HOW EASY IS IT TO START A BUSINESS IN CHINA?
If you’re a businessman, have you ever thought of expanding your company to China? As the world’s second largest economy, China might seem like a lucrative country to establish business relations with.
I’ve been living in China for the past 8 years, and one thing I’ve seen is how quickly things can grow in China. Take Shenzhen, for example. In 1980, it was a small village with a population of only 30,000. Today, after only 35 years, that has risen to over 12 million! It also has a GDP of over $250 billion, which is greater than all but the top 40 countries’ GDP.
But does it mean YOU are going to enjoy the same growth here? To answer this question, I’ve combined research by the World Bank with the experiences of actual businessmen in China. Here is what I found.
IT’S EASIER THAN OTHER COUNTRIES IN ASIA
Although it is not on par with other high income countries, it is definitely easier to do business in China than, say, India, Vietnam, or Indonesia. China has invested trillions of dollars into its infrastructure (more than the U.S. and Europe combined), which means good roads, railroads, and ports. In practice, this means it’s easy to travel to different factories, and to ship goods in and out of the country.
It’s also easier to find suppliers thanks to the numerous trade fairs (the top one I’d recommend would be the Canton fair in Guangzhou which runs every six months), and online business platforms. One of the online B2B platform is Alibaba.com, which is currently the most valuable company on the stock exchange in China.
The internet infrastructure is also much better than most other Asian countries (except South Korea, Japan, Taiwan and Singapore). Over 700 million Chinese are connected to the internet which is 2 times as much as India. If you’re planning on selling your products to Chinese consumers, you can open an online shop at one of the following websites if you partner with a Chinese person: tmall.com; jd.com; amazon.com (for books only).
THE TAX SYSTEM IS KIND OF AN ODDBALL
The tax system seems to be simpler than other Asian countries, although some businessmen have complained that taxes sometimes seem to come out of the blue. It seems that you may not always be sure on what exactly you’re paying taxes on. That’s why it is always good to have a local person assist you in that area. Also, on an important note, make sure you pay your taxes on time! Otherwise, you may find your office or shop suddenly cut off from electricity and water (yes, the government owns the power plants).
To find out what taxes you can expect to pay as well as the related percentages, click here.
IT IS NOT AS EASY AS IT WAS A FEW YEARS AGO
This is THE most important piece of information you should know if you’re planning on doing business in China. The most lucrative time for doing business in China is OVER. Business has especially slowed in the past 2 years. You may not see such information online just yet, but any businessman who has been in China for longer than 3 years can tell you just how slow things are right now.
For example, one businessman I talked to who exports to Nigeria has told me that it now takes him 10 months to earn what he used to earn in 1. That means his profit shrank 10 times! Another businessman from Angola had to move his office to a cheaper, smaller one because he said that it was very hard to sell goods to Angola (this particular person trades hundreds of thousands of dollars’ worth of goods per year).
Why has it slowed so dramatically? There are several reasons.
- Salaries in China have almost doubled
This means that factories’ costs have increased dramatically, leading to…
- A sharp increase in prices
Goods from China now costs almost the same (taking quality into consideration) as those from richer countries such as Europe, America, and Japan.
- The world economy is weak
This is actually a bigger reason than most realize. Many of China’s trade partners are suffering their own recession, such as Russia, Europe, and many African countries (such as with the case of the Angolan man earlier).
- Capital Flight
Capital flight is a term referring to large sums of money leaving a country. Because many rich Chinese people have little faith in their Country’s economy, they are transferring their bank accounts to offshore accounts. Because of this, the Chinese government is making it very difficult to withdraw U.S. Dollars and other international currencies or to transfer them between bank accounts. For Businesses, this means it’s very difficult to receive money from customers and to pay suppliers.
HOWEVER, this is only a TRANSITIONAL period. China has a huge internal market, and I believe that is where the future lies. China grew big through exports, but now, it is time to say good bye to that part of China’s history. China’s middle class is growing fast, and they are now the ones who are buying. The producers are becoming the buyers.
So what does it mean for you? Well, if you are looking to import goods from China, then you may be out of luck, at least at present. Many large companies have already started relocating their factories to where the salaries are still low, such as India, Vietnam, Cambodia, and Indonesia. Perhaps you could consider following their example.
MUCH POTENTIAL IN THE RISING CHINESE MIDDLE CLASS
On the other hand, there is much potential in the growth of the Chinese middle class. Here are a few statistics:
- 120 million outbound tourists in 2015, No. 1 in the world
- 109 million middle class adults, No. 1 in the world (the U.S. has 92 million in its middle class)
- Currently, nearly 50% of consumer’s income goes to clothes and food versus the U.S.’s 15%. This means as income rises, more and more of consumer’s income will be directed towards things such as better education, electronic devices, and entertainment
- Shippings to individual consumers grew 10 times between 2006 and 2014 to 10 billion a year
You can find a great explanation by the Goldman Sachs bank here.
