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The interest placed on emerging economies has been increasing in recent years. While the Western countries face stagnant economies, these countries have continually experienced high growth rate. Among these emerging economies, China and India have attracted most interest as they are the most biggest and fast-growing two countries. The huge population of these two countries provides vast opportunity for foreign firms. However, there are drawbacks in the investment environment of these two countries since they are much less developed. This essay explores the attractiveness and drawbacks of doing business in these two countries in terms of political, economic and legal environments from a perspective of New Zealand firms. This essay consists of three parts. The first part compares the differences of these two countries for New Zealand firms intend to do business here. The second part discusses the similarity of these two countries in terms of investment environment. Then, this is followed by conclusion remarks.

From a political perspective, China is officially a Communist state, and the Chinese Communist Party (CCP) is the sole political party allowed in the country. According to the Chinese Constitution, CCP is the utmost source of power (China Country Review, 2008). This one party dominant system result a medium to low score for political stability. Political stability is one of six governance indicators measured by the World Bank Policy Research Working Paper Series, and is measured on a scale of -2.5 to 2.5. From 2000 to 2004, China’s political stability ratio decreased from 0.13 to -0.07 (China Country Review, 2008). This ratio indicates the likelihood of credible threats (including coups, domestic violence, and terrorism etc.) to, or changes in, the government in power. Under such political environment, foreign firm’s relationship with government becomes crucial.

The political environment of China presents drawbacks for...