CROSS CULTURAL

MANAGEMENT
ASSIGNMENT 2

AMANULLAH 12249
ABDULLAH 12219
Question Number. 01: Habib Bank (HBL) and United Bank
Limited (UBL) are the banks which are going to open their
branches in China due to CPEC and thus there is a need
of cross cultural management. Therefore consider
yourself as the HR manager of any one of the above
mentioned banks and perform following activities

KARACHI: Habib Bank Ltd (HBL) has announced its plans to start renminbi (RMB) operations
in China after holding in-depth discussions People’s Bank of China (PBC) on Wednesday.
The representatives of the two banks held discussions to promote RMB’s internationalization and
relocation of export-based industries from China to Pakistan.
Member of the PBC Currency Policy Committee Dr Ma Jun was also present at the meeting.
“The event was attended by leading businessmen and corporates and focused on green finance,
RMB internationalization and relocation of export-based industries from China to Pakistan,” said
a press release issued by the HBL.
“The major discussion was around increasing the use of RMB in trade between Pakistan and
China,” said the HBL.
“HBL is the only Pakistani bank to have operations in China, and will soon start RMB operations
in China, becoming the only Pakistani bank to offer end-to-end RMB intermediation,” said the
HBL. Earlier in the day, Dr Jun along with the HBL President Muhammad Aurangzeb met with
the officials from the State Bank of Pakistan (SBP) and discussed how Tsinghua University can
help Pakistan promote green finance market development and increase the use of RMB for
reserve purposes and bilateral trade.
The HBL president, while speaking to the participants, stated the bank is uniquely positioned to
assist companies under the China-Pakistan Economic Corridor and promote cooperation between
the corporate sector of both the countries. Former SBP governors, Salim Raza and Dr Shamshad
Akhtar were also present at the meeting.
Dr Jun is the Director of the Centre for Finance and Development, Tsinghua National Institute of
Financial Research. He is also Special Advisor to the Governor of the People’s Bank of China,
Chairman of Green Finance Committee of China Society for Finance and Banking, and Co-chair
of G20 Green Finance Study Group.
Published in Dawn, October 11th, 2018

Pakistani bank UBL launches first representative office in China

United Bank Ltd. (UBL), the second largest bank in Pakistan, opened a representative office in
Beijing Thursday, its first in China. 

"The Beijing representative office is a signal of UBL's efforts to participate in the trade and
investment flows between China and Pakistan," Atif R. Bokhari, president and chief executive
officer of UBL said at a press conference. 

The office will establish correspondent relationships with Chinese banks and facilitate
investment and trade between Chinese investors and UBL customers in its network countries. 

UBL signed a cooperation agreement with the China Development Bank (CDB) during the press
conference, focusing on details of cooperation and the correspondent relationship between the
two. 

The partners were still seeking a specific cooperation project, Liu Jian'an, vice governor of CDB,
told Xinhua. 

UBL, which has more than 1,000 branches globally, saw its total assets rise 25 percent in 2007 to
881.9 billion U.S. dollars. Its international operations contributed more than 20 percent of its
profits.

Key Underlying Values of Traditional Chinese People Management

Focus on serving and supporting emperors as central control of people
management
Ruling by an individual rather than by systems and laws; the important role of the
leader to teach and guide and to be the role model
Group orientation
Importance of Confucian values such as harmony, relationships, virtues, and
egalitarianism
Respect for social status, seniority, and hierarchy
Focus on developing and recruiting talented people, but not on training and
development of existing followers
Key Underlying Values of Traditional Chinese People Management
Focus on serving and supporting emperors as central control of people
management
Ruling by an individual rather than by systems and laws; the important role of the
leader to teach and guide and to be the role model
Group orientation
Importance of Confucian values such as harmony, relationships, virtues, a
UBL and HBL should learn their culture and train his employees and also teach their who are
going to work with parent country. They should teach and the elements of culture.
Language:
Language is very important element of culture, if a person going to another country they should
learn host’s country language because without language, you can not get anything. Manager
must train his employees about the culture fluency and cross cultural variables because every
country has different culture that’s why both companies should learn their culture and also teach
employees about the china culture and also teach who are from host country then they can easily
get cross cultural understanding.

Religion:
Parent country should understand that there is no religion because they are (ATHEIST) country.
That’s why they shoul.d understand it also teach his employees about it and companies also
make policies according their religion’s perspective. Because Pakistan is an Islamic country and
they should understand if they are going to work with them.

Values and Attitudes: Company should learn their value and attitudes where are going to work.
Both companies are going to work in China, that’s they should learn, study their culture and also
teach parent’s country culture to them. They should learn the nature of host country.

