China is at a crossroads. Having become the world’s factory and the most important destination for foreign investment, China’s economy has boomed. Not only is China the preferred location for procuring goods, but its domestic market has achieved critical mass, driving global companies to increasingly target Chinese consumers. China is the place to be.
Yet there is a problematic side to China’s success. China’s growth has driven up global prices of commodities such as petroleum, leading to rising inflation in the West and the need for higher interest rates. Rising Chinese exports have driven down global prices of manufactured goods, wreaking havoc in product and labor markets in both emerging and developed markets. And China’s exchange rate policy has inhibited adjustment of global economic imbalances leading to substantial exchange rate misalignment globally.
In this report, Deloitte Research examines seven key risks of doing business in China:
Deloitte Research also offers its point of view on how businesses can successfully navigate these dangerous waters and emerge strong. The reality is that China’s long-run outlook is quite positive what with strong productivity gains, increasing deregulation and privatization, reduced trade barriers, and excellent labor force development. The promise of China, in fact, is real. Yet the trick is for China’s leaders to make the transition to a more market-based economy with a strong financial sector without creating undue dislocation. Most of the risks discussed in this report have to do with the challenge of making that transition.
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