Expatriation in China

Contents

1. China - Geography, Culture, Political System and Infrastructure
1.1. Geography
1.2. Religion, Culture and Society
1.3. The political system of the People’s Republic of China
1.3.1. Form of government
1.3.2. Institutions
1.4. Foreign relations of the People’s Republic of China
1.5. Infrastructure in China

2. Economy
2.1. The Economic System of the People’s Republic of China
2.1.1. Reforms & current state
2.1.2. Challenges
2.2. Economic Sectors
2.2.1. Main Industries
2.3. Imports and exports
2.4. Foreign Direct Investment
2.4.1. Background of FDI in China
2.4.2. Trends and restrictions of FDI today
2.5. Structure and Proprietorship of Chinese Enterprises
2.6. The Chinese Procurement and Sales Market

3. The educational system and labor market
3.1. The educational system of China
3.1.1. The development of the Chinese education system
3.1.2. Schools in China - Public or Private
3.1.3. Facts and Figures
3.2. Universities in China
3.2.1. Number of universities and students
3.2.2. Degrees
3.2.3. Study abroad
3.3. Labor market
3.3.1. Trends in China’s labor market
3.3.2. Migratory labor
3.3.3. Labor market: State owned enterprises - Private sector
3.3.4. Labor market: Domestic enterprises - Foreign-invested enterprises
3.3.5. Foreign employees in China
3.3.6. The situation for academics in the Chinese labor market
3.3.7. Situation of local university graduates
3.3.8. Recruitment and retention

4. Organization of employers, trade unions and labor law in China
4.1. The organization of employers in China
4.2. Trade unions
4.2.1. The right to strike
4.2.2. Walmart in China
4.3. Labor Law
4.3.1. Overview of Chinese labor law
4.3.2. Recent development in China´s labor law
4.3.3. Workplace democracy at the example of a major foreign MNC

5. Global Mindset and Culture
5.1. The model of Kluckhohn and Strodtbeck
5.1.1 Relation to the environment
5.1.2 Relationships among people
5.1.3 Mode of Human Activity
5.1.4 Belief about Basic Human Nature
5.1.5 Orientation to Time
5.1.6 Use of Space
5.2. The 5 Dimensions of Professor Hofstede
5.2.1. Power Distance
5.2.2. Uncertainty Avoidance, Collectivism and Masculinity
5.2.3. The model in relation to China
5.3. Halls research
5.3.1. Context
5.3.2. Time
5.3.3. Space
5.3.4. Limitations of cultural models
5.4. Mianzi/ Face
5.4.1. Guidelines for face saving behavior in China
5.4.2. Implications of mianzi in the business world
5.5. The role of guanxi in Chinese business culture
5.5.1. What is guanxi?
5.5.2. Its role in business

6. Expatriation Experiences of German Companies & Best Practices
6.1. Negotiation Tactics of Chinese Managers
6.2. Best practices of expatriation in China from Robert Bosch GmbH
6.2.1. Preparation
6.2.2. Reintegration/ repatriation
6.3. What to do for expatriates in China
6.4. Expatriation Experience at the example of Volkswagen

7. Conclusion

8. Bibliography

1. China - Geography, Culture, Political System and Infrastructure

The People's Republic of China, or commonly known as China, is not only the most populous country in the world, it is also the largest country in East Asia and beneath Russia, Canada and the United States of America the third largest country in the world. In the last decade China experienced an enormous economic growth and is considered as the most important market in the future (BBC, 2009). In this paper the geography, cultural features, political system and the infrastructure of China are pointed out.

1.1. Geography

As the third largest country in the world (Ping, 1998), China consists of a total area of 9.6 million square kilometers (Statistisches Bundesamt, 2008). For comparison, Germany consists of a total area of 357,000 square kilometers (Welt- Atlas, 2009). China is located in East Asia and is situated in the northern hemisphere. It has fourteen direct neighbors, including Vietnam, Laos, Burma, India, Bhutan, Nepal, Pakistan, Afghanistan, Tajikistan, Kyrgyzstan, Kazakhstan, Russia, Mongolia and North Korea (China-night, 2009). No other country in the world has a bigger amount of direct neighbors. In addition, China is connected via the Yellow Sea and the East Chinese Sea with economically important states like the Democratic Republic of Korea or Japan. China is separated by its neighbors due to natural borders, like the mountains in the West, the sea in the East and the desert in the North.

