BENEFITS/COSTS OF CHINA 

China undoubtedly represents a global trade mecca, setting a precedent as the world's
fastest-growing major economy, with growth rates averaging 10% over 30 years (World
Bank, 2020). The former agrarian society adopted aggressive Industrial Policy as a critical
reform instrument and this stringent commitment to augmenting its manufacturing sector has
hastened China’s development from an imperative planned economy to a ‘market economy
with Chinese characteristics’ (Lin, 2004). Such expedient economic expansion has therefore
provided fertile ground for international businesses, with low labour costs, high investment in
infrastructure; and robust engineering and technical skills resulting in China being the
second-highest recipient of Foreign direct investment in the world (Santander Trade, 2020).

However, running contrary to its reputation as the ‘World’s Workshop’, consumption rather
than manufacturing has represented the main driving force for China's economic
development over the last five years (Financial Times, 2018). As Zipser et al. (2016)
contend, this increase in imports amid a rising tide of protectionism in other developed
economies has aided in the cultivation of a new breed of Chinese consumer who
increasingly exercise a greater degree of selectiveness. Crucially, China’s opening-up policy
has provided support for the middle class by bolstering their disposable income and they,
along with the country's urban wealthy, are forecasted to contribute to 75 percent of
consumption growth by the close of 2020 (BCG, 2012). Consequently, the demand for
premium overseas products in many luxury segments including skincare, cars, sports, and
fashion are following a steep upward trajectory (Mckinsey, 2016). Indeed, despite the
universally declining Home Audio and Cinema market, China’s massive population means
Hifi system sales in 2019 were approximately 36 times that of Germany at 3,998,000 units
(Euromonitor International, 2020) compared to just 111,000 (ibid).

Whilst this may sound like an enticing proposition for a UK manufacturer of Hifi speakers, it
is critical not to rely entirely on empirical data as major caveats in the Chinese market for
foreign technology persist. Perhaps the most well publicised of which comes in the form of
the Made in China 2025 strategy (Wübbeke et al., 2016). Among its various goals, the MIC
2025 seeks to engineer a shift for China from being a low-end manufacturer to becoming a
high-end producer of goods with an emphasis on technological innovation and a view
towards domestic self-sufficiency in the technology space (Liu, 2016). As Sender (2020)
articulates, this does not bode well for the success of a moderately high priced tech offering
from abroad as, although China’s appetite for top-tier overseas products is steadfast, local
brands typically triumph in the middle market due to a far stronger product-price proposition
and ‘political savvy’.  This element of local know-how is forecast to become an increasingly
vital component following the government’s strategic announcement as relations between
the West and China become progressively more strained.  Indeed, Hu (2008) comments
that, unlike in the wider context of the global hi-tech hierarchy, the ‘Made in China’ domestic
tech empire remains largely impenetrable due to its sheer intensity and close regulation
which makes a slower paced and more easily navigated German market less hostile
towards a smaller start-up. 

Nonetheless, barriers to entering the Chinese market are not solely limited to technology,
and bureaucracy remains a well-documented cost of establishing a brand there. Despite the
‘Ease of Doing Business’ in China improving from just 96th place in 2014 to 31st place this
year (World Bank, 2020); Moon (2019) argues that this optimism still has a great deal of
fragility attached to it. Indeed, these rankings are based on the experience of domestic
entrepreneurs and so arguably fail to account for the difficulties still faced by foreign
investors (Financial Times, 2019). As outlined by Kaplan Financial (2019), 76% of assets in
China are owned by the state and thus it is a prerequisite for many local business owners to
be well versed in the intricacies of negotiating with the government and its complex
regulatory system. Despite China’s quick resolve to introduce a more robust intellectual
property framework (Prud’homme, 2019) to offset uncertainty in the face of heightened trade
tensions, many of the largest, most strategically important state-owned enterprises are still
exempt from the stringent legal expectations placed on foreign firms (Huang et al., 2017).
Commentators at the World Economic Forum suggest this unequal treatment is indicative of
the levels of mistrust between China and foreign entities with Xi Jinping stating that ‘No one
is in a position to dictate to the Chinese people’ (Financial Times, 2018). Consequently,
though outwardly satisfying the criterion laid out by the Wolrd Bank, behind partially closed
doors, world trade is facing never-before-seen levels of volatility and thus it would be ill-
advised for an inexperienced overseas business to enter into one of the markets at the
centre of such global controversy. 
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