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The Expatriate’s Guide to the Chinese Market

Following World War II, the world realized that the U.S. consumer was an important market. Now, almost 70 years later, there is a similar global realization that the Chinese market is gaining power. During a period of 10 years, China jumped several places on the list of the world's economies, says Alfred Nader, vice president of corporate strategy and development at Western Union Business Solutions. Now China ranks as the world's second largest exporter[1] and the world's third largest importer.[2]

For individuals traveling or potentially living abroad in China, here are some key insights regarding the rapidly evolving Chinese economy.

The Chinese Government's Role in Innovation

In the past, China wasn't seen as a pioneer in terms of technology, says Richard Cooper, professor of international economics at Harvard University in Cambridge, Mass. Although China has successfully adapted ideas from other foreign countries, such as the American search engine Google, which gave rise to the Chinese culture's equivalent Baidu, the country didn't display notable success from a global perspective, he says.

Private companies, which are largely independent from the government, compete with companies linked to the state and companies from foreign countries.

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Then, about 20 years ago, China's push for innovation went into overdrive. Since 1992, China's government has been pouring money into research institutes for space and technology. The space sector functions as a government agency, much like NASA does in the U.S., says Dr. Penelope B. Prime, professor of international business at Georgia State University in Atlanta.

Similarly, using an online foreign exchange service to wire money transfers to China for international payments has transformed the way individuals conduct international trade in the digital age. With 24/7 online FX account access, sending money overseas has become simpler than cash payments.

State-owned Businesses

Because state-owned enterprises (SOEs) are controlled by the government, the two communicate frequently. The government appoints CEOs for the SOEs that are directly under the State-owned Assets Supervision and Administration Commission, which are sensitive to central policies, Prime says. These companies function in a semi-market economy within China, which means they need to compete with similar brands to a certain extent.

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If the companies expand outside of the Chinese market, they must compete fully to have a chance of succeeding.

Private Businesses

Private companies, which are largely independent from the government, compete with companies linked to the state and companies from foreign countries.

Although private companies are prohibited from entering the energy sector and most financial services, Prime says consumer goods, hospitality and tourism are open for private enterprises. Anyone in China is allowed to start a private company, given that he or she doesn't try to enter state-controlled industries and abides by the law.

"It provides an indirect indication that China is opening up, and therefore further gives [a] sense of comfort for foreigners to travel and live in China," says Wing Fok, director of Asia business studies at Loyola University New Orleans."In addition, foreigners are going to find more companies that are owned by international companies so they will find more familiar brand names in China."

Room for Growth

The need for more consumer goods and services is becoming increasingly important in the Chinese market as consumer spending increases, Prime says. When it comes to location, second-tier cities - cities with a population of about 3 million - offer opportunities for greater development, Prime says.

"For foreigners living and traveling in China, these trends are making the second-tier cities more welcoming and livable," Prime says. "There will be better health clinics and schools, for example, where until recently, staying in the first tier cities was the best option.".

[1] "The World Factbook," May 6, 2013, Central Intelligence Agency (CIA)

[2] "The World Factbook," May 6, 2013, Central Intelligence Agency (CIA)

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