Due to its gigantic dimension, China provides a variety of different landscapes. As an illustration, the landscape in the east is dominated by plains, while the Himalaya Mountains range in the west of China. The highest mountain of China (and the world) is the Mount Everest with 8.850 meters and the biggest river is the Yangtze with approximately 6.300 meters (Ping, 1998). Considering the climate, China consists of eighteen different “temperature and rainfall zones, including continental monsoon areas.

In winter most areas become cold and dry, in summer hot and rainy (Travelchinaguide, 2009). In addition, China is often affected by natural disasters like floods or typhoons (TerraDaily, 2006).

China is structured in twenty-two administrative divisions and five autonomous regions. Taiwan, officially known as the Republic of China, is considered as the twenty-third province but its status is disputed (http://www.chinaservice.de/provinzen.htm). Although the three biggest provinces of China, namely Xinjiang, Tibet and Inner Mongolia, contains 45% of the Chinese territory (http://www.schanghai.com/?p=info+abc). Probably the most controversial of all provinces is the Tibet Autonomous Region located in the far West of China. Tibet was annexed forcibly in the 1950s and claims for independence until today.

1.2. Religion, Culture and Society

Due to the fact of a strong influence of China´s Communist party belief in religion is not very popular in China. The party feels more convertible in framing its own rules (Mc Gregor, 2007). Officially freedom of religion is tolerated and guaranteed in the constitution. In practice the state tries to control the faith of its people. To become a legal church in China it is essential to be run by the Administration of Religious Affairs. Consequently freedom of religion is just a written but not practiced law (Wall Street Journal, 2008). Related to that issue the relationship to the Vatican is complicated. The official number of Catholics who live in China is 5m. Due to Vatican law only the pope is authorized to appoint bishops. The Chinese state does not allow this procedure because of the danger of losing control. Consequently the state is the institution that elects bishops. This fact was not acceptable for the Vatican for many years. Furthermore the Vatican established a law in 1957 which advised the Catholics in China to shun the state- sponsored church. After a letter written by Pope Benedict XVI a compromise was made in 2007. The Vatican only has to know and to tolerate the bishops and also does not advise to avoid state- sponsored churches (The Economist, 2007). It is not possible to obtain a detailed and correct number of religious adherences in China but it is quiet certain that the religions - Buddhism, Taoism, Catholicism, Christianity and Islam are the dominated faiths. A survey reported by Shanghai University professors found out that the number of religious believers in China is 300m (http://news.bbc.co.uk/…/6337627.htm). Separate from that the Confucianism celebrates a real comeback in China. Open attacks on him ended after Mao´s dead in 1976. Confucian ideas underline order, balance and harmony and teach respect for authority. These ideas could be a very useful instrument for the Communist party to maintain their power with the help of religion. Some University professors want the Confucianism to become the main state religion (The Economist 2007).

To describe the main aspects of Chinese culture it is helpful to analyze the studies of Geert Hofstede. He describes cultural differences in five cultural dimensions: Power Distance, Individualism (Collectivism), Masculinity, Uncertainty Avoidance and Long Term Orientation. To get e general overview about Chinese culture dimensions of Individualism (Collectivism) and Long Term Orientation might be the most important ones.

illustration not visible in this excerpt

Cc: Hofstede, G. (n.d.). Geert Hofstede- Cultural Dimensions, Retrieved January 14, 2009, from www.geert-hofstede.com.

When concerning Hofstede's time orientation China is a country in which values are still oriented to the past. They respect their traditions and rely on procedures of how things were done before. Furthermore it can be said that the Chinese work environment usually takes place in a group dominated way. Referring to Hofstede´s dimensions Chinese culture has a high grade of collectivism. It is essential for people from a collectivistic culture to belong to a group. Such groups could be the family, colleagues or possibly the whole company. The most important task of these groups is that the group members have an obligation to help and care for each other. It takes a long period to create such groups. Collectivism is an essential part of China’s history. The communist party anchored that philosophy into the heads of the population. Due to the high grade of collectivism, Chinese people like to stick together. They belong to groups in which they look after each other in exchange for loyalty. In contrast to this, Germany is an individualistic culture with low power distance. The Germans have a tendency to look after themselves and work independently (Lane et al, 2006, pg 75-88).

