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How Political and Legal Environment is unique in China

Larry Segura



International businesses face various risks and benefits when operating in different countries. Businesses seeking to invest in a foreign country must analyze the legal and political environment and how those factors may influence the success or failure of the business. These external factors have an immense impact on any business environment. For companies seeking to ensure the Chinese market, it is critical to gain an understanding of the legal and political factors and how they can influence the business ventures. As per Help in Homework, the Chinese market is very lucrative due to its low cost of labor and the large domestic market which has attracted various foreign companies. These companies must, therefore, analyze the environment before investing in the country. A Political, economic, technological, legal, social and environmental (PESTLE) analysis can be used to analyze the favorability of investing in China.

Level of political stability

China has one party communist system which identifies that there are limited changes in the political environment. There is greater political stability in this country due to the one-party system which limits changes in the political arena and therefore creating greater political stability. Since decisions are made by the party in collaboration with other interests groups, it means that even new leaders do not cause a shift in the political environment. It has been over three decades since there have been any political changes in the country after the Tiananmen Square massacre. A political stable environment guarantees the security of the investments while ensuring investors that the sustainability of their investments will occur even in the future. The political stability, therefore, provides greater support for the establishment and running of business. The support provided by the Chinese government to foreign investors is another benefit to investing in China.

Legal or regulatory environment in China

Legal issues such as tax incentives are provided to manufacturing companies to promote investment. Other tax incentives include reduced tax to build facilities and operate a business in the country for investors. The government provides tax breaks. Low-cost government loans, subsidies or grants to the foreigner investors which works to further encourage foreign investors. Regulations that include mandatory joint venture in which the foreign investor is required to own the company or business with a local company or with the Chinese government may discourage foreign investors. Homework Help USA conducted analysis and stated that the judicial system is biased towards the protection of Chinese locals who may act unethically or illegally can discharge businesses from investing in the country. Legal compliance requirements are sometimes cumbersome especially for western investors that tends to discourage investments.

Level of corruption in China and its impact on business

Transparency International has ranked China as the 83rd least corrupt country out of 163. The bribe pay index is also low ranking number 27 out of 28 countries while the control of corruption is at 33%. These identify that although China is fairly not corrupt, it still has significant cases of corruption and the government has not been able to effectively address corruption in China. The judiciary in China is not independent but controlled by the Chinese Communist Party which leads to manipulation of the law and increased corruption especially at the lower courts where the judges are appointed and paid by the government officials. The current government is led by President Xi Jinping and has implemented an anticorruption campaign that has led to thousands of arrests in the country which signals that the country is working harder to eradicate corruption. Corruption has a negative impact on doing business in China as it can lead to increased costs as corrupt officials seek bribes to do their duties such as getting a license without bribing someone would not happen. Corruption discourages foreign investors who are afraid that their investments would be misused to address the needs of the corrupt officials. 

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