China’s already breaking records in economic and technological developments and is expected to overtake the world as the “New Silicon Valley” in the coming years. This is because of its unprecedented digital success. The country’s economy is growing at an unparalleled pace and offers a dynamic and vibrant startup scene for businesses worldwide.
According to Sky9’s Capital founder Ron Cao, the country will become the
biggest venture capital globally. It represents
40% of the worldwide global VC investments, while Silicon Valley remains at the top with 44%. Here’s a list of important things to know before incorporating in China.
What Factors Drive China’s Economic Growth?
1.Favorable Government Policies
China’s transitioned from a manufacturing powerhouse to a technology hotbed in the past ten years. Chinese government played an integral role in bringing innovation to the world factory.
In 1978, Deng Xiaoping paved the way for China’s economic growth with an
Open Door Policy, aiming to support foreign entrepreneurs that want set up their businesses in the country.
In addition to this policy, the Chinese government is constantly trying to
mazimize prospects for foreign businesses in China. They’ve created several economic zones in the country, especially Shenzhen to entice foreign investors.
To facilitate public-private investments, the Chinese government also offers
Chinese Government Guidance Funds. With these funds, they support AI research and technological innovation in the country.
China’s 14th Five-Year Plan indicates that the country will further prioritize the quality of growth in the coming years. The Chinese government aims to establish the country as an independent technological and manufacturing powerhouse. They also plan to establish policies supporting the liberalization of the business environment in China.
To support digitalization in small and large-scale businesses in China, regional governments are consistently creating plans for lucrative subsidy schemes. According to the CEO of Black Lake Technologies, Yuxiang Zhou, the Chinese government is continuously launching tax and incubation policies to simplify business incorporation and development for startups in China.
Academic and Industrial Collaboration
China’s technology development experimental zone, Zhongguancun, has materialized as China’s innovation center because of the country’s Open Door Policy.
China’s one of the biggest tech companies, Lenovo Group, spun off from the Chinese Academy of Sciences. Other notable Chinese technology companies that grew up in the region include Stone Group and Founder Group.
Global technology giants such as Intel, Google, Oracle, and AMD have also established their research centers and headquarters in the region.
Over 20,000 high-tech companies and start-up businesses and about half of China’s unicorn enterprises are based in the Zhongguancun district; leveraging the annual growth rate of more than 25% in the last ten years.
So, what’s the secret behind Zhongguancun’s radical success? It’s the high talent pool comimg from China’s academic institutions; the Chinese Academy of Sciences, Tsinghua University, and Peking University, where a startup mindset is highly encouraged. Tsinghua Holdings, for instance, is a university-owned limited liability contribution that represents academia, industry, and research collaborations for technological development. The organization has scored about 56 national scientific achievements and has participated in the development of more than 62 technologies.
When speaking about China’s dramatic economic progress, we can’t overlook the role of the industrial revolution. China’s start-up scene largely depends on BAT (Baidu, Alibaba, Tencent) companies. According to a survey by
The Economist, nearly 80% of China’s start-up companiesreceive investments from BAT companies before they reach USD 5 billion in valuation.
Did you know?
China’s BAT companies don’t invest in the same start-ups. Therefore, startup companies need to pick which side they’ll be on at an early age. This decision largely affects their business’s long-term goals and growth trajectory.
Market Size and Culture
With a population of about 1.44 billion, China’s domestic market is HUGE. Startups can focus on improving their business quality without having to expand internationally immediately after the business setup.
Startup businesses receive a noticeable fund, after being established in China so they can easily manage business growth.
However, if you want to do business in China, you need to remember that the Chinese market is extremely dynamic and you’ll have to compete with several other businesses working towards the same goal. China’s work culture is exceptionally challenging. An example of China’s intense work environment is the country’s 996 working hour system, where the employees are required to work from 9:00 am to 9:00 pm, for six days every week. This makes 72 hours’ duty-time per week.
