Starting a Business in China
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Why Start A Business In China?
China can be an overwhelming location to consider establishing a business. For one, it's vast. Nations don't get much vaster than 1.3 billion people. It is a lazy truism to point out that China isn't just a different country, but different world. From the distant window of England, China's corporate aesthetic could appear like a horizon of big firms and formidable business-types. But nothing could be further from the truth.
Common misconceptions about China run as long as the Great Wall, and the philosophy of an agrarian market with no private sector might as well be as old. It is all a very antiquated way thinking. China is the greatest economic success story of the past quarter-century: period. Countless companies of all sizes from the UK are currently thriving and there is no reason for you not to join them. China is accommodating, with more markets, industries and niches than you can shake an investment at. Local authorities are famous for competing over foreign business, throwing incentives and exemptions at entrepreneurs to secure investment in underdeveloped provinces and cities.
China is the most successful communist country on the planet and consistently ranks as the sixth largest economy. With attributes like these you can't really criticise its history of isolation and insulation. Instead of regarding China as intimidating, alien and overwhelming, see it as an opportunity. China is, indeed, a vast nation, but it has no room for defeatism. Adopt the optimism of its people, culture and animal almanac. China may not be for the fainthearted, but then neither are steely entrepreneurial ethics and ambition.
Business may not immediately seem attractive in China, but prosperity and success say otherwise. Read on to see what fortune has in store for you.
What is the population?
China has the largest population in the world, a staggering 1.364 billion people. Shanghai alone accommodates over 24 million.
What is the climate like?
China has an expected continental monsoonal climate defined by variety. Most parts are in the northern temperate zone, while the southern areas are in the tropical or subtropical zone.
Most parts of China have an unequivocal separation between seasons. In winter, northerly winds from high latitude areas keep the northern part cold and dry. In summer, monsoons from southern coastal areas bring warmth and moisture. The climate also changes with the extensive territorial and topographical traits across regions.
In the north of China, summer is arid - sometimes stifling. The winter is bitterly cold. Sandstorms occasionally occur in April, particularly in the area.
Central China's summer is long, hot and humid. Winter, comparatively, is short and cold. In the southern areas, temperatures have been known to fall below freezing.
In the far south, the summer is long, humid and hot. Winter is short and comfortable. The rainy season runs from May to August, and typhoons often take place on the south-east coast during July, August and September.
What is the time difference?
The time in China is GMT + 8.
What is the currency and exchange rate?
China uses the Yuan Renminbi.
China, during the last quarter-century, has transposed to a more market-friendly economy that has a fast growing private sector. It is a big force in the global economy. The reform began in the late 1970s, and grew to include the gradual liberalisation of prices, decentralisation, more independence for state ventures, the establishment of an eclectic banking system, the development of stock markets, and the welcoming of overseas trade and investment.China has instigated reforms in a step-by-step fashion. Its currency was tightly linked to the US dollar for years. Judged on purchasing power parity (PPP), China was the second-biggest economy in the world after the United States. Although, in per capita terms, the country is still lower middle-income.
However, the government does face a handful of economic development challenges:
- To abide sufficient job growth for millions of redundant workers from state-owned enterprises. This also includes migrants and upstarts
- To reduce corruption and other exploitation
- To harness environmental damage and social strife
Economic progress has been more expeditious in coastal provinces, and roughly 200 million rural labourers have re-established in urban areas to seek employment. A major consequence of 's one child law is that it's now one of the most superannuated countries in the world. Environmental atrophy is another long term problem it faces.
China's predominant industries are:
- Mining and ore processing
- Iron, steel, aluminium and other metals
- Machine building
- Textiles and apparel
- Consumer products, including footwear, toys and electronics
- Food processing
- Transportation equipment
- Telecommunications equipment
- Commercial space launch vehicles
China's main export commodities are:
- Electrical products
- Data processing equipment
- Mobile phones
And their primary import commodities are:
- Machinery and equipment
- Oil and mineral fuels
- LED screens
- Data processing equipment
- Optical and medical equipment
- Organic chemicals
What are the basics to know when setting up?
It is easy to misinterpret the role that the government plays in the corporate sphere. Regardless of the expeditious growth of the private sector, many big Chinese businesses in strategic sectors are still under state control. Additionally - and allegedly - private firms are also often found to have some sort of state control.
This supposed tentacle of control can have a big influence on the way a business operates. Therefore, you need to be aware of the vaster political environment that your partners and customers operate in.
Additionally, mayors and other regional officials often brandish and exercise more power than their counterparts in the United Kingdom. Strong relationships are vital to success in Chinese business, and familiarising yourself with influential officials is likely to make your business operations more facile and lucid.
Be warned; a change in regional government official might affect the incentives or agreements reached with any predecessors. It is not unusual for officials to be arrested for corruption.
Are there any official agencies that can help me?
The China-Britain Business Council (CBBC) can help you attain readiness and success within the Asian nation.
CBBC is the UK's foremost authority that helps British businesses establish in China. Whilst its services are open to all British-registered businesses on a pay-as you-go basis, it is also a membership organisation with nearly 900 members.
