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 values to the society. This is in turn
increasing consumers purchasing power. The labor cost in China is 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. http://pestleanalysis.com/pest-analysis-of-china/
https://www.usi.edu/media/3654697/Business-Environment-China.pdf
http://www.australianbusiness.com.au/international-trade/export-markets/china/the-economicenvironment

International trade, as a major factor of openness, has made an increasingly

significant contribution to economic growth. Chinese international trade has
experienced rapid expansion together with its dramatic economic growth which has
made the country to target the world as its market. This research discusses the role
of international trade in Chinas economic growth. It starts with a review of
conceptions as well as the evolution of Chinas international trade regime and the
policy that China has taken in favor of trade sectors. In addition, Chinas
international trade performance is analyzed extensively. This research then
evaluates the effects of international trade on Chinas economic growth through

examining improvement in productivity. Both econometric and non-parametric

approaches are applied based on a 6-year balanced panel data of 31 provinces of
China from 2002 to 2007. For the econometric approach, a stochastic frontier
production function is estimated and province specific determinants of inefficiency
in trade identified. For the non-parametric approach, the Divisia index of each
province/region is calculated to be used as the benchmark. The study demonstrates
that increasing participation in the global trade helps China reap the static and
dynamic benefits, stimulating rapid national economic growth. Both international
trade volume and trade structure towards high-tech exports result in positive effects
on Chinas regional productivity. The eastern region of China has been developing
most rapidly while the central and western provinces have been lagging behind in
terms of both economic growth and participation in international trade. Policy
implications are drawn from the empirical results accordingly.
China began reforming its economy through the adoption of the open door policy led by
the leadership of Chinsese President Deng XiaoPing. The aim of this economic policy
shift was to rebuild its economy and society that were devastated by the Cultural
Revolution.

(The

Japan

research

institute,

limited)

(http://www.jri.co.jp/english/periodical/rim/1999/RIMe199904threereforms/)

Chinas

transition into a global economy has largely contributed to its sustained economic
growth. International trade, as a major factor of openness, has made an increasingly
significant contribution to economic growth. Chinese international trade has
experienced rapid expansion together with its dramatic economic growth which has
made the country to target the world as its market.
Some of the industries began to acquire a high level of specialization, and China has
achieved a high growth rate of GDP, as well as an enormous inflow of hard currency and
increase in employment.

Economical aspect of China

The Chinese economy experienced astonishing growth in the last few decades that
catapulted the country to become the world's
(http://www.focus-economics.com/countries/china)
Chinas trade structure

second

largest

economy.

The opening of the country and the governments massive investment programs
have prompted the country to become a major manufacturing hub. This situation
fostered trade growth in the last decades, particularly after China joined the World
Trade Organization in 2001. As an economy highly integrated into the global trade
system, the country benefited from a steady improvement in its terms of trade since
2000. However, the global economic downturn in 2008-2009 led the country to reduce
manufacturing output, thus putting a drag on Chinas trading sector.
Moreover, the country has engaged in several bilateral and multilateral trade agreements
that have opened new markets for its products. In 2003, China signed the Closer
Economic Partnership Arrangement with Hong Kong and Macau. A Free Trade Agreement
(FTA) between China and the ASEAN nations came into effect on January 2010, which
created the worlds third largest free trade area in terms of nominal GDP. China also
established, among others, FTA with countries such as Chile, Costa Rica, Pakistan, Peru,
New Zealand, Thailand and Singapore. Moreover, there are other FTA under negotiation
with Australia, the Gulf Cooperation Council, Japan, Korea and Norway.
http://www.focus-economics.com/countries/china
China,
a
good
place
to
make
business
(http://www.chinalawblog.com/2010/09/china_a_really_good_place_to_do_business.h
tml)

China is the biggest trade partner of a number of neighboring countries, and is also the largest
source of trade surplus for many countries. Trade with China and exports to China are an
important driving force for the economic development of these countries.
Trade barriers
When a country engages into business with another country, economic measures exists for the
benefit of either country. Economic measures here refers to trade barriers, trade barriers are
measures that governments or public authorities introduce to make imported goods or services
less competitive than locally produced goods and services. (Ministry of Foreign Affairs of
Denmark)(http://um.dk/en/tradecouncil/barriers/what-is/)
Ever since China become a WTO Member on 11 December 2001. China has gradually begun
liberalizing its foreign trading system and has continued to reduce administrative barriers of
trade. Although the frequency of trade barriers had gradually reduced, China still imposes it.
Quota and Licensing

China used to implement quota and licensing as its trade barriers, but now these requirements
have been removed on the majority of imports starting from the year 2005, and only a limited
number of goods are now subject to import licensing control. In the year 2015, only two
categories of goods, namely ozone depleting substances and key used mechanical and
electronic products, totaling 135 items under the 10-digit tariff code, are subject to import
licensing control. (Daniel Poon, 27 Aug 2015)
(http://hong-kong-economy-research.hktdc.com/business-news/article/SmallBusiness-Resources/Trade-Regulations-ofChina/sbr/en/1/1X000000/1X006MY8.htm#sthash.tDEMGZEA.dpuf)

Import duties and taxes related to foreign trade and business

China also imposes import duties and taxes related to foreign trade and business. Anti-dumping
and countervailing duties may be imposed on imported goods that pose a threat to Chinese
national industries. Agricultural products like wheat, corn, rice, soybean oil, rapeseed oil, palm
oil, sugar, cotton and wool are all subjected to tariff rate quotas.
Consumption tax is applied to imported goods such as cigarettes and tobacco, alcoholic drinks,
cosmetics, skin and hair care products, jewelry and precious stones, motor cycles, motor cars,
gasoline and diesel oil, golf clubs and equipment, high-end watches, yachts, disposable wooden
chopsticks and wood floor panels.
Business tax is a kind of turnover tax levied on the revenue generated from the provision of
taxable services. From 2012, China began to implement business tax to VAT conversion pilot
programme. Currently, services subject to business tax are: construction, culture and sports,
finance and insurance, taxable services (including agency and tourism), transfer of intangible
assets, sale of immovable properties, and entertainment at tax rates of 3% to 20%.
Corporate income tax is lowered to 25% (from 30%) for both domestic and foreign-invested
enterprises from January 2008. Individual income tax for foreign nationals working in China is
charged at progressive rates from 3% to 45%.
Trade description and labeling requirements

All goods that are sold in China must be labeled in Chinese language with true description of
their contents, grades and specifications as to quantities where applicable, production date and
expiration date in particular for food related items and pre-packaged foods, explanatory
warnings as to potential hazard associated with the products etc. (Daniel Poon, Daniel Poon, 27
Aug 2015)

This was taken live at 8.39pm 26th of March 2016, and the numbers are slowly increasing
through time. (http://www.worldometers.info/world-population/china-population/)

With that being said any economic development could have a major impact on the SMEs Small

and medium enterprises and their actions. The labor cost in China is extremely low. This is why
leading companies like Apple are inclined to hire workers from the country. There I believe it is

the right time to market our products because when the countrys growth rate is stable, which
imply that the people are able to spend more to purchase goods and with that creates
opportunities for investment as investors are confident that the nation can generate enough
returns.