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A PESTEL analysis of Chinas current economy

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With China economic growth rapidly, more
and more business people like to invest on
chinese market. Meanwhile, multinational
investment is always a good condition f or
economics grow and prosperity as well. In
order to attract f oreign direct investment and run a successf ul business in China, it is important to
analyzing the macro-environment, and identif y the f actors that could af f ect the organizations economy,
such as supply and demand and its costs.
A PEST analysis is one of strategic tools f or analyzing the environmental inf luences including political,
economic, social and technological f actors on the business. (Porter, M., 1985) In this essay, it is going to
explain about current china economy and analyze it with PEST tool, to see if there is a good business
condition f or running a business in China.
In addition, there are some recommendations f or local or f oreigner investors and business people, so that
they can access chinese market and share inf ormation like high-technology, cultural and management skills
with local business people, to create competition and stimulate chinese economy develop f aster.
Main Aspects of PEST Analysis:
Political f actors:
Political f actors are related to law, regulatory, and government policy, which inf luence Economic f actors,
and government decisions.
Af ter the economic ref orm in 1978, the economic is growing spectacularly in China. T he ref orm comprises
of motivating the development of private business, f oreign trade liberalization, f oreign direct investment,
and industrial production investment as well as the employment prof ile. From 1979 to 1994, more than 42
percent chinese economic rate has been grown up. (Mohsin S. Khan, 1997)
In the labor law, government changes the structure of jobs and becomes less strict, which create
opportunities f or unemployment, such as f or graduated students who have not f ound any jobs, and f or
some people with lower education, so that at least there is a place f or them to work, then being accepted
new skills training. Otherwise the higher rate of unemployment, the more social problems might cause, that
also discourage investment. As data shows, chinas urban unemployment rate reached 4.2% in 2008, since
the employment immigrate f rom rural to urban; and increase to 4.6% in 2009, because of the world f inancial
crisis leading to export economy more than import. However, since 2008, the central government f inances in
the labor-intensive sector to provide more job availability. (Yingzi T, 2009)
For the consumer rights protection, af ter open up china door and the economy ref orm, people increase
consumers awareness and protect their rights. (Shaoping G, 2008) If the consumer protection is improving,
the multinational companies will get benef its f rom doing business in china: open market will be prosperity
and the market f or the middle level of consumers are expanding . (Suk-ching H,1997)
When it comes to f oreign trade policy, the private sectors are moving f orward f ast af ter 1978 ref orms.
Foreign trade opening drives f oreign direct investment increasing. In 2008, the f oreign direct investment is
up to 108 billion dollars in china. (Yadav M, 2010)

Furthermore, the well-being relationship between dif f erent countries is very important f or economic
development. For instant, if two countries government or organizations have argument causing a war,
which will be unstable in economy and society. T hen, people f eel unsecured about government, jobs and
their daily lif e. If their business have big loss or company closes down, leads to lose jobs. T heref ore, they
can not af f ord to purchase product and make company less prof it or loss. It will be a wicked economic
cycle.
However, no matter how develop the domestic economy is, it is
better to keep the environmental survival ability f or next
generations. T he environmental regulations could keep
environmental f riendly and maintain the balance between
economy development and sustainable development.
Economic f actors:
Economic f actors inf luence a business directly, because they
af f ect capital availability, cost, supply and demand. If demand is
high, and the capital cost is low, which attract more investment on the company and produce more product
to make prof itable. However, during economy recession period, there is still chances f or some small
potential corprations accessing business market and competing with others.
Recent years, China economic growth rapidly. Overall, it can be ref lect f rom industrial sectors. Since f rom
late 1978, China becomes market oriented economy. China gains tremendous in production of agriculture.
Even though, there are more than half people rely on agriculture f or living, the agriculture sector has less
inf luence f or gross domestic product. At the same time, labor input decreases in most of industries, due to
labor productivity improvement and the migration f rom rural workers to urban areas. In the opposite,
through the adjustment of secondary industry and teritiary industry, they become unreplceable roles to
GDP. (Ke-sha G, 2001) It provides activities as knowledge, skills, as well as experience, entertainment to
improve the quality of business. (Sasaki H, 2009) Due to its f oreign trade liberazation and investment, the
income has been dramatically rising af ter joining the WT O. Moreover, the demand f or material and energy
resource is also increasing. T hey import and process materials, then sell the f inal products.
In addition, the Bank of China as central bank in china. It uses monetary policy to increase or decrease
interest rates and control the amount of money in the economy to achieve steady economic growth.
Normally, government will not lend money to business company directly, it has to deposit money f rom bank
of china f irst. Also, the central bank reduce lending to companies and individuals, according to the
increasing amount of money they put with central bank. Moreover, the central bank also guide country bank
to increase more reserves and its ratio, such as 16.5% f or big bank, 14.5% f or small bank, in case of any
f inancial crisis or loan needs. At the same time, bank of china will control conf lict and surplus, as well as
increase tax f or import product. Because if they increase tax, people would rather purchase and import
product with those money, not saving them into bank. (Bradsher K, 2010)
Government expenditure is to purchase goods and service, allocate f unds ef f iciently and invest on doing
domestic inf rastructure; f or high technology innovation and education, as well as social security payments.
Technically, increasing government spending can be met chinas economy development need. By 2002, the
government spending has increased to 5.5% of GDP, which shows a good trend. (Moinar M, 2006)
During inf lation period, the economy is lack of investment, and exports will suf f er f rom inf lation, as
inf lation increase the price of exports and encourage imports. Also, the most industrialized countries will be
adjusted to increase their interest rates, which will be pay back through loans in the markets, which
demonstrate that govrnement try hard to control f oreign f low-in cash.
Environmental f actors:
T he environmental f actors af f ect organizations. f irstly, capital
markets is determined by chinese government. government

