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China: A Cultural, Political and Economic Analysis

For International Businessb

China

China exhibits many stark cultural differences, preferences, and orientations from the United States. According to Hofstede, China falls on the opposite side of the scale in power distance, individualism, and long-term orientation, which could potentially cause conflict with business. However, some similarities do arise concerning masculinity and uncertainty avoidance, which could create a common starting ground to understand one another’s cultures. China also differs from the United States when looking at demographics and other cultural factors such as compensation, religion and ethics. While there is some political and economic risk, China provides good business opportunities. This paper will examine these cultural and business factors.
Power Distance
Power distance reflects the extent to which less powerful members accept the unequal distribution of power (Callister, 2004). According to Hofstede’s chart, China is ranked 80, which is relatively high (Hofstede, 2001). Usually, Chinese managers or those in positions of authority do not ask opinions of their subordinates. Managers’ decisions are absolute to lower class employees. Chinese managers do not tolerate subordinates who lack respect (Williams, 2004). That is why managers do not invite lower class employees in their meetings to cooperate. They want to exhibit power distance to emphasize the different levels of structure in their companies (Hsieh 2004). This makes it more challenging for executives and employees in the United States because power distance is lower—ranked at 40 (Hofstede, 1996). U.S. employees expect their opinion to be valued, yet Chinese executives will not ask. Chinese employees expect the manager to know all the answers, whereas the US manager will ask for suggests. This may appear as incompetence to the Chinese employee.

1 Individualism

Individualism reflects the extent to which a country focuses on individual or collective achievement (Callister, 2004). China is ranked 20th among the world for individualism (relatively low), which sharply contrasts with the US ranking of 91 which is the most individualistic country of all tested (Hofstede 1996, 2001). However, China is a massive country and thus there are social and living style gaps between the big cities such as Beijing and Shanghai, and the countryside. Because of changing political institutions influenced by Western culture and the dramatically developing Chinese economy, many Chinese are beginning to respect individual’s opinions, choices, freedom, and themselves. On the other hand, people who are from the countryside still consider that individualism is selfish and egotistic, and schools still teach children that individualism is evil and shows carelessness toward other people (Barber, 2001). Difficulty will surely arise between US employers/employees who focus on personal achievement and promotions based on success within the company. Chinese employers/employees who concentrate on success for the company not the individual will also encounter difficulties.
Uncertainty Avoidance
Uncertainty avoidance can be defined simply as how comfortable or uncomfortable people of a certain culture are in unknown or unstructured situations (Hofstede, 1996). Hofstede gave China an index rating of 30 in relation to uncertainty avoidance (Hofstede, 2001). This rating is fairly low especially when compared to other Asian cultures such as Japan, which rated 92. A low rating indicates a society with a larger tolerance for change and unstructured situations. The United States was rated at 46 making them slightly more structure based than China (Hofstede, 1996). Countries ranked high in uncertainty avoidance would likely get frustrated with China’s less structured ways as would China with all their rules, etc. The United States being ranked only slightly higher than China should find China’s tolerance for new and unstructured situations familiar and comfortable. This similarity could prove to be very helpful in business meetings and relations.
Masculine/Feminine
Masculinity versus femininity is also called career success versus quality of life. This dimension of culture focuses on which societies emphasize making money (masculine/career success) and which give more importance to relationships and other aspects of life (Adler, 2002). China was given an index rating of 66 making them more career success oriented than quality of life oriented and a more masculine dominated society. The United States was rated just below China at 62 (Hofstede, 2001). When dealing with one another on business terms the US and China should understand the other’s values without too much complication because of these similarities.
Short-Term/Long-Term Orientation (STO/LTO)
Short and Long Term Orientations specify the extent to which a culture is devoted or not devoted to “traditional, forward thinking values” (Hofstede, 2001). High LTO suggests that the country has long-term commitments to tradition and fosters a strong work ethic. Change is not rapid and decisions may seem to take longer for those of STO countries. China has the highest ranking for LTO at 118 for all countries in the study. This means that time perspectives are focused on long-term results not instant success or achievement. This is markedly different from the United States, which ranks only 27(Hofstede, 1996). This could potentially cause conflict because businesspersons of the United States might become frustrated with the extended time period goals, tasks, meetings, etc. will require.

