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Change Grabs China

Financial liberalization makes doing business in China easier, but major economic and political shifts loom.

By John Hintze | Updated on February 01, 2012
China is in no danger of losing its position as the world’s factory floor anytime soon. But as it enters the Year of the Dragon—the fire-breathing mythical beast of the Chinese zodiac that can herald change and turbulence—the country is taking bold steps to internationalize its currency while facing headwinds of change on several major fronts that could drastically alter its course. The dragon, which symbolizes traits ranging from strength and self-assuredness to imperiousness and brashness, reigns from this January until Feb. 8, 2013, and appears especially apropos at a time when China faces an array of economic, cultural and political challenges—including a major change in leadership this fall —that could send the country in unexpected directions, not all of them positive for companies doing business there.

Those challenges include escalating prices and the resulting higher production costs, a real estate bubble and a shortage of credit. Costs, in fact, have been rising for at least a few years, prompting firms to look for alternative sources of production

But top of the list and now unfolding as the biggest potential game changer of all is the Chinese government’s gradual effort to enable commercial transactions to settle in renminbi (RMB), which provides mainland China-registered companies with more flexibility in obtaining capital.

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