The Chinese market is enticing for startups because of its huge size and accessibility. There are, for instance, more than 200 million school-age students in the country, which offers a unique opportunity for businesses in the educational sector to scale up swiftly.
The hyper-competitive Chinese market also promotes the fast growth of startup organizations. For example, a real estate platform Ke.com and an automobile manufacturer Nio completed their public offering on NASDAQ within five years. Many companies strive to get listed on NASDAQ or the domestic Star Market stock exchange in Shanghai, every year; but a majority of them are forced to withdraw their plans because of strict scrutiny by regulators.
Interesting Fact
Driven by Confucian values, China has been considered a risk-averse community for years. Chinese mainly focused on making savings and job security when building their careers. Today, however, the seismic tech growth in the country has spurred a dramatic shift in their attitude towards risk-taking.
Today, Chinese millennials courageously take on new challenges and fearlessly confront failures. Because of the competitive business environment, entrepreneurs take risky decisions and prompt actions in all the stages of business setup and development. As mentioned earlier, the Chinese government is highly dynamic and unpredictable, therefore the ‘try fast, fail fast and learn fast’ mindset is becoming increasingly popular in the country.
Top Challenges to Consider When Incorporating in China
While it’s important to consider the benefits of incorporating in China before landing in the country for business; you also need to evaluate the risks and challenges.
Customer Analysis
The biggest challenge you may face when incorporating in China is the analysis of the customers. To understand Chinese customers, you need to understand their culture and language otherwise business development and growth may be a little harder for you at an initial stage. For a successful business, investors need to develop a strong local distribution network and a comprehensive understanding of the consumer’s purchasing behavior.
Regulatory Compliance
Another problem you may encounter when incorporating in China is regulations. In China, there are certain rules for foreign enterprises. To comply with these rules, you need to keep yourself updated with the changing policies, rules, and requirements.
Acquiring a Work Visa
With the spread of Covid-19, acquiring a work visa for mainland China has become increasingly difficult. There are strict policies, legal intricacies, and complex application procedures involved in the process. For that, you need to acquire help from a reputable firm that support incorporation in China.
Accounting and Company Management
When starting up a business in a new country, you need to build strategies, develop a marketing plan, acquire funds, and more!
Besides, understanding the tax structure and timely payment of tax is also important to avoid future complications. Therefore, a new business may find the company’s account management difficult at first but a reliable organization in the country may help you address the issue.
What Else?
Now that you know the opportunities and challenges of starting up a business in China, you also need to understand some other important details. Let’s have a look;
What’s Your Business Type?
So, you’ve all there in your mind. Your business goals, market understanding marketing strategy, and everything in between. But have you decided on your business type? When incorporating in China, you’ve got several options, try to research about them and finalize the business type that suits your business objectives.
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A Wholly-owned Foreign Enterprise (WFOE)
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A Representative Office (RO)
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An Equity Joint Venture (EJV)
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A Foreign Invested Partnership Enterprise (FIPE)
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A Cooperative Joint Venture (CJV)
What’s Your Business’ Scope?
To incorporate in China, you need to make sure that your business scope aligns with China’s rules and policies on defining a business scope. By carefully defining your business scope, you can not only prevent legal complications in the future, but you may even receive funds for growing your business.
What’s your Company’s Location?
If you want to reduce your business cost, try to learn about different economic zones in China. Since 2008. China has eliminated preferential tax rates for foreign businesses. There are, however, still preferential taxes for businesses in certain locations.
Try learning about China Free Trade Zones and decide if you want to start your business in any of these regions to ensure minimum expenditure on paying duties.
How Can Business China Help You?
At Business China, we offer excellent account management and company management services to our clients. We provide China company registration and China company formation services and make every effort to help foreign entrepreneurs comply with China company registration requirements without falling into legal intricacies. Whether you need help in understanding consumer trends or just want to stay updated with the latest company registration policies, we’re always here to help.
Feel free to reach out to our representatives at
proposal@set-up-company.com to discuss your concerns regarding setting up a business in China.