Population Demographics

China’s population is the largest in the world with thirteen million people living in main land China (CIA, 2004). That is almost 4 times bigger than the population of the United States. Because China borders North Korea, Mongolia, India, and South-East Asia there are several small ethnic groups found throughout the country (CIA, 2004). Over 90% of Chinese people are Han Chinese, and others are Zhuang, Uygur, Hui, Yi, Tibetan, Miao, Manchu, Mongol, Buyi, and Korean.
Because China is so large, the people speak several different languages depending on the area in which they live. China’s standard language is Mandarin Chinese. Mandarin is based on the Beijing dialect. The majority of people living in Hong Kong speak Cantonese and minority groups speak their own dialects (CIA, 2004). However, the Chinese government forces schools to use Mandarin when educating children. The government strongly recommends using standard Chinese to all Chinese citizens even in Hong Kong right now (Chen, 2004).
China’s literacy rate is 95% among males, and 86.5% among females. The U.S. has a 97% literacy rate and Japan has 99% for both males and females (CIA, 2004). Comparatively China’s female literacy rate is lower than that of other major developed countries. This may mean that a larger percentage of the women could be laborers whereas men would occupy more of the management positions.
China has adopted a nine-year compulsory schooling system, which means all children are required to attend school for at least nine years. Students must complete both the primary school program and the junior middle-school program (UNISEF, 2004). Higher education is only for those students who have passed examinations of all school levels. Students must pass the entrance examination for senior middle schools or middle-level technical schools. There are over 2000 universities and colleges in China. About 6 million students study at the universities and 300 universities allow international student to enroll (China Warrior Tours, 2004). Students who want to attend a university apply to a particular department in the institution so they rarely change majors. This system is to train students thoroughly from freshman year to graduation.
According to this data and because of the large population, multi-national companies should be able to find large numbers of university graduates who have technical skills and also skilled labor who can work in manufacturing industries. China is good place to hire local employees for labor and management.

1 Religion

In China, Taoism and Confucianism are the most common religions. Some Chinese are Buddhists, Christians, and Muslims (CIA, 2004). Tao can be translated into English as “way” or “path.” Taoism was developed by Lao-Tse (604-531B.C.) He tried to search for a way that would avoid the constant feudal warfare and other conflicts that disrupted society during his lifetime. The basic doctrines of Taoism are that time is cyclical not linear, people are compassionate by nature, and Tao is the first-cause of the universe etc (Chad, 2003).
[pic] The ying-yang (pictured left) is known as the symbol of Taoism. It represents the balance of opposites in the universe. “When they are equally present, all is calm. When one is outweighed by the other there is confusion and disarray.”(Religious Tolerance, 2004).
Taoism seeks to promote the inner peace of individuals and harmony with their surroundings. About Confucianism, it is based on an ethical belief system rather than religion, and focuses heavily on the concept of relationship. Every relationship such as mother and children, husband and wife, bureaucrat and civilian has a responsibility and obligation according to Confucianism. This is why Chinese think it is extremely important to establish steady relationships and to keep harmony between business partners. They seek what other people are thinking very carefully by using intent listening skills and patience. Taoism has been a long standing tradition. So it is also famous that Chinese respect tradition and old thinking (Religious Tolerance 2004.)
Compensation
The per capita Gross Domestic Product (GDP) in China was $1090 in 2003. China is ranked 122nd among 230 countries. The world average is $8200, and the top 20 countries have at least $25,000. In 2001, the majority of income came from industry and construction. However, the majority of the labor force was engaged in agriculture. CIA, 2004).
China has a serious income gap between big cities and the countryside. People who work in big cities earn almost 8 times more than people who work for agricultures in rural areas. In general, the gap should be no more than two times the amount (Economist, 2004). So, even though China is becoming the world’s largest factory, some measures need to be taken against the income balance.
Because cities and rural areas have such different ways of life, multi-national companies need to consider the location of factories and offices. In the case of rural areas, prices are much cheaper than in larger cities. Thus, companies can hire local employees at more reasonable wages. Local employees’ wages must differ depending on the location to fit their standard of living.

