The Political and Legal Environments Facing Business
Clarke Ricks
School of Business, Liberty University
BUSI 690: Policy and Strategy in Global Competition
Dr. Hicks
April 6, 2021
The Political and Legal Environments Facing Business
What businesses must focus on is how a country’s political system impacts the economy
as well as the particular firm and industry. To determine how local policies, rules, and
regulations will affect their business firms need to assess the balance. Depending on how
long a company expects to operate in a country and how easy it is for it to enter and exit, a
firm may also assess the country’s political risk and stability. In fact, to attract foreign
investment to their country government should make efforts for political stability.
Businesses need to assess if a country believes in free markets, government control, or
heavy intervention in industry.
Government intervene in trade politically, may seek to protect jobs or specific
industries. Some industries may be considered essential for national security purposes, such
as defense, telecommunications, and infrastructure. Both the import and exports of a
country can be affected by those national security issues, as some governments may not
want advanced technological information to be sold to unfriendly foreign interests. Some
governments use trade as a retaliatory measure if another country is politically or
economically unfair. On the other hand, governments may influence trade to reward a
country for political support on global matters.
Governments showed their intervene for its country from several key policy areas that
can be used to create rules and regulations to control and manage trade. Those policies are
such tariffs (taxes imposed on imports), subsidy (a form of government payment to a
producer), import quotas and voluntary export restraints (two strategies to limit the amount
of imports into a country), currency controls (governments may limit the convertibility of
one currency usually its own into others and an effort to limit imports), local content
requirements ( a certain percentage of a product or an item be manufactured or
“assembled” locally), antidumping rules ( occurs when a company sells product below
market price often in order to win market share and weaken a competitor), export financing
(Governments provide financing to domestic companies to promote exports), free-trade
zone ( designate certain geographic areas as free-trade zones to enjoy reduced tariffs, taxes,
customs, procedures, or restrictions in an effort to promote trade with other countries),
administrative policies ( the bureaucratic policies and procedures governments may use to
deter imports by making entry or operations more difficult and time consuming).
China began entering the era of multilateral trade after entering the World Trade
Organization (WTO) officially in 2005. This is an important maneuver for China, because
China has fully applied the principles of market economy. But in practice, China is suspected
of building a superiority to compete with the strength of the US economy. The political
structure, fundamental laws, rules and regulation and practices that are implemented are
reffered from political system of China and which control the state power, government, and
the relationships between the state and society. Based on the worker-peasant union and
practicing people’s democratic centralism show if China is a socialist country and the
primary system in the country is the socialist system.
The main political structure of the People’s Republic of China is comprised of two
vertically integrated, but interlocking institutions: the Chinese Communist Party, headed by
the Party Politburo and its Standing Committee; and the state government apparatus,
headed by the premier, who presides over the State Council, a de-facto cabinet.
Throughout China, Party and government structures closely parallel one another, with Party
committees and representatives present not only in government agencies, but also in most
organizations and institutions, including universities and foreign owned enterprises.
Two other major institutions play roles in Chinese politics. One is the National People’s
Congress. According to the PRC Constitution, the NPC of China is the highest organ of state
power. Its highest officers are the president and vice president of the NPC, who are directly
elected by the members of the NPC.
China is particularly hazardous with respect to political risk. The possibility of
nationalization of industries needs to be considered. In fact this has already occurred in
China (in 1949). Similarly, there are the risks of confiscation, expropriation, currency
inconvertibility and contract repudiation. Currency devaluation and rampant inflation are
possible scenarios in many countries, wreaking disaster on the adequacy of insurance limits,
as one of many potential problems. There is also risk to company employees of personal
harm or kidnapping, and risk to the firm of extortion attempts. A unique form of political risk
occurs in China, and this is the constant battle between the country’s central government
and the provincial and local governments over applicable law, and observance or non-
observance of it. This makes it difficult for companies operating in China to know exactly
what the rules are.
The China country reports in the State Department’s 2007 Human Rights Practices and
International Religious Freedom Reports noted China’s well-documented and continuing
abuses of human rights in violation of internationally recognized norms, stemming both
from the authorities’ intolerance of dissent and the inadequacy of legal safeguards for basic
freedoms.
Reported abuses have included arbitrary and lengthy incommunicado detention, forced
confessions, torture, and mistreatment of prisoners as well as severe restrictions on
freedom of speech, the press, assembly, association, religion, privacy, worker rights, and
coercive birth limitation. In 2006, China continued the monitoring, harassment, intimidation,
and arrest of journalists, Internet writers, defense lawyers, religious activists, and political
dissidents. The activities of non-governmental organizations (NGOs), especially those
relating to the rule of law and expansion of judicial review, continue to be restricted.
Political stability of China impacted to the level of foreign business activity in China after
the Tiananmen Square massacre has fallen off dramatically in many areas, including tourism
and foreign investment. While companies not already involved in China are wary of
committing investment to China, countries already involved in investment activities
seemingly are waiting for a quiet period in which economic progress will begin again and
believe that China will not expel foreign investors in the meantime.
There is not much likelihood that extant joint ventures and foreign manufacturing
plants will be closed under the present regime, but political stability is still a big question to
foreign investors. At the same time, China’s economic growth and reform since 1978 has
improved dramatically the lives of hundreds of millions of Chinese, increased social mobility,
and expanded the scope of personal freedom. This has meant substantially greater freedom
of travel, employment opportunity, educational and cultural pursuits, job and housing
choices, and access to information. In recent years, China has also passed new criminal and
civil laws that provide additional safeguards to citizens. Village elections have been carried
out in over 90% of China’s one million villages.
China is also pursuing the emerging institutional and multilateral strategies outside the
region to redesign regularity in political-economic field. The multilateral cooperation places
the Beijing government as a central point, such as China-Africa Cooperation, the China-
Caribbean Economy and Trade Cooperation Forum, as well as the China-Arab Nations
Cooperation Forum. As a supporter of influence, China is even involved in providing political
consultations on the Andean Community, Rio Group, and MERCOSUR. It appears that China
prefers to open a new partnership rather than relying on those already built up (Sohn, 2012:
77-82). It also reflects a great mentality power and exceptionalism of China as a country that
sees other countries operating under its influence, so that its foreign policy is really directed
to the country (Zhang, 2013: 306-323).
The government intervene is showed by PRC has signed income tax treaties and
arrangements with more than 80 countries and regions, including two special administrative
regions of the PRC, Hong Kong and Macau.Under the current tax system, the PRC imposes
about twenty types of taxes,one of those types is business tax. Business tax is levied on the
provision of most services within the PRC, the transfer of intangible property in the PRC and
the transfer of real property in the PRC. For example in services sector such as transport
they charge 3% tax, banking and sale of real properties 5%, and 5% – 20% for entertainment
