What should you keep in mind when starting a business in China?
For many years, China has been a world leader in economic growth. Only in 2019, for example, did China increase its GDP correspondingly to the entire Australian economy. Furthermore, we do see that the government has reformed the economy and it is easier for foreign investors and companies to establish themselves in China.
Given these conditions, it is no surprise that many foreign companies now want to start a business in China. However, foreign companies need to prepare well before starting their business there. Starting a business in China is different than it is in many western countries. The Chinese government is more involved in business activities in China than in many other places - and there may be more paperwork.
Although there may be many obstacles to overcome in China, the pace of economic development in the country is one of the most rewarding aspects of the business environment there. Here are some helpful tips for starting a business in China.
Where do you set up your business?
Before starting a business in China, you need to decide where to start. China is a large, fast-developing country. For many companies, it may be wise to focus on cities that are already well-developed business centres - such as Shanghai, Beijing and Guangzhou.
For example, Shanghai has many unique benefits. The Chinese government encourages foreign activity and innovation in Shanghai. In this free trade zone (Shanghai), there are reductions in taxes for foreign companies and fewer restrictions on industries where there often are foreign investments.
Why you should use a PEO – Professional Employer Organization
Before choosing a legal structure for your business, you should consider various options. Foreigners starting a business in China may face challenges due to strict government policies. When the process starts with your company getting an official legal structure, this is a process that can take months if you are going to do this alone without help.
However, if you choose to start your business in China with the help of a professional employer organization (PEO), you can start your business in a matter of days. For example, in the Nordic China Business Hub, we help foreign companies without local units to hire local Chinese talent. As through our partners, we can help you fulfil all local employment obligations, which in turn allows you to run your business in China without the risk of violating local labour laws.
Hire Chinese staff
When starting a business in China, it is best to hire Chinese staff instead of foreign staff. Chinese employees know the local market better and can provide insights that enhance your products or services. A Chinese team is crucial in navigating cultural differences.
Foreign companies also want a piece of the pie, but the labour market has made it more difficult for them to secure the best talents in China. Therefore, it is better to use a local recruitment agency as a shortcut to find and secure top talents.
Make a business plan
A detailed business plan is important for any type of business. However, when starting a business in China, a thorough business plan is crucial to success. In fact, it is an excellent time to plan your operational workflow in China when creating a business plan.
The Chinese government will probably approve your business plan; you just need to stick to the guidelines you have written down yourself - otherwise, you risk fines or other penalties from the Chinese authorities. If you take this into account, you should create a business plan that is not too broad as you run the risk of the authorities not approving it.
On the other hand, your business plan should not be too narrow, as this will place restrictions on your business if you want to expand and develop your business later.
Starting a business in China is a complicated process, but with the help of preparation, you will reach your goal and start enjoying the financial benefits of doing business in China. Are you interested in starting a business in China as a foreigner? Contact us and we will help you.