During its 30 years of communist rule, China prohibited foreign investment and restricted foreign trade. In 1978, China enacted the Law on Joint Ventures using Chinese and Foreign Investment. China’s subsequent transformation has been fueled by a landslide of foreign investments made in response to the country’s market potential, market performance, improved infrastructure, enormous resources, and strategic position. Frustrating this process, however, has been the politics of China’s elaborate bureaucracy, as well as its ill-defined legal system and pervasive corruption. Historically China has relied upon the rule of man and the belief that legal rights are derived from the power of the individual. Upon joining the WTO, China agreed to continue to reform its business environment and to move toward transparent, rules-based, enforcement-oriented standards. But the business reality is far from the WTO obligations specifically in the continued controversy over the protection of intellectual property. Coming full circle, today’s fully-owned Chinese enterprises are themselves becoming global investors, both by acquiring foreign firms and investing in foreign lands. Despite a complex political and legal environment, China attracts a legion of foreign investors seeking lucrative business opportunities. 

Questions

1. What general perspective do you advocate to make sense of China’s political environment?

2. How would you advise an MNE to manage the intricacies of China’s legal environment?