What is an Employer of Record

How to hire globally with an EOR

What is a Global PEO

An alternative to EOR

Hire locally with a PEO

Our Methodology

Why you can trust our guides

Find international talents

Outsource Recruitment

How to outsource recruitment

How to get a work visa

Digital Nomad Visas

Get a digital nomad visa

Best Employer of Record (EOR)

Hire globally with the best EOR companies

Best Contractor Management

Hire and pay contractors and freelancers

Best Global PEO

Discover the best international co-employers

Best PEO Companies

Save on payroll and HR costs

Best Background Check Companies

Screen employees before hire

Best Global Payroll Providers

Outsource international payroll

Best Relocation Services

Relocate employees internationally

Best International Recruitment Agency

Find global talent

International Company Registration

Get help to incorporate overseas

Compare all providers

Best Global EOR

Best EOR for Compliance

Best EOR Platform

4. Papaya Global

Best EOR for Payments

All EOR Reviews

Compare all providers

Where do you need a service provider?

All Countries

Explore our detailed guides for professional advice on international growth, recruitment, compensations strategies, and a curated list of top service providers.

By Travis Kliever
Updated April 5, 2024

Doing Business in China

In this article
show

Spending too much on recruitment, payroll or global HR?

We help you find the Best Providers at the lowest cost.

The Chinese market environment has undergone a remarkable transformation over the past 20 years, turning and refining into a global economic power hub and an attraction for foreign investments and potential business opportunities. Understanding the dynamics of doing business in China requires a keen insight into its economic journey and the history of doing business in China, the implications for foreign investors, and practical strategies for non-Chinese entrepreneurs to establish their presence in this thriving market.

In the previous 2 decades, China has seen an unprecedented economic uplift, with its GDP (Gross Domestic Product) increasing to $17.52 trillion in 2023, this establishes the success of various policies implemented that were designed to increase the business output and to encourage foreign investors. This remarkable success has been fueled by a combination of factors, including government-led reforms, massive infrastructure development, a hard-working middle class, and integration into the global economy.

The Foreign Direct Investment (FDI) inflows into China have been a key reason for the Chinese market having such a substantial impact on the world economy, FDI sunk to $33 billion in 2023.

China Business Guides

China HR and Outsourcing Companies

Economic Evolution

We can view the economic evolution of China through the following lenses:

Government Reforms: Instead of the economic considerations, China began trekking on a path of liberal reforms and acceptance of foreign investments. This paved the road for the establishment of Special Economic Zones (SEZ), increased leisure of state control over industries, and encouraged private ownership of businesses and enterprises. These policies laid the groundwork for China’s rapid economic growth in the contemporary years.

Infrastructure: Infrastructure plays quite an important role in the development of a country’s potential to succeed as a business-driven state, if investors are presented with leisure and comfort within the country, they would be more inclined towards adding value to infrastructure. This can be achieved by more investments in transportation, telecommunications, energy, and urban development to facilitate economic expansion, improved connectivity, and enhanced productivity. Modern airports improve traveling and connectivity among investors and visitors.

Manufacturing & Exports: China is often regarded as the workhorse of the entire world, as it is widely known that all if not most tech and high-end companies have their manufacturing plants in China due to their extremely low labor cost and abundance of manpower. China uses the benefit of its competitive wages, and favorable business environment to become a global manufacturing hub. This has resulted in an export boom of domestic products which add to the country’s overall income in the form of taxes and other levies.

The Working Class: The transformation of China into the world’s manufacturing hub has also solved one of the biggest problems of the Chinese state and that is creating work opportunities for its ever-increasing population while increasing the purchasing power of the common man or the “working class”. This paradigm shift in the overall demographic of China has influenced domestic consumption of goods and an increased demand for services from all parts of the industries that are currently operating within China.

Tech-Orientation: The country’s growth as a technological manufacturing hub is impeccable. The country is most widely known for its improvements and advancements in the fields of tech such as development, administration, IT, and telecommunications. Local tech giants like Huawei & Tencent have become globally accepted, now that they are challenging their Western counterparts and driving innovation across industries.

Shift towards Services: Manufacturing has been the defining feature of the Chinese economy for decades, even in the past, China has been known for inventing various technologies. However, basic services such as finance, healthcare, education, and entertainment are required as much as manufacturing and exporting goods to stabilize an economy, and hence, China has been at the forefront of delivering impeccable experiences and unmatched quality of services in the mentioned domains.

Global Integration: Export is useless without trade routes to different countries and good bilateral relations with neighbors and other potential foreign powers. China’s foreign policy takes care of the latter by imposing policies and relief schemes for its allied countries which allows it to establish spheres of trade influence and secure a powerful trading circle in various parts of the world. A good example is the Belt and Road Initiative (BRI) which was launched in 2013. BRI aims to enhance connectivity and promote economic cooperation across Asia, Africa, and Europe, further strengthening China’s role as a global economic giant.

Starting a Business in China as a Foreigner/Off-Shore Entity

It has been made quite easy and accessible for foreign entities to start a firm/LLC/business in China while being located off-shore, this goes for both on-shore and off-shore foreign investments. Due to the relaxation of the Chinese business policies and strategical reliefs provided to improve business and international economic output. The government allows several benefits to international investors and businessmen. However, here are all the things that need to be considered before entering the Chinese market.

