China's costs of labour and land are low and its currency is regarded as undervalued and competitive. Yet Chinese companies are making relatively little money and the domestic stock market is at a six-year low. The reason lies in the country's high and rising costs of doing business. If the government does not urgently address this issue, the country will not only fail to develop a services industry but will also miss out on the foreign investment its under-employed labour force needs.
In the past decade, three types of costs operational, regulatory and external have been suffocating business in China. Even its numerous special economic zones have been affected, in spite of their lower taxes and less onerous regulations. In 2004, China overtook the US to become the world's largest beer market. But the largest three Chinese breweries, which account for a total 35 per cent of the market, made a combined profit of only $100m in 2004 equal to one-seventh of Heineken's profits and five per cent of Anheuser-Busch's in that year.