They will offer you high-level contact and the vast array of practical help. Over one third of CBBC members are small or medium enterprises. For companies serious about establishing themselves in China, CBBC membership provides efficient guidance, continuing support, networking opportunities and exclusive services and discounts.
The CBBC is a business-focused synergy of government and industry. They maintain an impressive record of nurturing British business in China dating way back to the 1950s. CBBC is acknowledged and respected at the highest level of both Chinese and British government. They organise many valuable and eminent business events and expositions, which are attended by government officials from both countries.
Investment Zones (IZ) and their incentives
Tax Breaks in China The main incentive of an Investment Zone is the tax break. Tax breaks vary according to the industrial sector:
- The most common tax break that an alien business investing in an Investment Zone may receive is a 50% discount on the corporation income tax, a reduction from 30% to 15%.
- Invariably, a complete exemption of the tax can be warranted for a two-year period with a further reduction by half for the next three years. For example, two years at 0% and then a further three years at 7.5%.
- If your business introduces technology that is deemed as 'advanced' by the authorities, then a further three years' reduction (by half) can be negotiated.
- If an overseas investment has an export value of more than 70% for a certain year, then they may receive a preferential Corporate Income Tax rate of 10% for that year.
Another advantage of investing in a special zone is a possible tax refund. There are two types of tax refund that could be available:
- By reinvesting profits back into your company, or other enterprises in the Investment Zone, you could receive a 40% refund of the Corporate Income Tax on your investment amount.
- By reinvesting profits into an export-orientated or high-technology company, then you could receive a refund for the entire amount of Corporate Tax paid on the amount of the reinvestment.
Different types of Investment Zone
There are various Investment Zones which were established alongside the economic liberalisation of China. These include:
- Special Economic Zones (SEZ)
- Open Cities (OC)
- Economic and Technological Development Zones (ETDZ)
- Hi-tech Development Zones (HTDZ)
- Free-Trade Zones (FTZ)
- Export Processing Zones (EPZ)
Each of these zones has different prerequisites for setting up, and likewise they also offer varying advantages. Therefore, foreign investors seeking to establish in one of these zones should check the local regulations and policies to see which is best suited to their needs, product or service.
Special Economic Zones
Shenzhen, Xiamen, Zhuhai, Shantou and Hainan were formed in the '80s and were China's inaugural attempts at creating Investment Zones. Authorities in each area were given further independence to devise and develop their respective areas.
The incentives offered have unfortunately been greatly reduced since 's joining of World Trade Organisation. It is therefore no secret that Shenzhen is the only zone that maintains national importance because of its locality to . Other zones, however, attract investment through their far superior infrastructure, etc.
Will I need an interpreter?
An increasing number of junior Chinese executives, managers and government officials speak English in China. However, it recommended that, for formal meetings and negotiations, you always use an interpreter.
Looking ahead, this will help eradicate any chance of misinterpretation or miscommunication.
What can you tell me about marketing and advertising?
Traditionally, advertising in China does not have the influence on the consumer psyche that we have become accustom to in the West. The Chinese rely more on endorsement from friends and associates, or even their own research and reading. Your biggest tool is the uncontrollable asset of word-of-mouth
Paradoxically, China's advertising industry is growing even faster than the economy as a whole. Nearly 100% of households own a television (the government claim 1.2 billion viewers). All the recognisable advertising corporations are present in . Likewise, there is no lack of local agencies that offer small-scale advertising (flyers, internet and mobile phones).
Marketing is stringently regulated by law. It emphasises that advertising should not be detrimental to the physical and mental health of citizens. It also must conform to Chinese sociological and political ethics, not corrupting the dignity and interests of the State.
This law has many interpretations, and as such advertising varies from region to region. Again, this stresses the advantage of using local support or partners.
Cultural issues and marketing
The concept, theory and symbolism of good and bad luck are sewn into the fabric of Chinese life. As such, misuse of numbers, animals, actions, etc, could have a positive or negative influence on a Chinese person's relationships and decision making.
Your products and marketing will benefit from knowing the following:
- Four is regarded as unlucky. Four sounds similar to the word for death. Seven similarly has negative connotations
- Eight is regarded as very lucky. Eight sounds similar to the words for prosperity and wealth.
- Red and yellow and gold are regarded as lucky
- Avoid white. It is associated with death and mourning
- The use of propitious animals is admired: the dragon, phoenix, unicorn, tortoise, crane and fish are all popular
- Images of China's Great Wall are symbolic of stability and reliability
- Avoid name plaques for opening ceremonies. These are equated to death and tombs
- Refrain from using black borders around names or photos of people. This is also associated with death.
Organisations that can assist with Starting a Business
Sovereign offers a range of advisory and support services to assist companies of all sizes to establish successful business operations in foreign markets.
Whether you are entering a new market and have yet to establish a business entity, or you have been in a country market for some time; whether you have one worker or thousands of employees, SafeGuard World International can help. We can support you during every stage of your journey with global payroll, contingent labor, global recruitment and a variety of multinational HR consulting and professional services.
GTP cross cultural trainings and intercultural workshops help global companies in improving their communication, efficiency and profitability when doing business across cultures.
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