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Key challenges for the Chinese economy
#1
Can anybody explain why Chinese capitalism works so fine the latest 25 years being managed by Communist Party?
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#2
Your first mistake is assuming the party in power is communist.

Your second is failing to note that property rights were granted to people opening up a huge era of growth and prosperity.

There are others, but htose are the big ones.
"I detest the man who hides one thing in the depths of his heart and speaks forth another"
-Homer
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#3
Quote:Your first mistake is assuming the party in power is communist.
Ok, I must correct myself. "The Party that call itself Communist". Anyway there is no other party in Beijing vicinities.
Quote:Your second is failing to note that property rights were granted to people opening up a huge era of growth and prosperity.
What is this if not capitalism?
Quote:There are others...
I would be glad to learn about them.
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#4
Geen, I'll give you some perspective from an American business (the one where I work). As a background, it is a multi-national company with about 40 factories, mostly in North America, Japan, and Europe.

We opened a production facility in Shanghai, and recently opened a research facility in Shenzhen. In Russia we have sales offices in Moscow and Novosibirsk (6 employees total). So why did we make a bigger commitment to China compared to Russia.

Baldar has most of the answer - property rights. When we looked at Russia about 1995, it was very unclear that we could actually own the land upon which we would build a factory. The complicated system of permits and registrations was very discouraging. Finally, a research team looked at Russia's legal system, and concluded that we were unlikely to have any chance of conducting normal business unless we paid bribes to local officials, and would be unable to protect our confidential business knowledge through the court system should the need arise. Because of those reasons, we put a minimal investment into Russia, so that we really don't have much to lose in case we decide to close shop.

China may be a bad place to live from a civil rights perspective, but has really made it easy to do business as a foreign company. Shanghai has a special economic zone. All you need is approval from the mayor's office (and they make it easy), and you're ready to open a factory. Basically, no other approval or permits from other agencies are needed (However, I'm sure if a nuclear bomb factory was planned, the national government would become invovled). The mayor's office has demonstrated a commitment to protecting both property and patent (intellectual) rights in a fair manner (meaning local or national Chinese companies can't steal from foreign companies with protection of the Chinese court system). Finally, we don't have to pay bribes.

Overall, the Chinese are very hungry for foreign investment, and have made legal changes to attract investment. Russia basically doesn't seem to care about improving the overall business climate, and the system now in existence is unattractive. Of course, we hope that at some time in the future Russia will have reforms which will make it an attractive place to conduct business.

-S
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#5
Building on that last post...

The rules set up in China to encourage a growing economy rewards foreign investment. In fact it is so rewarding that it is said many Chinese businessmen hide their wealth with off-shore banks in the Cayman Islands and elsewhere, so that they can invest in their own country from blind accounts as if they were foreigners.

Where Free Enterprise is allowed to work, it usually works well.
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#6
William,

I would add to your thesis,"you want more of something,subsidize it,you want less,tax it".

China subisidizes it,Russia taxes it.

China's coastal cities are world class,Russia's are lagging. It is NOT a hard thing to figure out.
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#7
Actually Palladin Russia does tax, but it does so as a flat tax.

A key part of property rights is rule of law, and Russia's reputation has been terribly hurt in that area in recent years (though it seems they are improving).

China has so far made no wrong moves where the rule of law is concerned (indeed they swept house getting rid of the many "princelings" that tended to dominate the econmic scene a decade or so ago).

Both Russia and China suffer from limited guarantees from the rule of law, and they are both equally dangerous places to invest because of it. It is just that present perception seems to put China on a safer level than Russia (but perception is not the reality).

I see problems in China.
"I detest the man who hides one thing in the depths of his heart and speaks forth another"
-Homer
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#8
Thanks for your [Image: Forum09.gif].
Baldar wrote:
Quote:Both Russia and China suffer from limited guarantees from the rule of law, and they are both equally dangerous places to invest because of it.
That's right. But also the most risky ventures are the most profitable too.
Stars & Stripes, Would you, please, tell anything about research team field work. Is it an in-house group or else? How the choice of the country/city is usually made? It's extremely interesting to me. Thanx.
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#9
Green,

First, I should say that the usual reason for us as an American company to build a factory in a different country has been to eliminate import taxes so that we can be competitive in the local market. However, this is a continually changing situation. For example, with the changes in and expansion of the European Union, these tax-saving reasons are disappearing within the European market. I wouldn't be surprised if we evenually close our French and Italian factories, and move the operations to our larger sites in Germany or England. The French and Italians are not as efficient to manufacture, and if the original reason (eliminating import taxes) is gone, then there really isn't a reason for the factories to exist.

When we look at a new place to do business, we have our own internal group to look at the situation. Additionally, probably in all cases, we also hire local people as consultants.

When going into a new country, we first assess if there is business opportunity. This is actually the easiest part of the entire process, and is done by our sales leadership. Once it is determined that there seems to be a potential market, we bring in the lawyers.

Usually the biggest questions we have are legal uncertainties, so our own lawyers are highly involved in the process. Our lawyers have a large list of issues that they want to learn about, so we hire local lawyers from new country of interest, and have them teach us about the laws and business customs. Also, it is normal for our business leaders to meet with local government officials.

From a legal perspective, we have 2 main concerns to address. First, can we protect our physical assets from being stolen? Second, can we protect our proprietary technical knowledge from being stolen? If the answer to both of these questions is no, then the most we would consider doing is opening a sales office in rented space. If a country generally protects property rights, but has poor court systems to defend against stealing of technical knowledge, the only in-country manufacturing we would consider is low-technology. India is a good example of this. Our Indian electronics division only manufactures 20 to 30 year old technology products because industrial espionage has been a big problem, and we can't get satisfaction from the courts. Anything of more current technology sold into the Indian market is made and imported from Europe, Japan, or America.

In places such as Russia, Poland, and China, we looked much more closely because of communism and the historical hostility towards free-market economics. We looked for other foreign businesses, and if they were willing to talk, asked them about their experiences in dealing with the government.

In the case of Russia, we actually started doing business in the late 1980s during Soviet times (selling medical products). Our business leaders had a meeting with Gorbachev, and several with Shevardnadze. Both men seemed genuinely interested in encouraging further business development, but not long after these meetings the Soviet Union fell apart. Additionally, our business sales almost completely stopped because the inability of Russians to afford imported medical products. So we watched and waited. After things stabilized a little, we hired one of our former customers as our sales representative. 10 years later we have six employees as sales representatives in Russia. It's an improvement, but progess has been slow. In Poland, for example, we have 30+ sales employees. For reasons which I can only guess, Russia seems to have much more trouble changing the system to be more business friendly than Poland or China.

As far as choosing a city within a country, it's usually based upon 2 types of activites. For a sales office, we want a business city with a major airport. For a factory, being near a major freight center is important (mostly truck and air freight, and in some cases a sea port). In Russia we have sales offices for medical products in Moscow and Novosibirsk. Choosing Moscow is obvious because it's the biggest population center and capital. Novosibirsk was chosen because (I'm told) it has a lot of doctors and is a major medical research center for Russia.

вот и всё

-S
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