Assessing the political and investment risk climate of the PRC : a SAB-Miller case study

Lanhove, Tom (2004-03)

Thesis (MA)--Stellenbosch University, 2004.

Thesis

ENGLISH ABSTRACT: This research assignment has investigated the overall nature of the investment climate in the People's Republic of China (PRC).The investment climate was analysed using a Political Risk Analysis (PRA) framework, whereby the PRC was scrutinised closely for its most defining socioeconomic features and, especially, for its most salient political risk factors. Based on this, the assignment evaluated this climate with specific relevance to the investment plans of the South African company SAB-Miller. Since its accession to the World Trade Organisation (WTO)in 2001, the PRC has intensified its economic restructuring process, a necessary and inevitable process, in order to comply with the terms of the WTOframework. This period of adjustment has heightened the anxiety over the strength of the Chinese economy, and the repercussions and/or opportunities for the multinational SAB-Miller.To remedy this uncertainty, this assignment has drawn up an in-depth qualitative scenario, in order to forecast the major trends of the PRC's short-term socio-political future. The main findings of the assignment indicate that a 'high-road' scenario is the most likely to occur in the PRC in the short-term. Clearly, this favourable forecast 1S dependent on the continuation of the current economic and socio-political restructuring process in the PRC. With regards to the main macro-political risks factors, the assignment draws attention to several critical areas of concern. Firstly, the lack of legitimatisation from the 'bottom-up' is a worrying feature, especially in light of the growing economic disparities between citizens and between provinces. Secondly, the financial and governmental sectors need a thorough restructuring, according to WTO criteria. Thirdly, the fragmentation of the market inside the PRe undermines the potential of the PRC government to diffuse the benefits of economic growth and to absorb the downsides of globalisation. Micro-specific risk factors for the company SAB-Miller are focussed predominantly on the speed and the depth of the implementation of the guidelines of the WTO. Especially with regards to the lowering of intra-provincial trade barriers and the efficacy of the distribution networks. Lastly, SAB-Miller should eliminate any risk factors, which may originate from inside the company's behaviour, such as the effects of its adopted labour policies. Lastly, it should maintain a clear level of transparency in their associations with governmental institutions. Throughout the assignment, these risk factors will be investigated and related to the overall political risk climate and utilised to draw conclusions concerning the potential of the investment plans of SAB-Miller.

AFRIKAANSE OPSOMMING: Hierdie werkstuk het die beleggingsklimaat van die Volksrepubliek China (VRC) ondersoek. Die beleggingssklimaat is ontleed deur gebruik te maak van 'n model vir Politieke Risiko Analise (PRA), waarby die VRC sorgvuldig onderwerp is aan 'n ondersoek van sy mees kenmerkende sosio-ekonomiese faktore en van die belangrikste risiko faktore. Hierop gebaseer, het die werkstuk ook die beleggingsklimaat ontleed met spesifieke betrekking tot die beleggingsplanne van die Suid Afrikaanse maatskappy SAB-Miller. Sedert toetreding tot die Wêreld Handelsorganisasie (WHO) in 2001, het die VRC sy transformasie proses versnel ten einde te voldoen aan die WHO se toelatingskriteria. Hierdie tydperk van aanpassing het kommer gewek oor die Chinese ekonomie asook oor die gevolge daarvan vir die maatskappy SABMiller. Om hierdie onsekerheid aan te spreek het die werkstuk 'n kwalitatiewe scenario voorgestel, ten einde die hoofpunte van die VRC se sosio-ekonomiese kort-termyn toekoms vooruit te skat. Die gevolgtrekking van hierdie werkstuk toon aan dat 'n 'high-road' scenario die waarskynlikste is gedurende die kort termyn. Dis ook duidelik dat die gunstige vooruitskattings afhanklik is van die voortsetting van die huidige sosioekonomiese transformasie proses van die VRC. Met betrekking tot die vernaamste makro-politieke risiko faktore het die werkstuk aandag gegee aan verskeie kommerwekkende aspekte. Eerstens, die gebrek aan elektorale regmatigheid van die 'grond-af, waarskynlik in die lig van die toenemende ekonomisiese verskille tussen burgers asook tussen provinsies. Tweedens, moet die finansiële- en staatssektore grondig herstruktureer word volgens die WHO riglyne. Derdens, ondermyn die fragmentasie van die mark van binne China die mag van die VRCse regering om die voordele van die ekonomiese groei gelykmatig te versprei, asook om die nadele van Globalisasie te absorbeer. Mikro-spesifieke risiko faktore vir die SAB-Miller maatskappy het hoofsaaklik gefokus op die spoed en die diepgang van die implementering van die WHO riglyne. In besonder met betrekking tot die hoë interprovinsiale handelsbelemmerings en die optimale effektiwiteit van die verspreidingskakels. Laatstens, moet SAB-Miller enige risiko faktore elimineer wat as gevolg van die maatskappy se eie gedrag kan onstaan, byvoorbeeld die maatskappy se arbeidsvoorwaardes. SAB-Miller moet ook 'n duidelike aanspreeklikheidsfunksie daarstel, in hulle betrekkinge met Chinese staatsinstellings. Deur die hele werkstuk word hierdie risiko faktore ondersoek en in verband gebring met die algemene politieke risiko klimaat, en word ook gebruik om gevolgtrekkinge te maak aangaande die potensiaal van SAB-Millerse beleggingsplanne.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/49858
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