China

How to start a business in CHINA

Building your own business takes a tremendous amount of preparation and careful planning. From choosing the type of product or services that you want to offer, studying your target market and to even doing your homework about the industry that you are planning to venture into are essential in the early stages of your research.

China is the largest FDI recipient in Asia, and second largest recipient in the world. The rapid development of high-tech sector, the establishment of free zones and liberalization plans created a steady growth. This growth, which is all time high, happened despite trade tensions with USA. Even though these tensions made USA investments decrease, China managed to protect its position and kept growing.

From 2018 to 2019, China moved up in 32 rows in World Bank’s Ease of Doing Business list, being 46th country out of 190. The country demonstrated reform agendas that aim to improve the business regulatory environment in the country over the course of several years. The reforms mainly focus on increasing the efficiency of business processes. In order to attract further foreign investment, the country has introduced mechanisms to improve the delivery of major foreign investment projects, reduce import tariffs, streamline customs clearance, and establish an online filing system to regulate FDI. With a wealth of employees and potential partners eager to learn and evolve, the country is a base for low-cost production.

In this issue, you can find about everything you need to know about China’s business environment.
• What to consider?
• Investment Aids
• Government Measures to Motivate or Restrict the FDI
• Belt and Road Initiative
• Top Industries to Invest in China
• General Information

What to consider?

Being the most crowded country in the world, China has the largest internal market, with 1.3 billion potential customers. Aside from this, China’s proximity to emerging Asian markets and to Japan increases the potential. This proximity also provides variety of customer base, which means any
company set up a business in China without fearing to create a profit. Also, China is currently working on developing a new export network called Silk Road. In addition to these great features, although it is changing in certain areas, China still has comparatively low labor costs.

Unfortunately, every rose has its torn, and China is no exception. An ever-changing legal environment, bureaucratic and administrative complexities create a lack of transparency, corruption and weak intellectual property rights protection.

With Chinese government to try to control birth rates, now China has an aging population. In addition to this, now China has a strongly degraded environmental situation in several big cities. This is one of the factors that causes an aging population in China. According to Guardian, 4000 people die
every day because of the polluted air. Also, one of the main challenges of foreign investors is that cultural differences in business practices are hard to learn and apply in new business situations in China.

Investment Aids

Recently announced that China will ensure that foreign and domestic investors will be given unified market access for industries not included in the Negative
List. Further, large-scale investment projects will be offered land and sea-use approval support, benefit from accelerated environmental impact assessments, and enjoy measures to cut logistics costs.

At the same State Council meeting, it was decided that China would cut import tariffs on 1,585 taxable items, including machinery, textiles, paper
products, and construction materials. Earlier this year, the central government directed local governments to adopt a “One Window, One Form” policy to simplify business registration for foreign investors and improve
information sharing among government offices.

Moreover, Chinese government is on the process of establishing an online system to manage and regulate foreign investment. And it is likely that regional governments will develop their own incentive packages to attract and facilitate foreign investment, tailored to their economies and available resources. For example, Guangdong province recently announced cash rewards of up to RMB 100 million (US$14.56 million) for qualified investment projects and accelerated the market opening of previously restricted industries, among other investment incentives.

Government Measures to Motivate or Restrict the FDI

The Chinese government is more restrictive than other big economies in regard to foreign investment, with numerous sectors closed to FDI. State companies and “national flagships” are protected (discriminatory
practice, non-independent judicial power, selective application of regulations). The Chinese state demands forced technology transfer and its intellectual property protection system is weaker than most industrialized countries.

Additionally, the country appears to discourage foreign investment in key sectors, for which China seeks to transform domestic firms into globally competitive multinational corporations and sectors that have historically
benefited from state monopolies or traditionally of State. The government also
discourages investments intended to profit from speculation (money, real estate, or assets). Also, the government plans to limit foreign investment in resource-intensive and highly polluting industries.

Belt and Road Initiative

One Belt, Belt or Road, One Road; referred to as One Belt One Road OBOR or Belt and Road Initiative BRI in English sources, announced by Chinese president Shi Cinping’s in 2013. He announced the initiative during a series of visits to Central Asian and South Asian countries at the end of the year and expressed it as the modern version of Silk Road, which also interpreted as a Sino-Roman civilization union. In collaboration with Italy, China wants to finish this project by the 2049.

In his speech at Nazarbayev University of Kazakhstan in September 2013, Shi Cinping first talked about the creation of the Silk Road Economic Belt among the ancient silk road countries. Later, in his speech at the Indonesian parliament in November, he pointed out that it is necessary to reconstruct the 21st Century Sea Silk Road with South Asian countries.

The project is aimed at international integration through transportation networks, energy networks and telecommunications. It covers 69 member states over 42% of the world GNP, 64% of the world population, 40% of the land, 75% of the known energy. Although China brought the project to the agenda in 2013, preparations go way back. The establishment of ASEAN (1967), Shanghai Cooperation Organization (2001) and BRICS (2006) are some of the preparations.

It is envisaged that the Silk Road Economic Belt, which is the black leg of the initiative, which is also known as the modern silk road, will be established with railroad connections starting from China, Kazakhstan and Mongolia and reaching Europe through Russia and Iran, and implementing measures to increase and facilitate trade with the countries in the region. In this way, it is expected to contribute to the development of China’s less developed domestic regions. On the 21st Century Sea Silk Road, which forms the sea leg of the initiative, China is expected to establish a connection to the ports opening to the Arabian Sea and the Bay of Bengal through the railways and pipelines, formed over Pakistan and Bangladesh. In this way, China is expected to increase demand and supply security by creating an alternative to the Malaka
Strait.