Manners
Both companies should teach their employees about the manner of china because every country
has different culture that’s why employee should be aware their culture. Then they will easily jell
with them.
If we talk about compensation then both companies should study about the theories of China that
how they will motivate and how they will work and how they will think about compensation
because if both companies should learn and understand the following theories to understand the
compensation
 Maslow (Hierarchy of Needs)
 ERG Theory
 Herzberg Two Factor Theory
 Equity Theory
Both companies should understand the theories to set the compensation and motivate them
according to their motivation aspect.

Compensation of China

Employment and Wages

Job creation and higher living standards have long been key objectives for the Chinese
government. However, millions of workers in traditional industries are being laid off and many
of the new jobs being created are insecure and poorly paid. The legal framework established ten
years ago to protect workers has largely failed to do so, to the extent that millions of workers
cannot even be sure they will get paid on time.
The minimum wage has risen steadily over the last decade but there are substantial regional
differences and it has not kept pace with increases in the cost of living, especially in major cities.
The gap between the rich and poor in China continues to grow and despite long-standing
government policies to reduce poverty, the urban and rural divide remains stubbornly in place.

Legal provisions on employment and the payment of wages

China has a comprehensive legal framework that defines the rights and obligations of employers
and employees, primarily the 1995 Labour Law and the 2008 Labour Contract Law (amended
2013), which contain clear provisions on employment contracts, working hours and payment of
wages, benefits and the termination of employment, specifically:

Employers are required to conclude a written employment contract with employees (Labour
Contract Law Article 10).
The employment contract shall specify the term of the contract, the job description and place of
work, working hours, rest and leave, labour remuneration, work safety protection etc. (Labour
Contract Law Article 17).
The standard workweek in China is 40 hours (eight hours per day, five days per week) although
flexible working hours are allowed under certain conditions (State Council 1995 Provisions on
Working Hours of Staff and Workers).
Overtime shall be paid for any work exceeding standard working hours and overtime shall not
exceed three hours a day or 36 hours per month (Labour Law Article 41).
Overtime pay should not be less than 150 percent of an employee’s wages during normal work
days; 200 percent on rest days, and 300 percent on national holidays, such as the Lunar New
Year (Labour Law Article 44).
Wages shall be paid in legal tender to the workers in person on a monthly basis. No deduction of
wages for personal gain may be made from wages due to workers. The payment of wages may
not be delayed without reason (Labour Law Article 50).
An employer shall pay wages to workers during their statutory holidays, marriage or funeral
leave (Labour Law Article 51).
If their contract is terminated, employees are entitled to severance pay based on the number of
years employed at a rate of one month’s wage for each full year worked (Labour Contract Law
Article 47).

Minimum wage levels

Minimum wage rates in China are determined by regional governments, based on local living
costs, local wages and the overall supply and demand for labour. As a result, there is
considerable variation in minimum wage levels in major cities and poorer rural areas. The
highest monthly minimum wage as of July 2018 was in Shanghai (2,420 yuan), which was
roughly double the minimum wage in smaller cities in provinces such as Hunan, Hubei, Liaoning
and Heilongjiang. Minimum wage rates in major cities such as Beijing, Shanghai and Shenzhen
have doubled since China emerged from the global economic slowdown in 2010. Rates of
increase in many other provinces however have not kept pace and the gap between the major
cities and smaller urban areas has continued to grow (see graph below). In 2010, for example,
minimum wage rates in Beijing and the manufacturing hub of Dongguan were basically the same
but in 2018, the monthly minimum wage in Beijing was nearly 300 yuan higher than in
Dongguan, even after a belated 210-yuan hike in Dongguan’s monthly rate in July 2018.
Total compensation package and bonus offers
The executive compensation package of a new employee in an organization greatly depends on
numerous factors, including the industry, the salary amount that the new hire was drawing in
his/her previous organization, working experience, the offered position and market analysis. The
compensation package in China also varies a great deal if the new hire is a foreigner or a Chinese
national, and the location where the job is offered. As a rule of thumb, the gross salary must be
specified on the new hire’s contract and should be carefully discussed during the negotiation
process.If the new hire is a Chinese local candidate, it is generally advisable to offer a
compensation package with a base salary a little higher than the market’s average rate for
maximum employee retention. While for offering expat package in China, it is advised to offer
pay that is high enough to provide them with a suitable standard of living in China, that is at least
similar to what they are leaving behind in their home country. Employers have the authority to
appreciate their team’s hard work by granting bonuses at a fixed interval, which can be
distributed monthly, quarterly and annually, and hence their expected frequency should be stated
in the employee’s contract. The criteria for giving the bonuses usually included the evaluation of
an employee’s work performance, dedication, and attitude. Some employers in China also
promote the idea of giving away a 13th-month salary to their team members around the Chinese
new year, which is sometimes even coupled with the gift cards or pocket money. It is to be kept
in mind that the structure of compensation package in China varies for different roles and
employees within the same organization. Some employees are on the fixed salary payroll while
others should be partially remunerated as per their work performance. Additionally, the role of
the China’s income tax rate in the final take-home salary should also be considered while
deciding on the gross pay. The bonus structure also impacts taxes on both the employer’s and
employee’s part and hence should be a consideration factor while structuring a compensation
package.