1. Thorough Market Research

One of the first and foremost steps to establishing a business is to understand the surroundings and environment along with the market that a business might be targeting, for this purpose, conducting extensive market research is the most important step before entering the Chinese market. The requirement to understand preferences, market trends, landscape, and regulatory requirements specific to your area and industry is paramount. A feasibility study can help encompass the viability of your business concept and identify potential challenges and opportunities that may arise during the business tenure.

2. Legal Compliance

Each state, not only limited to China, has a different set of legal regulations that a business must comply with to be called and labeled as “legitimate” or “state-worthy”. In China, an appropriate legal structure for a business must be adopted out of the three:

Wholly Foreign-Owned Enterprise (WFOE). This is a limited liability company in China, wholly owned by foreign individuals or businesses.
Joint Venture (JV). This is a business collaboration between both local China-based investors/businesses and foreign businesses.
Representative Office (RO). An RO allows international businesses to carry out limited activities, such as market research, in China.

Each of these legal structures caters to a different business need and type. All factors that relate to business must be considered such as ownership restrictions, liabilities, and tax implications. Ensuring legal counsel to avoid breaking any hidden laws is advised for any potential business owner before entering the Chinese market.

For companies looking simply to hire employees in China, a China Employer of Record (EOR) solution may be sufficient.

3. Payment Gateways & Financing

Another important aspect of starting a business is to sort out the financial element, which is quite important when it comes to China as the state does not take financial discrepancies lightly and has strict measures in place to tackle such occurrences. To avoid such events, a business owner must be able to establish good banking relations with a reputable bank within the state to facilitate banking needs, loans, transfers, and capital arrangements for the initial startup of the business.

4. Licensing

Every business type or industry that deals with sensitive areas of production or material requires a specific license to continue their dealings. In China, all businesses are required to register themselves with the State Administration for Market Regulation (SAMR) for the business and the State Administration of Taxation (SAT) for the implication of taxes and returns. All other industry-specific licensing must be researched and obtained before entering the field/industry.

5. Local Trust & Relationships

As a new entrée in the Chinese market, the business must establish working relations with their local competitors, agencies, and other facilitators, with whose guidance, the business can navigate the local parameters of the Chinese environment with ease. It can help with cultural elements, facilitate market entry, and access local networks and resources which are sometimes more valuable than obtaining from traditional sources. It is important to conduct a proper survey and identify which specific partners can help shape the business for a better tomorrow.

6. Private Ownership & IP

Since China is quite overpopulated and business, e-commerce, and traditional trading remain the biggest source of income for most of its population, the element of competition is soaring at its peak in every possible industry that is allowed to operate in China. Intellectual properties of a business such as the legal name and other branding must be protected by obtaining proper trademarks, copyrights, and patents and registering them with the official governing entity that is the China National Intellectual Property Administration (CNIPA). CNIPA takes responsibility and action on infringements of copyrights and/or accusations of name pirating.

7. Digital Security

Ensuring your digital footprint is secured with the proper security measures is paramount. A business owner needs to ensure proper cyber security in their digital dealings in China to safeguard the success of their business.

Geopolitical Considerations

These considerations are an important aspect to be noted down by aspiring investors who are looking to start a business in China or any other part of the world for that matter. These geopolitical elements and factors can heavily impact a foreign investor or an off-shore businessman based in China.

1. Diplomacy & Bilateral Ties

It is not rare in the contemporary era for countries to have deteriorating bilateral ties and bad diplomatic relations that can result in sanctions and trade cut-offs between countries. In such a situation, if the home country of the foreign investor does not have good ties with China in terms of trade and or other domains of business, it is unwise to invest any amount until those ties are repaired or specific points of agreement are mutually reached by both the countries.

2. Tariffs & Taxes

Tensions and disputes among China and its Western counterparts such as the United States of America, Europe & others, can result in the imposition of tariffs, trade barriers, and other retaliatory measures which can heavily impact the trade and business field of potential and aspiring foreign investors. These trade policies can dissolve supply chains, maximize operating costs, and affect market access for foreign investors and locals alike. Ensuring evolving trade dynamics and variating supply chains can help reduce the impact of trade tensions on business operations in China.

4. National Security Concerns

China is sort of notorious for taking decisive and accurate measures to safeguard its national interests and national security alike. This paradigm constantly reshapes the national policies regarding telecommunication, IT, cyber-presence, and other sensitive business areas and industries that may be prone to or could induce national security risks. This factor makes it difficult for businesses operating in the latter’s domains as they have to adapt to various dynamic policies and settle for what interests the state.

5. Supply Chains & Global Trade Routes

As a hub of manufacturing and exports, the security of the supply chain in China is crucial. This means the potential effect of natural disasters, political turmoil, sanctions, and pandemics along with other possible root causes of disruption in supply chains must be considered. A large-scale business should have multiple supply chains set up to substitute for one another in case one fails or breaks down.

Doing Business in China — Our Take

Conducting business in Chinese states requires a multi-modal approach that includes economic, regulatory, cultural, and geopolitical & legal considerations.

China has risen as a powerful hub for manufacturing and the world’s labor giant, allowing world giants and small SMCs alike to cut costs and expand their business to the entire world from a central point of control. However, many factors and elements must be considered before entering the Chinese market such as market trends, local culture & geopolitical implications that can be levied on the business. Registering legally and going hand-in-hand with legal compliance and authorities is necessary to run a successful business in China.