Political Environment
With the opening of China’s operations amidst continuous reforms since 1978, the country, according to the World Bank, has moved to become the second-largest economy after the US-based on the purchasing power parity (PPP). Reforms in the political environment, as well as in the legal systems, have eased the way of doing business in China. There is strong evidence of the government’s involvement in developing the entire business environment since 1978; the Chinese government plans to quadruple the GDP and double the per capita GDP by 2020.
Even though China has low political risks due to the stable one-party system, foreign investors fear the aspects of little transparency in rules. The People’s Republic of China (PRC) remains a socialist state that is led by the union of the working class and the alliance of peasants and workers. The Communist Party of China (CPC) has romped in eight other political parties in managing China’s affairs through political consultation and co-operation to make the business environment favourable for international investors. The acceptance of CPC leadership by the eight political parties has fastened political consultations.
The state has been behind China’s movement towards a fully established market economy. The central government has withdrawn its direct control of the business and has freed business activities from wider policy objectives; local authorities have executive powers from the central government. This has lightened the bureaucratic procedures on foreign businesses and increased varied opportunities in the Chinese market.
However, the ever-greater powers granted to the local authorities still make foreign investors to confront numerous agencies and officials during their engagements. The agencies and state-level bureaus play essential roles in the administration and enforcement of the country’s industrial and commercial laws on their regulations on exports and imports, as well as in financial aspects and intellectual property. China’s business sector remains liberalised.
Legal Environment
For several centuries, China-based its legal system on the Confucian ideology. The Confucian ideology lays great emphasis on ethical engagement between the people and their leaders. Currently, the country lays its legal system on the constitution, which has a hierarchy of administrative directives, written law, and regulations. With the devolution of power within the judicial system, enacted regulations at all levels have not to conflict. Even with a strong judicial structure, its submission to political influence is a major weakness. There has been inadequate available sanctions and randomness in their enforcement. With the strong urge to remain competitive in the global stage, China has made deliberate efforts to work with other countries by joining key international economic conventions, as well as learning from other countries’ experience in legislation.
The legal system has accomplished numerous reforms, but aspects such as perpetuity of property rights on land and international labour market reforms need to be improved. The move aims at reducing incidents of insider trading, corporate fraud, and corruption. The legal system does not permit direct foreign investment. However, there are more favourable policy treatments for investment plans that aim at encouraging foreign investment.
In a case of criminal law, an accused is presumed guilty until he/she proves his/her innocence beyond a reasonable doubt. This is the exact opposite of how the West handles criminal defendants. Since the effects and provisions of a country’s legal system affect the ease of doing business in a country, China should expand and bring uniformity in its legal system. With this, there will be more developed interests from foreign investors, as there will be a truly democratic process, which builds on a fair and independent judicial system. The CPP has to build a democratic legal system to increase China’s ease of doing business.