Is China Attractive for Multinationals

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PESTEL Analysis for Foreign Multinationals Doing Business in China

China represents a unique market for foreign multinationals in the 21st century. President Xi Jinping has launched a number of initiatives that look to make China a dominant player on the world stage—such as the One Belt, One Road initiative (Wilson, 2016) and the initiative to trade oil in gold-backed yuan (Jegarajah, 2017). However, China’s initiatives have been backed by an expansion of credit that could threaten to destabilize the nation in the coming years. 2025 represents a pivotal point marking the end of the first quarter of the 21st century. This PESTEL analysis will therefore identify key trends relevant to foreign multinationals doing business in the market and assessing future attractiveness for China.

There are 6 areas of environmental influences that are at work in the macro-perspective PESTEL framework. These areas consist of political, economic, social, technological, environmental and legal factors. The first letters of each of these areas forms to make up the acronym PESTEL. Each element of the PESTEL acts as an interlinking and impactful factor on the others, so that none of them are wholly exclusive independent from the other but rather all are integrated to some extent and work together to provide a total sense of the whole. For example, the political realm will influence and impact the economic realm and vice-versa and the same relationship can be applied to all elements of PESTEL.

P(olitical): The political climate in China is dominated by President Xi Jinping who has led the country into a new era of expansion with a goal of achieving a multi-polar world where partner-nations around the world work together to ensure economic stability for the future. Internally, Xi Jinping is also overseeing reform of the country’s rule of law. Following the disastrous Cultural Revolution of the nation’s last major leader Mao Tse Tung, authoritarianism and tyranny were the hallmarks of China’s domestic policy. That changed in 1982, when the People’s Congress created a new constitution that brought to an end the tyranny expressed by Mao. Since then, judicial reform and constitutional reform have been staples in Chinese politics. China has shifted its attention to focusing more on human rights as well as on enforcing laws regarding copyrights and intellectual property rights. China’s political expressions under Xi Jinping are designed to appeal to a universal and practical mindset so that China can more easily work together with its neighbors, foreign multinationals seeking to do honest business in and with China, and other political leaders looking to effect a more stable world. China is positioning itself to be pro-business especially with those companies that are not hostile to China’s vision of itself as a world leader. By 2025, China’s politics should be leading the development of a global network of allied nations collaborating on developing a fully-integrated web of trade, support, and political partnership.

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Foreign multinationals interested in doing business with China should recognize that becoming a political partner of China is the first step.

E(conomic): China has revamped its economy, moving away from the Communist ideology under Mao towards a more pro-Capitalist ideology under Xi Jinping. While the country still politically identifies as Communist, its economic actions appear to be more and more pro-capitalist. China is much more of a market-oriented nation today thanks to economic reforms of the past few decades. These reforms are expected to carry over into the coming years as well as President Xi’s political stability affords market players more confidence in the system.

Some drawbacks do exist, however—such as the impact of China’s enormous credit expansion in recent years. China’s growth over recent years (a 2009 economy of nearly $5 trillion) was largely fueled by massive debt increases. Its “ghost cities”—entire urban settings built during this period of economic exuberance but never populated and today sitting silently like abandoned, empty modern-day ghost towns—tell a startling story about the underbelly of China’s economy. Its shadow banking sector has been able to keep the nation’s economy from crashing severely, and as Richter (2017) notes, so long as China’s leaders are able to avert a crisis, its credit situation should improve, which means that investment by foreign multinationals may be still have plenty of upside. Keeping a watch on the current credit situation in China and how the country handles it going forward should be a top concern for multinationals looking to identify key economic trends in China.

S(ocial): China has a population of over 1.3 billion people, which makes it a very attractive market for foreign multinationals. Its growth rate is expected to continue, and by 2025 the population is expected to reach 1.4 billion people. This population is substantial and can be used to populate many a workforce. Chinese consumers are also becoming more open to Western products and services, albeit with an Asian-orientation. The upward trend in population growth means that multinationals looking to expand their businesses into the China should be able to do so and to hire Chinese workers for their production lines at minimal cost since competition for work is so stiff.

The employment trend should also be noted, however. According to Chinese statistics, unemployment is at 4.3%. This figure indicates that there is room for new jobs to come into the country and a multinational that is able….....

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