MADE BY SUMIT GULATI(MBA STRATFORD USNIVERSITY, MAII, LAJPAT NAGAR)
CHINA talks capitalism, but breathes socialism….
In other words, that society has to undergo capitalist transformation before the correct conditions for socialism can exist - said by Karl Marx.
Political System of china
China has been under the communist party rule for many decades. The communist party exercises absolute power over legislations and economic and cultural institutions. China rules and regulations are not so transparent or absolute. Due to lack of transparency and corruption the social network with the people from the communist party can help the business avoid red tape and bureaucracy.
A political risk refers to government interference in the business affairs of foreign persons or companies doing business in a particular country. China is particularly hazardous with respect to political risk. In fact this has occurred in china in 1949. There are the risk of confiscation, risk of expropriation, and risk of contract repudiation. A unique form of political risk occurs in china, and this is the constant battle between the country’s central government and the provincial and local governments over applicable law, and observance or non-observance of it. This makes it difficult for companies operating in China to know exactly what the rules are.
Other Political risk of China are as follows-
1) Political Effectiveness-
Political effectiveness is actually not very effective in china as compared to other countries. Barely anyone bothers to call the police and they be easily bribed. Road laws are not enforced and thus there is a high rate of accidents in China with the way they drive. The government is even less confident than outside observers regarding their nation’s political stability.
2) Institutional Stability-
Corruption still plays a huge role in China. They believe that profit comes first and mostly for personal reasons. At first it was only the Chinese Communist Party who took control in 1949. Later the other branches such as the Judicial Branch came into power in 1980.
3)Currency inconvertibility –
The import and export business exchange currencies in either USD or RMB. Only certain worldwide currencies can be exchanged in China, other than that they use the RMB.
4) Honest Government-
There are many cases known to justify corruption among government officials. Policies and laws are not solid or stable in China, therefore everything is negotiable. The CPI ratings of China are 3.5 this year. This looks bad compared to the United States and Canada. 106,000 officials were prosecuted for corruption in 2009 which was a 2.5% increase from 2008. With China’s growing economy, it will only get worse.
Minimizing Political Risk-
For minimizing political risk we should understand the importance of social networks and their relationship. It is a challenging process for a company to recruit the right people with the appropriate network to overcome these challenges.
For thousands of years, the Chinese legal system was based on Confucian ideology that emphasized ethics and relationships between the people and their leaders. China does not technically have an independent judiciary or a legal system that operates outside the influence of the ruling Chinese Communist Party. In fact, China’s lack of an independent judicial system.
Legal and Regulatory Risk
Regulatory risk in China is high. Although many sectors of China's economy have become more market oriented, numerous restrictions and a massive bureaucracy still hinder full implementation of regulations and make the approval process unpredictable.
China's Judicial System-
Using China's judicial system also involves risk. Because of China's WTO membership and growing pressure from foreign investors for greater transparency and rule of law, China increasingly...