To analyze other aspects of society in China it is essential to mention the human rights - debate. Additional to the issue of religious freedom, also freedom of speech and the treatment of petitioners in Beijing are characteristic problems which influence the daily life in China. The Communistic Party controls the behavior of their people and does not allow any changes in the governmental structure (Brown, 2008).

1.3. The political system of the People’s Republic of China

1.3.1. Form of government

The People’s Republic of China was founded on October 1st, 1949 and is officially a soviet - type communist state. After its foundation the Chinese political system was modeled after the USSR’s example. This includes the following structural features:

1. The Communist Party of China is the only legitimate political party in power (http://www.china.org.cn/…/26143.htm);
2. All important positions in government, administration and society are staffed directly by or only with approval of the Party;
3. For elections there are only candidates of the Communist Party or candidates approved by the Communist Party;
4. Principal political decisions are made by the Party leadership and are coordinated with the head of government. The parliament (National People’s Congress) generally approves the decisions without further discussion;
5. Industrial production and allocation of resources was planned and coordinated by a central planning authority;
6. Income and social benefits are distributed in an egalitarian manner according to Marxist-Leninist principles;
7. The state is sole owner of the means of production. Private ownership is strictly limited (Hartmann, 2006, P. 71);

While the first three points remain largely intact, there have been fundamental changes affecting the last three points. By now, the central planning administration has been cut back almost completely and the Chinese economic surge is largely based on a dynamic capitalist sector. Private entrepreneurship has been allowed and promoted together with guarantees for private ownership. Egalitarian redistribution and state-owned enterprises have also been cut back dramatically.

Despite its capitalistic characteristics, China is still lacking all features that define a democracy according to Dahl:

8. Effective political participation for every citizen;
9. Equality of opportunity in the election process;
10. Free opinion-forming, freedom of press and information;
11. Political agenda setting, e.g. participation of political parties, interest groups, right to demonstrate;
12. Inclusion: all grown-up and mentally healthy people are equal before the law (Hartmann, 2006, pg. 72-73).

In summary it can be said, therefore, that China is an authoritative system that allows a capitalist economy and is controlled by a single political party and its cadres. The institutions of the state (executive branch) lack democratic legitimization and effective opposition is not possible.

1.3.2. Institutions

(1) State Council

The State Council is the central governmental organ of China. It is elected by the National People’s Congress. Until 1988 the different economic branches were represented by their own ministry and assisted the central planning commission, which coordinated resources and production. With the end of the command economy the number of ministries dropped from 90 to 29 in 1998.

The State Council plays virtually no role in the daily political decision making. The function of state government is performed by a standing committee, which is headed by the Premier (head of government, currently Mr. Wen Jiabao).

Premier and State council are mainly responsible for the “soft” areas of government (especially economic issues). The “hard” areas (foreign relations, domestic and state security, justice, media regulation) are under control of the Communist Party leadership, defense issues are business of the Central Military Commission (Hartmann, 2006, pg. 82 - 83).

(2) Communist Party of China

Though not the only existing politic party, the Communist Party of China is constitutionally the only legitimate party in power. Party and state and thoroughly merged meaning that all state institutions and major decision are controlled by the Party. Today China’s communist Party has 66 million members. This large number is explained by the fact, that political careers are only possible in or with support of the Party.

The most important position within the Chinese political system is the General Secretary of the Central Committee of Chinese Communist Party, simultaneously being the chief of state (currently President Hu Jintao) (Hartmann, 2006, pg.79 - 81). The General Secretary leads the Standing Committee of the Politburo, the highest and most important decision - making institution within the People’s Republic. Decisions within the Politburo, in which the most important institutions of party and state are represented, are made by consensus (Hartmann, 2006, pg. 93 - 96).