What does all of this mean?
- If you’re in the tourism industry, try to get a share of the huge flow of Chinese tourists. This means getting in contact with Chinese tourist agencies, hiring Chinese-speaking staff, and perhaps even varying your menu to fit their taste.
- If you provide services, then there couldn’t be a better time to open a branch in China. The service sector is booming, especially healthcare, education, and entertainment (such as computer games, movies, and books).
- If you are selling high-quality consumer products in special niche markets, such as luxury clothes or accessories, consider either opening a shop in China or on a Chinese B2C website, or hiring Chinese-speaking staff at your current shop, especially if it’s in a touristy area.
- If you’re selling common customer products, then you could still get a share of the market if you can make it cheap. Even though the middle class is increasing its spending in the luxury market, most Chinese are still very cost-conscious. If you can make it cheaper than your competition, you will almost always attract more customers.
So, if you’re thinking of moving to China, what are some things to keep in mind? Here the most important points.
REGISTERING YOUR BUSINESS IS A HEADACHE
If you plan on running a business legally in China, then prepare for a LOT of paperwork and back and forth between different departments. You should also have a lot of patience. According to the World Bank, the typical time it takes to register your business in China is 30 days (versus only 7 for other rich countries). That is if everything goes smoothly, if you have all the paperwork ready, and if you aren’t setting up a business in a protected industry.
To find out the steps you need to take and the paperwork you need to prepare to register your business in China, click here.
So how can you make registering your business as smooth as possible? Get a local person to help you out. And the more connections your local friend has, the better your chances of getting it done quickly and smoothly. Yes, that is the famous GuanXi.
BUILD UP YOUR GUANXI
Whole books have been written on the art of GuanXi. This term refers to the different connections one person has to others, and it can mean the difference between success and failure for your business in China. Here are some types of GuanXi you may need to succeed:
- GuanXi with the government. If you have a friend or partner who knows people in the immigration office, import/export bureau, or local police force, it will expediate many things. Paperwork will be processed faster, you may not need to pay as many taxes and fees (sounds illegal, but that how it works), and it’ll be easier to import and export things to and from China.
- GuanXi with factories. This is especially important if you’re buying from them. A good GuanXi can mean cheaper products, or better quality products.
- GuanXi with competitors. You can team up with some of your competitors to try and put others out of business. They will also not try to impede your business with their GuanXi ties to the government.
- GuanXi with your customers. This is especially true if you have a few big customers. The better your GuanXi with them, the more likely they’ll be loyal to your company and purchase your products.
So, how can you build up you GuanXi? Here are a few tips that can help:
- Invite them for dinner to an expensive restaurant
- Give them luxury items such as an expensive watch, good wine, or a specialty from your country
- Give “face” by praising them in front of many people, especially important people
- Invite them for tea at your company or at a local restaurant
- Invite them to accompany you to the opera
- Other gifts like these
And remember: the more expensive the gift, the more they’ll feel bound to do for you and your business. Keep in mind too that if they give you gifts, they’ll expect YOU to help them in the future as well.
Basically, with good GuanXi and an intelligent mind, the sky’s the limit for you in China.
LEARN THE LANGUAGE
I see so many businessmen who come to China and don’t even bother to learn Chinese. They say that they can hire an interpreter, or that many Chinese can speak English, so why bother? Well, here is why YOU should care:
- Interpreters can trick you. Although most interpreters are trustworthy, some are also looking to make as much money as they can, and they could try to:
- Steal your customers (since they have their contacts)
- Bargain with your suppliers to get a cut of the profit if they can sell the factory’s products at a higher price to you
- Speaking even a little Chinese can build up your GuanXi. Many locals are impressed that foreigners try to learn their language, and that often leave a positive impression
- You can deal directly with business partners and local officials. Sometimes, there’s no one who knows how to do things the way you want better than yourself. Knowing Chinese enables you to do things yourself instead of always asking someone else to do it for you.
So, how should you learn Chinese? And until what point? Well, that depends what you want to do. But if your main goal is to be able to make it easy for you to do business in China, or open a shop there, then most likely you will need to SPEAK and UNDERSTAND Chinese. In other words, forget about the characters.
That’s why I’ve created my own Chinese course, to teach people like you to start speaking Chinese as quickly as possible. The course is 3 hours long, costs just $55, and covers topics such as:
- Introducing yourself
- Getting someone’s contact
- Keeping in touch
- Making appointments
- Going to the restaurant
- Going to the bar
This is THE course you need to start speaking Chinese fast. Click here to start speaking Chinese (and get a 40% discount).
China has changed much in the past decade. It has turned itself from the world’s factory to the world’s customer. With a rising middle class, there is much potential for growth still to be realized. Those who get in early will get the bulk of the profits, while the late comers will struggle. Which type of businessman are you? After all, the early bird gets the worm.
Post by Josue Masson,
Chinese Language Coach and CEO of WayMandarin.
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