Question Number. 02: On the basis of question 1 please find out research articles on effect
of CPEC on the banking sector and Pakistan stock exchange (PSEx) and indicate
importance of CPEC for the growth of banking industry and PSEX

China-Pakistan Economic Corridor is a framework of regional connectivity. CPEC will not only
benefit China and Pakistan but will have a positive impact on Iran, Afghanistan, India, Central
Asian Republic, and the region. The enhancement of geographical linkages having improved
road, rail and air transportation system with frequent and free exchanges of growth and people to
people contact, enhancing understanding through academic, cultural and regional knowledge and
culture, activity of higher volume of flow of trade and businesses, producing and moving energy
to have more optimal businesses and enhancement of co-operation by win-win model will result
in well connected, integrated region of shared destiny, harmony and development.

China Pakistan Economic Corridor is a journey towards economic regionalization in the

globalized world. It founded peace, development, and win-win model for all of them.

China Pakistan Economic Corridor is hope of better region of the future with peace, development
and growth of the economy.

Pakistan’s banks are likely to have their potential share in the development projects under China
Pakistan Economic Corridor (CPEC) which will generate a new stream of revenues for them in
the future.

Bilal Khan, Senior Economist Global Research at Standard Chartered Bank, MENA and Pakistan
said Pakistani banks are flexing their muscles to have their share of financing in the upcoming
mega projects.

He was of the view that the optimism of banks is not wrong because the improving ecosystem of
development in the country will demand private sector to get their project financed through
banks in coming years.

Banks are already actively participating in the development of economy showing the perpetual
growth in the credit to private sector especially in the current financial year.

Though the major chunk of investment and financing are likely to be coming from Chinese
companies and banks as it is under a general impression but the certain projects will be given
supports by Pakistani banks through their financing—improving their businesses and profit
margins in future.

The lower interest rates regime is also supporting the appetite of investment in the private sector
which sets to expand their footprints to meet the demand of their customers in different sectors.
In future, the Dollar-Rupee parity, fiscal deficit, foreign exchange and external accounts will
remain stable in next few months but disruptions could be seen in future with the changing
scenario of global economy.

Definitely, foreign inflows through exports receipts and remittances will largely depend upon the
situation of the global economy which will remain uncertain to direct any definite position to
receivables of Pakistan, he said.

The external account may be under pressure as current account deficit will surpass to double the
projection of the government from $3 billion to $6 billion in next financial years. The GDP
growth of Pakistan will settle more than 5 percent in the current financial year on the stable
macro-economic indicators.

Dima Jardaneh, Executive Director, Head, MENA Economic Research said the global economy
may take twist with the likely rebound of the international market which can affect over the
growth of different economies across the world.

The Impact of “CPEC” on Pakistan’s Banking Industry.

Introduction:

Financial sector plays a vital role in strengthening economic growth of a country; the role of
China-Pakistan Economic Corridor (CPEC) and its possible impact on banking industry of
Pakistan is multidimensional. Albertazzi & Gambacorta (2009) described the association
between the bank’s profitability and business cycle which is essential for the soundness and
steadiness of the banking sector. Many Economic and Financial theories explained that higher
foreign direct investment and strong financial system is backbone of economic growth in order to
obtained desire macro and micro economic goals for an economy. The main problems faced by
developing countries are poverty, low GDP, unemployment and low standard of living; like all
the other developing countries Pakistan is facing similar problems. To achieve desire goals like
higher GDP, increase in investment, improvement in standard of living a proper state policies
and financial system is required, but unfortunately the government of Pakistan does not have
proper structure to observe and implement accurate policies well in time. Pakistan is a capital
scarce country which normally relies on borrowing from IMF and the World Bank; which is not
a solution of the problem. In fact it is better for Pakistan to focus on suitable alternative resources
like CPEC that can boost gross domestic product and economic growth through effective
government policies along with efficient management of financial sector.

