Why Is Doing Business in China so Difficult

While local governments in China have been helpful, the pandemic has also mitigated a broader trend: It`s becoming increasingly difficult for U.S. companies to do business in the country, says Sean Stein, a Shanghai-based senior advisor at global law firm Covington. Before joining Covington last year, Stein was U.S. Consul General in Shanghai. To help you overcome these issues and avoid common pitfalls, we`ve listed some potential challenges you might encounter. Below is a list of the top five challenges when doing business in China. Despite regulations requiring business licensing decisions to be processed within weeks, many companies wait months for a number of them, including some for product approval, business operations, and investment review. Or just click on the highlights we`ve put together for you. While most companies in China had higher profit margins than anywhere else in the world and more than 40% of respondents saw their turnover increase by 20% or more in 2010, there are still major problems doing business there.

“But what we`re seeing is that across the board, there`s a consensus that it`s getting harder and harder to do business. There are many things that make it difficult for U.S. companies to do business in China. There are some lengthy administrative procedures you need to follow, including registration, approvals, and licenses. Most companies must have a regular business license. Another challenge when doing business in China is the problem of long-term employee retention. Not only is it difficult to find skilled workers, but it is also difficult to retain them. Your company`s HR department should focus on fair compensation, good education, and attractive prospects for success. While it is relatively unbusiness-friendly if the world`s 31st nation can attract such amounts of foreign investment, the world`s leading nation must certainly do as well as China, if not better. But New Zealand, which ranks first in the world because of its business-friendly climate, is not getting close to China in terms of foreign investment.

We hope that with this article, you have become more aware of the challenges of doing business in China. Over the past 20 years, the Chinese market has experienced strong growth. More and more foreign companies are expanding into China, either through direct investment or through increased cross-border transactions. To grow the business in the market, investors should hire a good employee who is passionate about delivering their services. Chinese is more than a language, it is a complex language system. In addition to Mandarin and Cantonese, there are a variety of dialects in China, including Wu (Shanghai dialect), Gan (Jiangxi dialect), Min (Fujian/Taiwan Hokkien), Kejia (Hakka), Xiang (Hunan), Yue (Guangzhou), and Ping (Guangxi). While some may be mutually understood (slightly different accent, slightly different localisms), others are not the same. Basic knowledge of Chinese is not sufficient for business interactions. Conclusion: This slows down the pace of business.

Then Covid lockdowns hit Shanghai hard in the second quarter. About 93 percent of respondents to a survey by the American Chamber of Commerce in Shanghai lowered their sales forecasts — more than a quarter lowered them by 20 percent. Covid has dampened expectations for the year and triggered harsh criticism of the government from some normally diplomatic foreign business groups. The Xinjiang issue has made it even harder to please everyone at home and in China. Competition comes not only from foreign companies, but also from domestic Chinese companies. In recent years, many domestic Chinese enterprises have improved the quality of their products and services to compete with foreign enterprises and gain market share. With advantages in terms of local knowledge and familiarity with the Chinese market, domestic Chinese companies have become increasingly powerful competitors for foreign companies looking to enter the Chinese market. In addition, Chinese governments sometimes tend to favor domestic champions – companies that benefit from regulatory protection, tax breaks, and subsidies that give an advantage over foreign competitors in their domestic markets. China`s rise as a consumer economy has long been anticipated, but recent figures have confirmed that once export-oriented power is now much more domestically focused, creating plenty of opportunities for companies looking to expand overseas. Official figures recently showed that China was pushed into deficit in March 2013, although there is still a surplus of nearly $270 billion for the year. The results confirmed what many analysts had long hoped for; that the country`s future growth would be less dependent on exports and that the new leadership would focus on sustainable, high-quality growth, which is a welcome change from the all-costs approach of the past.

The impact of China`s rising wealth and consumer spending is already being felt around the world, with recent tourism figures showing that visitors to the country are spending more than any other country in the world, with a record $102 billion on the road. For growing companies with foreign ambitions, China seems to be the ideal destination for expansion. But with lengthy bureaucratic procedures and an unfamiliar consumer environment waiting for those who try, it`s crucial to have local advisors on hand to navigate the complex market. As the economy continues to grow (it is expected to grow by 8.2% this year), we assess some of the key challenges faced by foreign companies operating in China. Local distribution networks, local consumer purchasing habits and regulatory requirements can make China a very difficult market to access. In addition, the market environment is completely detached from most other economies in the world, making it difficult to take the first steps. It is estimated that 37% of products that apply to the U.S. market end up in the Chinese market. Consumer preference In recent decades, there has been a considerable class shift in China, and the consumer environment is much more diverse than before. It is also completely disconnected from markets in other parts of the world, and many companies in China have fallen because they have not taken consumer preferences into account.

Foreign companies often struggle with laws and regulations in China, with 31 percent of 338 respondents to a recent business survey citing bureaucracy as their top concern when expanding into the country. The most common complaints relate to obtaining the necessary licences and permits, with many respondents complaining about cumbersome processes. Transparency of government procedures and corruption are the main concerns of companies setting up in China, although this is likely to change when the new management takes office.

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