1.4. Foreign relations of the People’s Republic of China

The Middle Kingdom had been isolating itself for millennia and due to its culture, and power has consequently felt superior to other nations (Komberg and Faust, 2005, pg. 10). However, after having introduced a market economy, opening its boarders to the rest of the world, China is highly economically intertwined in the global market. China also tries on a daily basis to regain economic supremacy in the Eastern Asian region and as well as compete with The United States on the world stage (Schottenhammer, 2006, pg. 9). In order to achieve these goals, China applies a well planned foreign policy, which centers on multilateral diplomacy, and also the extension of military abilities and alliances in the sense of a “soft power” (Dunbaugh, 2008, pg. 5). In order for any state to collaborate with The People’s Republic of China, that state must acknowledge it as one nation, to include Taiwan, and abandon any challenge of this position (Schottenhammer, 2006, pg. 19). In gaining regional leadership China’s main competitor especially on an economic basis, is Japan; but China also has to prevail against India. By supporting the ASEAN free trading zone China tries to strengthen its own economy and facilitate regional stability (Heilmann, 2004, pg 252). Because of its inability to dominate the Eastern Asian region initially on a military level, China started the Shanghai Cooperative Organization (SCO) in order to maintain the balances of power, which are now being extended on an economic basis (Komberg and Faust, 2005, pg. 114).

The relation of the United States and their influence on China and Asia are the main concerns of Chinese foreign policy. China has the goal to control America’s superiority in the world by a system of checks and balances and to reduce or better yet prevent American influence on the Asian region and on their own country. For this purpose China has established “strategic alliances” with Russia, the European Union, especially Germany and France, and even with India Schottenhammer, 2006, pg. 10 - 11).

The People’s Republic of China does not intend to cause open confrontations, this is due to its still growing exports and the strategic inferiority in many fields it is interested in good diplomatic relations to the United States. The United States also is trying to gain China as a sales market (Komberg and Faust, 2005, pg. 149 - 150). China increased its defense budget and its military abilities in recent years, but guarded these budget decisions from the observation of the U.S. One of these decisions included cooperative maneuvers with India and Russia (Heilmann, 2004, pg. 258). China has been projecting that overall stability and a peaceful existence with other states are the lead principles of their foreign policy. In their last white papers they illustrated that neither China’s newly gained military strength nor their economic prosperity should be perceived as threat. Additionally, China practices a security policy free of ideology, which seeks to abolish all instabilities in the world, which might be harmful for their country (Dumbaugh, 2008, pg. 5). As an example, China has been using the “six-party-talks” to find a peaceful solution of the conflict with North Korea. They did not only do this in order to be able to present themselves as an international power of peace, but also to prevent the refugee flows from their neighbor country. They fear that an altercation with North Korea would disrupt their very profitable trade relations with South Korea (Schneider, 2006, pg 100 - 101).

As the People’s Republic of China owns a permanent seat in the UN Security Council, which has the power of veto, there is hardly any major issue in the international framework which can be solved without the collaboration with China or at least its affirmation (Heilmann, 2004, pg. 245). Furthermore in recent years China has consequently worked on eliminating territorial disagreements with its neighbors, most recently in July 2008 they achieved an agreement with Russia (The Economist, 2009).

With a view to China’s Africa policy the increasing importance and demand on oil becomes more evident. Right now, China is concentrating its efforts to secure oil and gas reserves all over the world. In coming years the oil issue will most likely have a greater importance in their foreign policy and could even be the cause for military conflicts (Schottenhammer, 2006, pg. 32).

1.5. Infrastructure in China

Infrastructure describes the basic services and facilities that are needed for the development and growth of an area (http://www.oxfordreference.com). This includes technological infrastructure such as transportation, communication and power supplies and social infrastructure like education and healthcare (http://dictionary.reference.com/browse/infrastructure).

The transportation system in China from 1949 to the 1980s had a low priority and was inadequate but in the 1980s it was updated and improved vastly (http://www.globalsecurity.org/…/infras.htm).