At the dawn of twenty first century, development in regional and global strategic environment
was observed. Developed countries extended their interest beyond their boarders on the basis of
mutual benefits. In the same context, Pakistan and China shaked their hand by signing historic
“One Belt One Road” project which consist of many projects. The main objective behind this
project is to improve economic and trade activities along with regional connectivity of Asian
countries. Implementation of these projects will result in huge amount of foreign direct
investment, enhanced foreign reserves, alleviate energy crises, political stability and improved
security situation in Pakistan along with the regional harmony. CPEC will have a positive impact
on Pakistan economy due to the implementation of prescribed projects which enables its banking
sector to get benefit not only from the trade side but also from the lending side. According to the
recent studies, if there is one unit increase in gross domestic product there is a need of 3.6 units
of increase in investment. Likewise, CPEC will bring 1.5 percent yearly growth in gross
domestic product in Pakistan for next three years from 2017-2019 along with the incremental
effect of private investment which further add 0.5 per cent growth in country GDP. Similarly,
after operationalization of CPEC, inflation is projected to be low on the back of low commodity
prices, exchange rate stability and by overcoming the energy short fall. Eventually, these
macroeconomic indicators, inflation and higher GDP, have positive effect on the performance of
the banks operating in Pakistan, as increase in gross domestic product will lead to enhance the
profitability of the bank in term of higher return on assets and equity whereas further decrease in
inflation will lead to decrease the profitability of the banks in term of low return on assets and
equity. As inflation is at its lowest point since 2003 and it seems that it will remain same in
upcoming years causing positive impact on the performance of banking sector in Pakistan.
According to the Pakistan Bureau of Statistics average inflation at the end of fiscal year of 2014-
2015 was at 2.86 % which is at its lowest level in last 13 years. Beside external factors, there are
several internal factors as well which may have strong impact on bank’s performance like
deposit, loans, market capitalization and bank size.

Conclusions
The study investigated the impact of Foreign Direct Investment by China for China Pakistan
Economic Corridor Project, in a specific time period on the Pakistan Stock Exchange after CPEC
MOU between the Government of Pakistan and China. The report of Pakistan Stock Exchange of
the study clearly shows the increased capitalization in the Pakistan Stock Exchange(Pakistan
Stock Exchange) which is due to attractive environment built after the investment made by the
Chinese Government. The investment attracted foreign investors to invest in PSX. Analysts are
saying that this investment and the project is a game changer for the region(Pak - China
Investment & Business Prospects)(Mustaf & Zafar, 2017). This is not just an investment of 46$
billion; in the scenario of China Pakistan relationship this agreement will lead investments
beyond this initial investment of China for the project(Pak - China Investment & Business
Prospects)(Mustaf & Zafar, 2017). The regression analysis showed strong positive relations of
independent variables FDI and ER on dependent variable PSX. FDI has much bigger impact of
bringing Market Capitalization of PSX for Business investment in Pakistan. In a previous s study
the impact of ER was negative on PSX capitalization (Ihtisham Abdul Malik, 2013). But, in this
investigation refused the study and it is found that ER also has positive impact on the
development of PSX capitalization. If there would be a change in exchange rate there would be a
change in PSX (Capitalization). But from the results foreign direct investment (impact
approximate 60%) has more participative then Exchange rate (impact approximate 35%).
Therefore, government should take action to make favorable policies for foreign direct
investment. It must be analyzed and revised to create better environment to attract foreign direct
investment. The CPEC Project has its main focus on infrastructure, energy, Trade and industrial
areas, to make Pakistan a suitable and attractive Business Zone(Pak - China Investment &
Business Prospects). This is the reason of the foreign investors are coming to invest in the
Pakistan Stock Exchange. The government must look into relevant matters and litigation
regardingforeign investors. Monitory policy also must be revised because it’s a hot issue today.
Exchange rate is disturbing the economy, which can be a cause of decrease in the stock market
investment and could be a reason to break the confidence of investors. Monetary policy must be
made as to strictly control the exchange rate of dollars in true spirit to evaluate foreign investor’s
risk. In the last but not least if security measures are resolved with the collaboration government
institutes which is creates more charming environment for investors.

The Impact of “CPEC” on Pakistan’s Economy

Economic integration, the spillover effect and complex interdependence have always remained
fundamental topics in international relations and in international politics. Ernst B Hass illustrates
in his theory of Neo-Functionalism that integration and cooperation between two states results in
cooperation with other states, and this has a ‘spillover’ effect on other states as well. This
cooperation could be in the form of politics, in the economy, or on culture.