increase their expenditure, which could increase money supply

f or organization and make capital markets boom. Based on
organization perf ormance, the shareholders will decide to
provide more equity f unding or sell the shares.
T he labour market indicates that the availability of certain skills
and the labour costs at dif f erent regions or industries in China, which are under the power of the training
and government policies, as well as the inf lation, industries sectors needs, and trade unions.
At last but not the least, China f ocus on being environment-f riendly society. As china daily said, china will
have an international green industry expo in beijing in Nov of 2010, which will let others know more about
domestic corporations and of f er a new stage f or them, also f oreign companies are likely to explore
chinese green market and develop a green economy in china, such as clean energy, emission reductions,
low carbon technology and so on. (Xinhua, July 2010)
Social:
Income distribution is unequal within dif f erent areas and industries. For example, the average income has
2.26 times in east of china of the west of china. T here are several reasons f or it: the laid-of f people who
do not going to work, less desire f or consuming due to the recession of economy, less social guarantee
f rom chinese government, huge income gap between urban and rural. T he more income distribution
expanding, the more motivation f or economic growth, also can be obstacle f or economic growth. Unequal
income distribution and poverty will be barriers f or chinas growth. T hus, government need adjust the
taxation system, reduce income dif f erence in dif f erent f ield, improve the social security f or to make people
lif e more secure. (Jing X, 2007)
As to lif estyle changing, nowadays, there are more people choose working at home, it will be more
connivence and easier f or employment who want to keep balance between f amily and work. Also, with the
number of single households increasing, company more like to assign this type of employees to work
abroad or other regions where is f ar away f rom home. Because they have less responsibility f or f amily and
less homesick. T hey will more easier to devote all themselves into work and adapt new multicultural work
environment. (Lu D, 2009)
For attitudes of work and leisure, people becomes more understanding and f lexible. they are not only f ocus
on work any more, more like to enjoy lif e af ter done with workload. In company, they will organize leisure
activities f or employees. On the one hand, they can improve the ability of communication and socialization;
on the another hand, they can have health mind, health body.
Moreover, education is becoming more and more important f or everyone. T heref ore, chinese government
encourage international schools join venture with chinese public schools to exchange culture and learning
skills, also as business company, they will organization business presentation f or employment, or assign
them to study abroad, to introduce more advanced knowledge and valuable experience f rom people who
are f rom dif f erent culture background.
People can not work well, without good living conditions. So that government pay more ef f ort on housing
amenities pollution with specif ic policies and regulations to control air/noisy pollution, creating an
sustainable f riendly living environment.
Technology:
Government and industry f ocus on technological ef f ort, so government spend large amount of money on
research, to develop and explore high technology innovation, also to speed the technology transf er.
In china, the energy demand growth become slow down these years. china consumed less energy then the
U.S. in 2009.Energy consumption growth f ell to 5.2 percent in 2009 f rom 16.1 percent in 2004. Energy use
per unit of gross domestic product dropped 15.6 percent in the f our years started 2006. China wants to

reduce its energy use per unit of GDP by 20 percent in the f ive years through 2010. to reduce reliance on
energy, china plans to conserve energy and reduce emission. as the sample of more-polluting f ossil f uels,
the Chinese government spent $34.6 billion on clean-f uel projects last year, almost double the $18.6 billion
invested by the U.S. (Xinhua , Aug 2010) High technology inf ormation development has a signif icant role in
the china economy. As the internet and technology moving f orward, it drive the success of the china
economy. T he trade barriers decrease, which produce more job opportunities in the f ield of inf ormation
Technology. Moreover, the expenditure of high-technology consumers are covering all over the world, such
as computer and networking hardware, sof tware and services, that is over than $1.4 trillion in 2005. Also,
that worldwide IT spending increase by 10 % over every year.
T he technology inf ormation widely spreading make the whole world become closer and make lif e easier.
they also can do business and do shopping at home, no need even go out, you just can f ind any
inf ormation. with internet, business company like to have online teaching program f or employment to
upgrade their personal prof ile. they also choose internet f or online meeting, consulting, to delivery the
ideas to f ellows, managers, customers, and business partners. (Porter, M. ,1985)
Conclusion:
In a conclusion, as well known, china is the f astest developing country, which has many potential business
opportunities. However, it is important to judge and make sure the investment environment bef ore running a
business in china. PEST strategy as showed above analyze the external business environment to give a
general picture of the operated business environment. So that company can take advamtage of the
appropriate opportunities and minimize the threats. If company can make correct strategic planning, it will
of f er a stable and solid environment f or a company to grow into the f uture.

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