Ethics

China’s government is trying to improve ethical issues such as corruption, intellectual property rights, environmental abuses, labor unrest, and equality issues. Because China’s economy developed too rapidly, many Chinese companies did not focus on the relationship between business and ethics sufficiently.
According to Transparency International, China is ranked 66th. CPI score is 3.4 points (10 points is the highest). CPI score shows that the degree of corruption related to business and its risk (Transparency International, 2003). China is a particularistic country, which means that rules/laws apply differently depending on the circumstances. Over 80% of multi- national companies approved institutionalized ethical codes or norms for business activities. They also reported that their firms had formal and written codes of ethics or similar standards for proper behavior and keep developing the codes (Day, 1998). However, written codes do not mean the same as contracts in the United States. Verbal contracts are sometimes more binding than a written agreement. Furthermore, Chinese laws have always been used to punish and therefore are hard to apply to business relations. Very rarely will Chinese businessmen take partners to court.
In China, an important point of business ethics is a recent development stemming from the consequences of rapid economic development. China is working hard to address business ethics issues right now, as is evidenced by the evolving laws on corruption, increased enforcement of intellectual property infractions, and high profile trials and punishment of corrupt officials.
Political & Economic Risk
After thousands of years of self-imposed isolation, China has finally begun to open to the Western world in the last decade. This has paved the way for greater economic development and stability and also more political transparency with the international community. Because political and economic matters are so intertwined within the communist framework, it is impossible to discuss them separately.
Communism and the Chinese Communist Party (CCP) have been the basis and controlling force of China since Mao Zedong took power in 1949. CCP, the solitary political party, not only controlled political matters, but also every other facet of life—public and private. Recently, China has made a paradoxical evolution, at least in name, from Communism to a “People’s Democratic Dictatorship” (Jing, 2004). Though promising in word, by evoking the democratic label, this form of government continues to secure single party rule, dominate public and private life, select not elect leaders, and completely control policy and army.
Yet, the media enjoys more freedom. The government has loosened its monopoly over media, which is granting more access to information. Additionally, citizens are becoming more individual and more self-conscious of options and choice. This opening of society is diversifying the Chinese way of life politically, economically, and socially.
The economy, another factor integral to communism, has been making radical progression toward openness and capitalism. This “socialist market economy” is another paradox of China. It seems contradictory to suggest that an economy can be both socialist and market-based when the terms imply opposite meaning. Major backbone industries such as banks, communications, transportation, etc. are state-controlled, meaning government controlled. “Light” industries, such as restaurants, hotels, apparel shops, etc. are non-state owned. Further, the government has given the people more economic freedom to buy stocks, houses, and foreign currency. Individuals can even choose their jobs, a freedom not given under Mao. Farmers are allowed to develop individual enterprises, which is a deviation from the previously government-controlled communes or forced collective farming (Jing, 2004).
Most significantly, China’s entire economy is becoming more and more integrated into the global world economy—especially with its induction into the WTO in 2001. Exports in 2003 totaled $438.4 billion comprised mainly of electrical machinery and equipment, power generation equipment, apparel, toys, and footwear. Imports reached $412.8 billion—primarily electrical equipment, power generation equipment, petroleum products, chemicals and steel. Major trading partners include: U.S., Japan, Hong Kong, EU, South Korea, Taiwan and Singapore. The economy continues to experience phenomenal growth. In 2003, China experienced a 9.1% GDP real growth rate! This is especially significant because the world average growth rate was 2.8%, up from 1.8% in 2002. The average even among developing countries was only 4.8%. Yet unemployment is still higher than desired at 8-10% in urban areas (U.S. State Department, 2004).
All of these factors create a dilemma. China cannot maintain a relatively free economy while retaining tighter political control, since history has suggested that political change is based on economic development. As state-owned enterprises decrease and the private sector continues to grow quickly, toleration of a dictatorship may give way to desires for a true democracy. Furthermore, the economy has been growing for 30 years; thus there is potential for a roller-coaster downturn. This would not only hurt investment and all other economic factors, but it could potentially threaten the entire legitimacy of the political system, which has been founded in economic success. The banking system is only being held up by foreign direct investment (FDI) and personal savings, which creates an unstable foundation for investment should the economy become unstable. Inflation is not a problem yet, but it inevitably will happen. This will decrease the standard of living, increase unemployment, and make production less profitable (Jing, 2004).