Before 1950 the railway system consisted of 21800 km rail lines but in 1998 of 57600 km (http://www.asianinfo.org/…/transportation.htm) and in 2006 of 62200 km (World Bank Group, 2009) Also the road system was expanded so that in 1950 the length of highways was just 80000 km and one third of the country was not accessible by road.

In 1998 the road system was 1,278 million km big (http://www.fmprc.gov.cn/…/t17868.htm) and in 2005 it reached a total of 1,931 million km (The World Bank Group, 2009).

Although it´s good natural conditions China´s merchant marine just consisted of fewer than 30 ships in the early 1960s. In 1986 China had 600 ships with a total tonnage of 16 million (http://www.globalsecurity.org/…/infras.htm) In the last years the total tonnage reached 84,6 million in 2006 from 41 million in 2000 (The World Bank Group, 2009).

The civil aviation system was expanded from 1949 to 1978 so that at the end of 1998 140 airports were opened to civil air planes with air routes of 1.5 million km which is ten times of the air routes in 1978 (http://www.asianinfo.org/…/transportation.htm). In 2006 China had 142 civil airports. Passenger numbers reached 159.7 million in 2006, up from 67.2 million in 2000, and freight traffic reached 9.4 billion tonne-km, up from 4.4 billion tonne-km in 2001. Domestic flights account for over 90% of air passenger numbers and almost three-quarters of air freight measured in tonnes. The number of domestic routes rose from 385 in 1990 to 1,068 in 2006 and also the number of international routes rose from 44 in 1990 to 268 in 2006.

Today telephone connectivity is available everywhere. In 2006 95.6% of China´s villages were connected to the telephone network. In the mobile phone sector there are 35.3 subscribers per 100 people which is low in comparison with other developed countries. Because of optical fiber-cable links China had 65 million broadband lines at the end of 2006 and overtook the US as largest broadband market in 2007 (The Economist, 2008, pg. 27 - 28).

China has a large demand of energy. From the 1978 to 2001 the demand of coal, oil and natural gas grew at an annual rate of 4 %. In 2005 their power supply relied with nearly 70% on coal, 21% on oil and the rest on hydro energy, gas and nuclear energy (Rosen, 2007, pg. 17). The energy use in kt of oil equivalent was in 2005 1717153 (The World Bank Group, 2009). Due the fact that 13 % of the known worlds mineral coal is in China they rely such strong on coal to satisfy their energy demand (Rosen, 2007, pg. 23). China is the fourth largest petroleum producing country and has a well developed gas and oil gas supply industry. In 2005 it produced 3.6 million barrels per day compared to the USA with 3.8 million barrels per day (Rosen, 2007, pg. 20).

Right after the founding of the People´s Republic of China education was a main topic of the Chinese government. Before 1949 80% of the 500 million Chinese people where illiterate. In 1998 91 % of the country has a compulsory education system and 99% of school age children go to school and the illiteracy rate declined to fewer than seven %. Moreover after the reform in 1978 which was marked by the restoration of the higher education system accelerated this development. At the end of 1998 there were 1022 universities and Colleges in China with 3.41 million students. Furthermore there were 54.5 million junior middle school students and 139.54 million primary school pupils (http://www.asianinfo.org/…/pro-education.htm).

In the past 30 years also the healthcare sector enjoyed a big improvement. The average annual increase of total health expenditure was 12.09% from 1978 to 2003, while the annual rate of GDP increase was 9.38% for the same period (Zhengzhong, 2005, pg. 1). In 2000, the World Health Organization ranked the country 61st out of 191 countries in overall quality of health (The World Bank, 2005, pg. 109). In 2004 there were 288000 medical service institutions, 3,251 million hospital beds and 4.39 million doctors and nurses. The number of doctors per 1000 citizens is 1.5 and close to Brazil´s or Egypt´s number (Zhengzhong, 2005, pg. 2). The hospitalization rate decreased from 4.2% in 1993 to 3.6% in 2003 (Zhengzhong, 2005, pg. 3). In 2003 the average outpatient expenditure per visit was 0.77% of the per capita salary for urban citizens and 4.2% of that of farmers the inpatient expenditure 27.9% of the per capita urban salary and 149.1% of per capita farmer income.

