Shingwan Mark Lee - Jeju
China has been making tremendous developments in terms of the economy.
This is significant as she made a start from the world's poorest country but now has become the second richest country in the world where its influence on other countries has also increased. However, China’s growth is affecting the firms in a fatal way, since China is a one-party state which can control its economy for its political purposes.
The basis of China’s influence originates from its huge economic scale and population. Due to its vast population, China has massive purchasing power thus allowing companies to easily earn money by targeting the Chinese market. Xi-regime, being aware of this fact, is forcing firms into submission by oppressing the corporations which are against the ideology of the Chinese government. In other words, China is using its economy as a political weapon. For instance, the Houston Rockets, one of the teams in the NBA (National Basketball Association) declared their support for Hong Kong anti-extradition bill protests in 2019. The Chinese government after the declaration censured the NBA of disobeying the “One-China’ policy where they coerced all Chinese companies to cut the sponsors of the NBA, further forcing the dismissal of Daryl Morey, the head of Houston Rockets. Consequently, the NBA had to reduce the salary cap of all players and Houston Rockets officially apologized to the Chinese government.
China’s foreign investment policy also hugely affects firms. When foreign companies enter the Chinese market, they must be cooperating with a Chinese company. However, cooperation with Chinese companies itself holds more than 51% of the business's share, which makes it critical to foreign firms as they have to give up more than half of their profit just to enter the Chinese market. For example, the local joint venture company of Disney that is established in China is holding 57% of the share which results in Disney losing
57% of its revenue to the joint venture company. Considering the extremely high tax rate on foreign firms in China, what Disney is earning is 20% of its total revenue which is totally a colossal loss for the company. Like this, China is abusing strong control over its economy to stimulate the growth of domestic firms through the elimination of foreign rival companies. Despite the unreasonable strict foreign policy of China, companies are entering the Chinese market due to its immense leverage on the world economy.
Overall, China’s harsh foreign policies are forcing companies under the control of the Chinese government. However, they are remaining obedient to China’s absurdity as companies are addicted to China's money, reluctantly enduring and adapting to the new illogical economic order led by China.
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