5 tips to invest and do business in China
Doing business in China is no easy task. The Chinese economy is one of the world's largest and most diverse, with a population of over 1.3 billion people and a huge number of companies doing business domestically. For multinational companies looking to tackle this enormous market, it starts by investing in one of China’s key cities: Beijing, Shanghai, Guangzhou or Shenzen.
For a company looking to start or grow overseas markets in eastern Asia — like India, Japan or HK — then China is an ideal next step on the journey to global expansion. This article will outline what you need to know before exploring opportunities in China's markets and how you can succeed here.
China's Economy
The Chinese economy was worth almost $11.3 trillion in 2016, making it the largest in the world by GDP. However, with a history going back over 2000 years, the Chinese economy has undergone many changes and transformations over this time. By the 1950s, the Chinese government had set itself on developing a model of economic development that’s been largely successful to this day. The central government guarantees that all private businesses can operate within a framework of laws and regulations set out by the State Council (China's cabinet) — what makes it such an interesting market for foreign investors.
The fact that the Chinese economy is still largely a planned one means that everything from interest rates and the standard of living to wages, taxes and foreign investment are kept and controlled by the government. In this way, Beijing controls what it classifies as key industries in China, like banking or transportation. It’s also allowed them to leapfrog much of the development seen in other global markets — even in developed economies like the USA.
One example of this is that China has managed to avoid many of the excesses seen in financial markets globally since 2008. While it has suffered from high inflation, China has managed to keep its currency stable, with the renminbi — which is written as RMB — used as the country’s primary trading currency. In this way, the Chinese government retains effective control over its economy and prevents market collapse or instability.
China has also managed to avoid many of the excesses seen in financial markets globally since 2008.
The State of Foreign FDI in China
Foreign investment in China plays an important role in developing and maintaining this planned economy that’s been successful for over 2000 years. In reality, China’s economy continues to be dominated by foreign investment. Last year, despite a lack of interest in the market compared to 2016 and before, China still attracted more than $130 billion in foreign capital. Its economic development is continuing at a rapid pace, with foreign companies looking to expand into new markets and Chinese investors looking to invest overseas.
While there are many restrictions on foreign investment in China — particularly for new entrants — there are well-defined channels for investing in the country via joint ventures or wholly-owned subsidiaries. These joint ventures can range from any size or area; it’s common for a large multinational company like Siemens or GE to form one with a local business that specializes in maintenance and manufacturing.
Conclusion
China’s economy looks set to continue to grow at a rapid pace for years to come. However, the country’s markets are some of the most volatile and unpredictable in the world, with a high level of risk involved. The country’s foreign investment laws have also changed frequently over the last few years, so investors must keep up-to-date with the market and understand this before embarking on any investment strategy or endeavor.
With that said, there are many opportunities in China — particularly when it comes to new technologies and ideas.