In the year 2003 80% of the citizens were without any form of medical security in rural areas. In urban areas 44.8% were without any form of medical security (Zhengzhong, 2005, pg. 3 - 4).

2. Economy

2.1. The Economic System of the People’s Republic of China

2.1.1. Reforms & current state

The Chinese economic system has undergone a fundamental change during the last 30 years.

After the founding of the People’s Republic in 1949, the economy was a mostly centrally planned command economy with emphasis on heavy industries (with the goal of a rapid industrialization according to the Soviet model) and virtually closed to international trade (Hartmann, 2006, p. 42-46; https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html).

Beginning in 1978, under the leadership of Deng Xiaoping, China started to reform and modernize its economic and political system. Economically, the first steps concerned primarily the agricultural sector and introduced financial incentives for farmers to produce above the set required quotas. From 1984 on the same ideas were transferred to the industrial sector, which caused a considerable boost in the production of agricultural and consumer goods. Private ownership started to be tolerated and was from 1988 on constitutionally allowed (Informationen zur politischen Bildung, Nr. 289/ 2005, S. 9). Further measures taken were the liberalization of prices, increased autonomy for enterprises and the opening to foreign trade and investment and the creation of special economic zones that attracted foreign investors due to low labor costs and low taxes (Hartmann, 2006, p. 54; https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html). A second phase of modernization and opening started in 1992, when creating a socialist market economy became an official aim of the Chinese economic policy which cumulated with China joining the World Trade Organization in 2001. Due to this process of continuous reforms the Chinese GDP as increased more than tenfold since 1978 and amounts to an estimated 4.222 trillion US$ in 2008 (for GDP growth rates see diagram below). When measured in Purchasing Power Parity, China has become the third largest economy (GDP of 7.8 trillion US$) of the world after the European Union (14.96 trillion US$) and the United States (14.58 trillion US$). The annual inflow of Foreign Direct Investment to (Informationen zur politischen Bildung, Nr. 289/ 2005, p. 19)

2.1.2. Challenges

Although China’s course in transforming its weak communist command economy into a very capable market economy has been very successful when measured in GDP growth and output, there are several problems and challenges connected to the economic surge.

Although the economic growth has lifted several hundred million people out of poverty, a large part of the Chinese population does not or hardly profit from the success, among them farmers, millions of migrant/ rural workers and laid-off workers of former state-owned enterprises. When measured on a GDP per capita bases, China still remains only a lower-middle income country which illustrates the uneven distribution of the national income.

In order to take pressure of the labor market and to sustain a tolerable unemployment rate (currently at officially 4%, in reality possibly as high as 9%), the Chinese government has to keep the annual growth rate above a critical seven percent barrier (IzpB, Nr. 289/ 2005, p. 11).

However, connected with very high GDP growth rates is the threat of overheating the economy and high inflation rates which could only be countered by administrative measures (prohibitions and limitations).

The maybe most threatening challenges to the Chinese welfare are, however, energy scarcity and environmental pollution.

Due to the increased industrial production China consumes 7.8 million barrel of oil per day (second biggest single oil consumer worldwide after the United States) and changed within 10 years from being an oil exporter to being a net oil importer (4.21 million barrel/ day in 2007).

Environmental deterioration, especially water and air pollution and soil erosion are long-term problems and have, due to their severity, come on the government’s agenda.

2.2. Economic Sectors

In the early fifties of the last century the People’s Republic of China was an agricultural state, where 57.7% of the GDP inherited in the primary sector, 23.7% in the secondary and 19.2% in the tertiary. Within thirty years China developed to an industrial state. In 1985 52.8% of the GDP came from the secondary sector, 32.4% from the primary and only 14.8% from the service industry (http://www.infrastruktur- china.de/Wirtschaftswachstum_China.htm). Although in 2008 48.6% of the GDP still originated in the industrial sector, only 11.3% came from the primary sector. The change towards the service industry is shown by the fact that it contributed with 40.1% to the national income (http://www.ahk.de/…/China.pdf, p. 1). In terms of employment the picture looks differently: with 43% the majority works in the agriculture, only 25% in the industry and 32% in the service sector (http://www.auswaertiges-amt.de/…/Wirtschaft.html). In 2007 the economic growth reached a summit with 11.9%. The primary sector grew by 3.7%, the industry by 13.4% and the tertiary sector by 12.6%. Affected by the economic crisis, which had rather an impact on the real economy than on the financial sector, the economic growth remained slightly below 10% in 2008 and is forecasted to be about 7.5% this year (http://www.gtai.de/…/PubAnlage_5705.pdf?show=true, p. 2). But the reasons for the still impressing economic growth are enormous investments into the infrastructure, and especially the primary and secondary sector (http://www.gtai.de/…/PubAnlage_5705.pdf?show=true, p. 7).

