 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 guarantee the independent
operation rights of foreign-funded enterprises and to protect the legitimate rights and interest of
both domestic and overseas investors.
Currently, the China's government is considering its existing laws and statutes in accordance with
the model of the WTO. It has abolished certain obsolete laws and regulations, and will gradually
revise the laws and regulations that are incompatible with the rules of the WTO.
China Tax Regime:
Tax law is one of the most important issues that SoundTech Technology needs to understand as
the tax regulations have a direct impact on ST's 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 below 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 spent
preparing, filing, and paying; and the percentage of their profits they must pay in taxes.

Conclusion
China is a flourishing market with the need for some small changes. Companies will benefit if
they can understand the external macro-environment in which they function and will operate in
the future. The rapid economic growth and stable political conditions make the e-commerce
industry lucrative to investors. There are risks like lack of trust. Other risks include lack of stable
and secure online payment systems. Also, there isnt proper legal protection. All of these create
uncertainties and challenges to the market players.

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