China is a vast and culturally fascinating country. For outside observers, its ancient cultures and social traditions are a source of constant discovery. For investors and businesses, it holds a different point of interest, China country risk market entry analysis. Investors and Corporation must determine weather the China country risk market entry is worth the overall investment and define what the long-term objectives are in entering the Chinese market.
For the past year, The India-Pakistan gas pipeline (The IP) was a key factor in China country risk market entry. The international community led by the U.S. opposed the planned development and the prospect of a protracted dispute and economic sanctions clouded the country assessment. While natural gas supplies are critical to China’s economy, there is abundance worldwide and alternatives have emerged. As a potential Iran-Pakistan pipeline has faded, a better prospect for a U.S. endorsed Turkmenistan supply led by Chevron or Exxon-Mobil has emerged. This proposal involves sales to India, Pakistan, and Afghanistan supplied from the large natural gas reserves in Turkmenistan. The TAPI pipeline would provide a long-term stable source of supply.
Finance and Public Debt
China has strengthened its banking system, curtailed excessive lending, and stress-tested leading banks. However, there are some areas of potential weakness and watchful concern in China country risk market entry assessment, as follows:
- High-interest business borrowing among small and medium businesses often through private channels creates a risk of lower profit margins for this critical class of businesses.
- High levels of lower government debt through poorly capitalized public financing structures can expand public debt and could have potentially lead to localized public defaults. Softened by central government increases in authorizations for local bonds, this situation has improved substantially.
- China’s small and medium businesses depend on the Euro-zone markets, which bear a separate risk of political instability due to the situation of Russia and Ukraine.
Growth is an elusive concept in China country risk market entry considerations because the domestic needs are immense for food and energy security. The expansion into Africa for resources and agricultural capacity is an example as foreseeable needs absorb much of the planned growth. It may be necessary to revise the manner of assessing growth in the leading global centers, the so-called BRICs (Brazil, Russia, India, and China) and focus on their portion of worldwide economic growth. While relatively flat, their economies still dominate world growth.
Political, Environmental and Social Issues
There are long-term indications of political stability as leaders manage the framework of the economy and leave considerable freedom and flexibility for entrepreneurship and responding to global markets. Abroad, China still maintains territorial frictions with Japan, and internally, there is a growing sentiment on the issue of economic fairness, as the divide between wealthy and middle class broadens. Pollution remains a volatile and difficult issue as smog in major cities has grown past nuisance to health hazard levels. A trend of years of neglect appears to be ending, however, pressures on the air and water will likely continue as greater numbers of people enjoy economic success and increased mobility. For example, the current boom in vehicle purchases (high performance motorcycles and SUV’s) portends greater stress on infrastructure and air pollution in principal Cities.
China Country Risk Market Entry process
HafeziCapital’s approach to market entry is to develop a Market Entry Feasibility Study to understand the market and to ensure that the key corporate objectives are met when entering the Chinese market. HafeziCapital has developed a step-by-step process to collet data, analyze and enter the Chinese market.
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