As the world’s second-largest economy, China is an attractive market for many businesses. In Q1 of 2022, the Chinese economy expanded by 4.8% (versus the previous year), above the market consensus of 4.4%, and faster than a 4.0% growth in the previous period. China’s economy continues to recover, despite new COVID-19 epidemics and geopolitical concerns.
There are numerous opportunities for businesses to expand in China. The country is home to over 1.4 billion people and has a rapidly growing middle class with increased purchasing power. China’s economy is also diversified, with strong growth across multiple sectors.
However, expanding a business in China can also be challenging. The country has a complex regulatory environment, and businesses must be able to navigate the bureaucracy effectively. Additionally, businesses must be prepared to deal with intellectual property theft and counterfeiting.
Overall, expanding a business in China can be both an opportunity and a challenge. Therefore, businesses should carefully consider the risks and rewards before deciding to expand into the Chinese market.
At Cross Border Digital, we’ve created this quick guide to help you understand the process of expanding your business in China.
In this Guide:
Why You Should be doing Business in China
China has long been a popular choice for businesses and entrepreneurs looking to expand their competence and reach. Many investors in various countries have seen great success in exporting items and services to China.
Many international businesses have taken advantage of the opportunities presented by globalizing China since it opened its doors to the rest of the world. China’s rise from an agricultural-based to a technological powerhouse has been quite rapid throughout the last several decades.
Here are four (4) main reasons why you should consider expanding your business in China:
- Market size and growth potential: With over 1.4 billion people, China is the world’s most populous country and offers a massive market for businesses to tap into. Additionally, China’s economy has been growing rapidly in recent years and is projected to continue to grow.
- Favorable business environment: The Chinese government has been working to improve the business environment in the country in recent years. This has included reducing bureaucracy, improving infrastructure, and increasing access to financing.
- Diversified economy: China’s economy is diversified, with strong growth across multiple sectors. This offers businesses a variety of opportunities to tap into.
- Increasing purchasing power: China’s middle class is growing rapidly and has increased purchasing power. This presents an opportunity for businesses to sell higher-priced items and services.
China is the world’s second-largest economy by nominal GDP and purchasing power parity, and it has the largest economy in terms of PPP. As China continues to shift from an investment-led to a consumer-dominated market, consumption expenditures are expected to triple over the next few years.
China as a Major World Trade Hub
China’s position as a leading trade hub has been strengthened by the Belt and Road Initiative (BRI). The BRI is a vast infrastructure and investment project that seeks to connect China with the rest of the world.
Currently, there are over 150 countries and international organizations involved in the BRI. This has led to an increase in trade between China and BRI countries. In 2018, trade between China and BRI countries totaled $6.7 trillion. This was an increase of 14.5% from the previous year.
The BRI has also had a positive impact on China’s logistics industry. The initiative has led to the development of new logistics hubs in China. This has made it easier and cheaper for businesses to ship goods to and from China.
China's e-Commerce Market
Another reason why you should consider expanding your business in China is the country’s booming e-commerce market. China’s e-commerce sales are expected to reach 15.5 trillion CYN by 2022, with an annual growth rate of 12.4 percent from 2021. The China e-commerce market is predicted to reach 1.230 billion users by 2025, reflecting the enormous potential for China’s e-commerce industry due to its huge consumer base.
The growth of China’s e-commerce market has been driven by the country’s large population and increasing internet penetration. China has over 1.02 billion internet users, which is more than any other country. Additionally, the percentage of the population with internet access has been increasing rapidly in recent years.
E-commerce is playing an increasingly important role in China’s economy. In 2019, e-commerce accounted for 18.5 percent of China’s total retail sales. This was up from 16 percent in 2018 and just 10 percent in 2015.
Mobile payments have become increasingly popular in recent years, and this trend is expected to continue. This presents a big opportunity for businesses that are looking to tap into the Chinese market.
China's Automotive success
The automotive industry has been one of the success stories of China’s economic development. China is now the world’s largest car market, and it is expected to continue to grow.
Although most vehicles sold are manufactured in China, Jaguar Land Rover is the country’s largest British exporter to China. The rise of this luxury brand reflects China’s growing middle class, as well as their increasing desire to acquire high-end items.
China's Development in Innovation
In recent years, China has been working to promote innovation and entrepreneurship. This has included initiatives such as the “Made in China 2025” plan, which aims to upgrade the Chinese industry and make it more competitive on the global stage.
The “Internet Plus” initiative is another example of how the Chinese government promotes innovation. This initiative aims to integrate the internet with traditional industries to create new business opportunities.
China's Improving Business Landscape
The business landscape in China has been improving in recent years, with the Chinese government making efforts to reduce red tape and make it easier for firms to operate.
The government has also boosted the number of entrepreneurs by implementing initiatives such as streamlining the process for establishing a firm, as well as offering tax incentives to businesses that put money into designated sectors.
The government of China has also been spending on infrastructure development, making it easier for enterprises to function there. These improvements have helped to make China an increasingly attractive location for businesses seeking to grow their presence.
Chinese Business Etiquette
When expanding your business into China, it is important to be aware of Chinese business etiquette. For example, guanxi (关系) – personal relationships – are very important in China.
Building strong relationships with others is essential for doing business in China. This can be done by attending events, such as parties or dinners, and getting to know people.
Finally, the Chinese respect hard work and diligence, which has a direct impact on employee performance. Working in China means collaborating with goal-oriented, competent individuals who are eager to advance.
China’s strong work ethic enables a well-organized and excellent workplace, with workers dedicated to both themselves and the company for which they work.
When expanding your business into China, it is important to research the market and be aware of the existing opportunities and challenges. By understanding the Chinese economy and business landscape, as well as being mindful of Chinese business etiquette, you can give your business the best chance of success in this large and growing market.
This is where our team at Cross Border Digital can help. We are experts in China’s market entry and have a proven track record of helping businesses succeed in this complex and rapidly changing market. Contact us today to learn more about how we can help you expand your business into China.