Establishing a Business in China

Establishing a Business in China

Having spent 12 days in China, amongst haggling in markets and attempting to eat with chop sticks, have learnt about some of the major aspects of Chinese governance, with one process in particular being discussed in nearly every class: The Five-Year Plan.

Every five years, China brings out a new version of this documentation varying the content based on the key topics the government, community and citizens will focus on in the coming years. The latest version of the plan covers 2016 –  2020.

As a Chinese citizen or a foreigner trying to establish a business in China, if your strategy is in line with the five-year plan it can act as a catalyst to help the business establish and make a significant headway throughout its development.

Below I will discuss the key elements of the plan, they have been placed in order of importance according to the Chinese government:

Innovation

Moving Chinese core businesses and economy away from the previous low cost manufacturing with low margins and towards high-tech and modern information based services.

Co-ordination

The second part of the five-year plan is aiming to reduce the welfare gap between the rural and urban areas, through the distribution of administrative and financial resources in an efficient manner. This means that the countryside is not left to fend for themselves without a significant input from the local authorities.

Greening

This third section of the five-year plan has been put in place to develop the environmental technology industry, as well as ecological living and ecological culture in China. To support this, China is offering tax breaks for start-ups businesses with an environmental protection mind set.

Opening

In order to increase the economy and open the country to international development and investment, china is working on additional co-operation methods. This encompasses having an increased co-operation with international businesses, governments and people.

Sharing

I believe the sharing element is in line with the co-ordination, it aims to share the wealth of China across the entire country and, as previously mentioned, bridge the welfare gap.

What next

If your business idea is in line with the 13th five year plan and you want to take plunge to enter the Chinese market, the simplest way as a foreign citizen is through a Joint Venture. I learnt that in 1979 a significant law was passed concerning foreign and domestic companies which means they should have a strong partnership with a Chinese entity.

Firstly, to encourage a successful business your general manager should be a Chinese partner, to allow for their active and substantial control in the business strategy and tactics. But be aware that the Chinese partner often enter these joint ventures in order to acquire full control of the foreign partner at a later stage.  Therefore, you must be willing to at least consider selling and/or giving away full control of your company once it reaches a certain level and becomes a particularly interesting investment from the Chinese side.

In terms of financing, the loans available to the business are directly proportional to the starting capital invested in the company, therefore do not expect unlimited opportunities for financial injections from the Chinese banking system.

To summarise, establishing a business in china is a very complicated process and having spent 12 days in China learning about this topic, I believe it the brave who decide to set up offices in this country. There is a myriad of formal, social and economic parameters to adhere to which I feel are most likely to be discovered only after acting in the incorrect manner… Therefore the key to establishing a business in Chain is research, research, research!


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