2.2.1. Main Industries

The People’s Republic of China has to feed about 20% of the world population. Although Chinese farmers mostly only use simple and non-mechanized farming implements, the country is the leading producer of many agricultural products, such as wheat, cotton, rice and potatoes, in the world (http://german.cri.cn/…/chapter30202.htm). Other important products are corn, peanuts, tea, millet, barley, apples, and oilseed (https://www.cia.gov/…/ch.html). As animal husbandry is the second most important component in China’s agriculture, they are leading producers of pork, chickens and cattle. The great experience in ocean and freshwater fishing and also in aquaculture lifts China on the highest ranking position in the world in fishing (http://www.britannica.com/…/China).

China has rich mineral resources and is world leader in the production of coal, iron, steel, aluminum and other metals and in mining and ore production (https://www.cia.gov/…/ch.html).

The People’s Republic of China consumes 10% of the world energy with the perspective to become the main consumer of energy in the world, demanding about 17% in 2020. Currently 70% of the energy comes from coal, 20% from oil, 3% from natural gas, while hydro-energy, nuclear energy and solar energy provide the remaining 7% (http://www.chinadaily.com.cn/…/content_429544.htm). The energy coverage has not only become one of the main strategic goals of China’s foreign policy but is more and more understood as an environmental issue with a high potential for new technologies of energy production like hydro-energy (http://www.chinaexpert.de/china-energie-umwelt.html).

In the 1990s Chinese policymakers started to boost the economy on the one hand by supporting the energy, transportation and communication sectors and on the other hand by developing certain “pillar industries”, the automobile and the petrochemical industry, machine building and the electronic industry, by investing huge sums into them (http://www.bpb.de/publikationen/NAKFSP,1,0,Chinas_sozialistische_Marktwirtschaft .html#art1). In 2008 the Chinese automobile industry sold about 9.5 million cars (3.09 million newly licensed cars 2008 in Germany), which is an increase of 8% to the previous year. Due to the economic downturn and the high competition on this market, this number dropped from 22% in 2007. At the end of last year the Chinese Administration decided to help this industry and under the environmental aspect with an emphasis on small cars (http://www.gtai.de/…/PubAnlage_5705.pdf?show=true, p. 11).

Affected by the economic situation and increased prices for raw materials the growth of the chemical industry, especially in important branches such as producer of cement, plastics and fertilizers, slowed remarkably down. Only in the petro-chemical industry investments grew by 50% (http://www.gtai.de/…/PubAnlage_5705.pdf?show=true, p. 13, 14).

Resistant to the crises the machine building industry achieved a growth in sales between 25 and 28%. The lack of modern machines in many industries connected with the overall progress in the secondary sector form a solid basis for this development to continue but possibly not that rapidly any more (http://www.gtai.de/…/PubAnlage_5705.pdf?show=true, p. 15, 16). The fourth strategic industry, the electronic industry including telecommunications equipment, computers, commercial space launch vehicles and satellites, also had growth rates of 20.5% in the first three quarters of 2008. Especially the dependence on export is made responsible for a slowdown in this sector (http://www.gtai.de/…/PubAnlage_5705.pdf?show=true, p. 16, 17). Further big industries are armament, textiles and apparel; consumer products, including footwear, toys, food processing and transportation equipment, including rail cars and locomotives, ships, and aircraft (https://www.cia.gov/…/ch.html). In the tertiary sector there are major structural deficits which prevent China from successfully competing internationally, especially in innovations and research. There is potential for improvements in the educational system, the market orientation and in the research sector. Because of its increasing importance in the service industry the tourism has to be mentioned with a contribution of 5.44% to the GDP (2002) (http://www.researchandmarkets.com/…/china_tourism_industry)

2.3. Imports and exports

Since 1978 China has undergone a great development because of the reformation and their open policies. Between 1978 and 1999 China´s industry had an average rate of 11.1% every year (Ministry of Foreign Affairs of the People´s Republic of China, 2000) and also from 2000 to today it was at least over 8% (Bundesagentur für Außenwirtschaft, 2008).