Whereas all of the potential problems would appear to discourage investment, the Chinese economy continues to grow and the future looks promising. This is possible for three reasons. First, because its economy is so well-integrated into the world’s global economy, China is not the only country with high potential losses should the growth bubble pop. This gives incentive to other industrialized countries to ensure that the economy will remain market-based and continue to grow. Secondly, as the economy continues to push toward capitalism it will cause political pluralism. The people in power will seek to slow the change, which will create a slower, more stable evolution (Jing, 2004). Thirdly, China showed particular resilience to its SARS crisis, opened to foreign aid, and still maintained 8% economic growth in 2002 and 9.1% in 2003. It traded $852 billion worth of goods making it the fourth largest trading partner in the world (U.S. State Department, 2004).
Further, because China is one of the most natural resource rich countries in the world, the potential for development is vast and continues to grow. Also, the crime and terrorist rates in China are significantly low, though rising in major cities. Thus far, the number of violent attacks against foreigners is substantially lower than the worldwide standard (U.S. State Department, 2004).
Politically, the business climate is inviting. After remaining closed for so long and the turmoil of the Tiananmen Square incident in 1989, China is creating new laws and regulations to encourage investment in high priority sectors and regions. In the last decade, China has allowed entirely foreign owed businesses and continues to open sales and manufacturing opportunities on the domestic market (U.S. State Department, 2004). However, the market is saturated in many manufacturing areas because of this government channeling, and the services industries are underdeveloped. While China is trying to eliminate many trade-related barriers and open previously closed sectors since its WTO induction, major barriers still exist, including “opaque and inconsistently enforced laws and regulations and the lack of a rules-based legal infrastructure” (U.S. State Department, 2004).
Overall, the political and economic climate in China is ripe for investment. Service industries will provide exclusive markets when opened to foreign investment. Also, the steady growth of the economy is a promising environment for developing new business. The low cost base of export production is inviting as is the massive untapped market. Though governmental corruption and human rights violations are still of concern, China’s desire for foreign investment encourages good relations with foreign business and again a favorable atmosphere.
Management
Based on Hofstede’s dimensions (Hofstede, 2001) one can assume that a solely American style of management would not be affective in China. The differences mentioned earlier concerning power distance, collectivism, and long-term orientation would be cause for some changes. Because of China’s high power distance, an authoritarian style of management would likely be most effective, leaving room for changes due to China’s low ranking in uncertainty avoidance. Different managerial styles would be needed as well to accommodate China’s collectivistic and long-term oriented culture. American views of the importance of personal achievement won’t be as enticing in China, nor will short term goals.
China and the United States sharply differ on some important cultural orientations. However, the emerging markets, and the westernization of the coast and cities within China will make bridging the cultural gap more successful. This does not mean that China needs to conform to Western ideals in order to achieve successful business relations. Rather, a Chinese manager with close supervision from a Chinese culturally literate American could provide the right mix of culture and success.

1 Business Possibilities

Despite its differences China is a promising country for multinational companies. There is more to gain than to lose when looking at business possibilities in China.
With the largest population in the world China plays an ever increasingly important role in the global economy. Such a large population makes China a prime location for importing and also provides a large number of potential workers. Because of the education system in China multinational companies will find educated people to complete harder tasks as well as a high number of people, due to the population, with less education to perform manual labor. This will allow many different types of multinational companies to find the workers they need in China whether it be an assembly plant or computer firm. Factories or businesses placed in rural areas will also find labor to be cheaper.
However, one of the inevitable obstacles of such a large population is the many different languages spoken. Multinational companies would need managers who spoke Mandarin and Cantonese and be able to learn individual dialects. Managers would also need to have an understanding of China’s religious beliefs and cultural differences in reference to power distance, individualism, and short-term/long-term orientation as mentioned above.
Also important to multinational companies, is the fact that China is rich in natural resources. This fact alone will attract many multinational companies because of the opportunities it provides. Other advantages to working in China include the low crime and terrorist rates as well as the growing trend toward higher ethics standards. Multinational companies can feel safe in this regard.
Probably the biggest draw of all is China’s growing economy
References

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China 9.1 of 10 on the basis of 965 Review.