Top Industries to Invest in China

China is the world’s largest emerging market economy, both in terms of population and total economic product. The country is arguably the world’s most important manufacturer and industrial producer, and those two sectors alone account for more than 40% of China’s gross domestic product or
GDP. China is also the world’s largest exporter and the second-largest importer, and it contains the fastest-growing consumer market. This guide gives you the necessary information regarding the top business industries prevailing in China, which will help you to select an industry to invest in,
understand the current scenario and future growth perspective.

-Smart manufacturing

Globally, the manufacturing industry transformed toward a new age of smart
manufacturing. To upgrade its position in the global value chain and build its competitive stance in the world, China is responding boldly
to this transformation.

The industry output value of China’s smart, manufacturing was about RMB1 trillion in 2015 and is expected to exceed RMB3 trillion by 2020, with an average annual growth of 25 percent in the coming five years.

Manufacturing firms that specialize in mass production of technology products
and product components are using robots to push back against rising wages and to increase competitiveness.

Both traditional manufacturers and technology companies are taking advantage of this opportunity by acquiring new capabilities. M&A activities targeting the automation sector have experienced rapid growth in past five
years. In 2015, Chinese companies announced 36 deals with total value of US$2.4 billion, including Alibaba’s acquisition of Softbank Robotics (US$235 million).

-Healthcare

China’s healthcare market is a trillion-dollar market in the making. To put it in perspective, only the largest 15 countries in the world had a GDP greater than US$1 trillion in 2013. China is expected to see strong growth overall, extending to all points along the value chain reaching US$1 trillion by 2020, up from US$350 billion today. Even at that projected level, however, health care spending will be one third that of the United States, and only US$1,000 per person, compared to US$8,915 per person in the U.S.

Healthcare is one of the last big industries in China to open to foreign investment and technology. In addition to rising demand for the best available treatment from newly affluent consumers, China is facing new challenges, as cancer, heart disease, diabetes, and other chronic diseases afflict more of its population.

-Automotive

Even though China’s auto sales have been on a roller-coaster ride in 2015, it still remains the largest and fastest growing automobile market in the world. Car production and sales rose 3.3 percent and 4.7 percent respectively to
24.5 million and 24.6 million units in 2015.

Nevertheless, the sluggishness in auto sales have not hindered growth prospects. Sales of China’s new energy vehicles (NEV) skyrocketed to a recorded high and booming demand for aftermarket service has made it the next trillion-yuan industry. We expect China’s vehicle sales will continue to grow at a single-digit growth rate in the next five years.

Auto dealers in China still generate most of their revenues from sales of new vehicles, whereas their western counterparts make most of the money from aftersales service. Chinese dealers in recent years have started to tap
into this sizable aftermarket against the backdrop of weakening demand for new cars and declining returns.

China’s business environment is getting tougher for multinational carmakers. Considering the Chinese government’s strong commitment to curb carbon dioxide emissions and reduce air pollution by imposing much stricter fuel efficiency standards on automakers, it is essential for foreign automakers who are rather hesitant about entering this market to rethink their strategies. Secondly, as the Chinese government’s anti-monopoly investigation goes deeper and is anticipated to enforce stringent rules and protocols on OEMs and dealers, the competitive environment will be made increasingly complex. Additionally, OEMs are expected to lose control of their distribution networks as China pledged to scrap the existing car distribution rule and allow dealers to sell cars without authorization from manufacturers. More importantly, the changing habits and patterns of Chinese consumers pose a potential threat to automakers as an increasing number of city dwellers choose car-sharing services over car-ownership.

-Information Communication Technology

Online shopping in China is poised to explode. Within 2.5 years, online
shopping in China will exceed that in the United States; by 2020, it will equal the current size of the United States plus the next four largest economies. Furthermore, by 2016, China plans to grow urban access to broadband to 95 percent under the Broadband China Project, while urban households commonly have access to 20–100Mbps broadband speeds.

Chinese smartphone leaders will continue to gain share in the smartphone market. Lenovo, Xiaomi, Huawei, ZTE, Coolpad, and others are grabbing greater global share, driven by the massive domestic market. Chinese-branded smartphone manufacturers – over 24 of them – collectively dominate the domestic market, with about 85 percent share of units sold. This translates into about 40 percent of worldwide smartphone market share in 2015, up from 2014’s 36 percent.

General Information

China is the world’s most populous country. It has a continuous culture stretching back nearly 4,000 years and originated many of the foundations of the modern world.

The People’s Republic of China was founded in 1949 after the Communist Party defeated the nationalist Kuomintang, who retreated to Taiwan, creating two rival Chinese states – the People’s Republic on the mainland and the Republic of China based on Taiwan.

To understand China’s population and demographics, it helps to understand its government a bit. The People’s Republic of China (PRC) is governed by the Communist Party with its seat of government in Beijing, which exercises jurisdiction over 5 autonomous regions, 22 provinces, 4 direct-controlled
municipalities and 2 primarily self-governing special administrative regions (Macau and Hong Kong). The PRC also claims Taiwan, which is controlled by a separate political entity called the Republic of China (ROC) as its 23rd province. This makes the population figures a bit confusing.

China’s 2020 population is 1.44 billion, based on United Nations projections. China, officially the People’s Republic of China, is the largest country in the world today. In January 2013, the Chinese Government released data confirming that the population of China was an impressive 1,354,040,000,
although this does not include Taiwan, Hong Kong, and Macau. As of September 2013, that number had grown even further to 1,360,720,000.

The Chinese climate varies from region to region, since the country is so huge. In the northeast, where Beijing sits, the summers are hot and dry, and the winters are freezing cold. The north and central regions, including Chengdu, have frequent bouts of rain coupled with hot summers and cold winters. In
the southeast there is plenty of rainfall, semi-tropical summers, and cool winters. Flooding can occur in the central, southern, and western regions and the country in general can experience earthquakes.