Such spill over effects further lead to regional economic integration which eventually culminates
in supra regionalism with multiple states. Joseph Nye also explained that the use of soft power
and of economics creates an environment of integration for nations to enhance cooperation
among states. Understanding these concepts requires learning from examples from Europe, the
US and other countries.

In Pakistan, students quote the examples of France and of Europe, and of Canada and the US
under the North American Free Trade Agreement (NAFTA). Now, however, Pakistan too will be
quoted as an example of economic integration because of the China- Pakistan Economic
Corridor (CPEC).

CPEC has changed the economic and the geopolitical landscape of South Asia. CPEC is the life
line of China’s long enduring dream of its Belt and Road Initiative (BRI). The $60 billion project
will change the standards of living for Pakistanis. CPEC’s spill over effect from South Asia to
Central Asia, the Middle East and to Europe, moreover,gives credence to Ernst B Hass’s Neo
Functionalism and to Joseph Nye’s soft power.

CPEC is a joint venture between Pakistan and China which is aimed at economic integration and
prosperity in the region. China, meanwhile, has never breached Pakistan’s sovereignty and
territorial integrity. Similarly, Russia, Iran, Afghanistan, Turkey and the Central Asian states also
want to become stakeholders in CPEC.
India has always acted as a stumbling block to CPEC’s success since the project passes through
Kashmir. India’s immediate aim, moreover, is to promote Chabahar since its second wheat
consignment reached Afghanistan on April 3 2018, and CPEC could shatter India’s hopes of
attaining regional monopoly.

Simultaneously, Iran’s Foreign Minister Javed Zarif visited Pakistan on March 12 2018 and
reiterated that “Iran is interested in joining CPEC and linking Chabahar port to Gwadar for
promoting regional economic prosperity.” Considering India’s overtures to the US and to Israel,
and President Trump’s decision to scrap the Iran nuclear deal, chances are now high that Iran
will embrace CPEC. This would be a major setback to India and to its lobby. Kulbushan Jadhav,
moreover, confessed that he was spying in Pakistan and his mission was to sabotage CPEC.

The reality of CPEC in Pakistan is also different from illusion. If completed as planned, CPEC’s
productivity would be equivalent to 17 percent of Pakistan’s 2015 gross GDP, and as many as
700,000 jobs would be created. As a result, Pakistan could witness economic growth of 2.5
percent. With the advent of CPEC and Chinese products in Pakistan, moreover, a new wave of
economic opportunities can emerge. Local entrepreneurship is also going to increase in Pakistan.

GDP Growth
$62 billion to be added to the economy, 20% of the total GDP of Pakistan.
Pakistan’s GDP growth rate increased from 4.7% in 2015 to 5.4% in 2016 (World Bank)
Pakistan total GDP has increased from $244 billion in 2014 to more than $ 300 billion in
2017(World Bank)
$13 billion will be added to Pakistan’s GDP by 2025 (IMF)
2 to 2.5% annual economic growth rate expected till 2030. (Applied Economics Research
Centre)
Energy generation
Access to electricity for the rural population increased from 90.3% in 2015 to 98.8% in 2016
(World Bank)
Transmission and Distribution Losses went down to 16.5% in 2017 from 19% in 2015 (Ministry
of Finance)
Bill recoveries increased from 16% in 2015 to 19% in 2017 (Ministry of Finance)
Installed capacity of electricity is 29,573 MW in 2018, which was 22,812 MW in 2013 (Pakistan
Economic Survey)
Electricity generation increased from 96,496 GW/h to 117,326 GW/h (Ministry of Finance)
A total of $ 33.8 billion in energy project have added 12,230 Megawatts of energy (Pakistan
Economic Survey)
Job Creation
Early harvest projects of CPEC have created 30,000 direct jobs for Pakistanis (ACCA Global
and PCI)
800,000 direct jobs estimated in the next 15 years. (Ministry of Planning and Development)
Construction of ML-1 projects will further create 10,000 to 15,000 direct jobs this year (Ministry
of Planning and Development)
CPEC will reduce unemployment by 2.32 million by end of 2018 (Global Times)
75% of the total employees working in CPEC projects are Pakistanis, contrary to the belief that
the Chinese have a higher representation (Ministry of Planning and Development.

References
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http://www.pc.gov.pk/
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http://www.finance.gov.pk/survey/chapters_17/14-energy.pdf

https://obortunity.org/cpec-news/about-cpec/introduction/

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