So it is no wonder that China is getting more and more important as a business partner and their imports and exports are rising. China´s imports which means commodities bought from a foreign country (dictionary.com 2009) had a value of 660 bn. US$ in 2005, 791.5 bn. US$ in 2006 and 955.8 bn. US$ in 2007 which is an average increase of nearly 19.4% in this three years. The most important import areas in 2007 where electronics with 23,7% , 12,3% raw materials, 11,3 % chemical

manufactures, 11% combustibles and technical oils and 9% machines. (Bundesagentur für Außenwirtschaft, 2008). The top ten import suppliers in 2007 are mentioned below (The US-China business council, 2009).

Commodities which are sold to a foreign country (dictionary.com, 2009) or exports increased even more than the imports. The average rate from 2005 to 2007 was 27.1% with a total of 1217 bn. US$ in 2007. The most important export areas in 2007 where electronics with 28.5%, 14% textiles and clothes, 7.6 % electro-techniques,

7.6% machines and 4.9% chemical manufactures. (Bundesagentur für Außenwirtschaft, 2008). The top ten export destinations are mentioned below (The US-China business council, 2009):

Concerning Germany as a trade partner China exported nearly two time of commodities to Germany than the other way round in 2007. The external trade balance was 24.7 m €.

Especially German machines with 29% and cars with 16% where sold to China. Germany in contrast bought diverse groups of products but there is a trend to high quality products from China but the most important imports where 19% business machines and 17% goods from the area communication engineering like televisions and radios (Statistisches Bundesamt Deutschland, 2008).

2.4. Foreign Direct Investment

When analyzing the role of Foreign Direct Investment (FDI) it is useful to define the meaning of this phrase:

“FDI is an investment in manufacturing and service facilities in a foreign country with an intention to engage actively in managing and controlling them.” (Kotabe et al., 2008)

2.4.1. Background of FDI in China

The role of FDI in China has changed dramatically in the last 30 years. Prior to 1979 FDI was not allowed. That law was changed due to the open door policy in 1979. A new foreign direct investment law from1984 continued the increase of the FDI rate in China. Furthermore, the policies of openness and market - orientated reforms maintained the amazing growth of FDI (YU et al., 2008). This paper examines the role of investment in China.

The number of FDI in China is continuously increasing. The amount rose from $40 billion in 2000 to $83 billion in 2007 (Lau and Bruton 2008). More than 65 per cent of these inflows entered the manufacturing sector since the 1990s, which means that companies from outside China use the Chinese market to manufacture products for sale in the Chinese market or for export (Liang 2008). When mentioning China as a strong export - nation it is interesting to examine that 70% of the exports from China are produced by foreign - invested enterprises. In some domains these amount is even bigger (up to 85% in the technology sector) (Lau and Bruton 2008). The predominantly amount of FDI comes from Asian countries and especially Chinese communities in Taiwan, Hong Kong, Macau and Singapore. Although the share has declined was still at 62 per cent in 2005 (Liang 2008). Historically, FDI has concentrated in the eastern and coastal provinces of Jiangsu, Guangdong and Shanghai. Guangdong, which is a province borders to Hong Kong in the south of China, was the largest center of FDI in 1997. This regional disparity decreased in the last years. Zhejiang which is the region to the south of Shanghai, Jiangsu and Shanghai have the largest inflow of FDI today with a share of 40 per cent of the national total (YU 2008). Even if the regional disparity is decreasing between the mentioned provinces, the eastern regions had about 85 per cent of the FDI in the years from 1993 to 2005 (Li et al 2008).

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