Opening a business in China is an extremely lengthy and difficult process. Yet, even with intellectual-property theft, numerous foreign business restrictions, forced technical transfer, laws regarding the free flow of capital and a rampant and corrupt pay-to-play system – China continues to attract businesses. There are many other ‘business friendly’ countries to choose, so why China?
As a precondition to establishing a business in China companies (all companies) are subjected to the force transfer of technology and the partnering with a Chinese business before startup. Additionally, only certain businesses are welcomed. Banking, telecommunications, insurance, entertainment and media are excluded. For example, Google, Facebook, and Netflix are all barred. Only 45 U.S. produced films are allowed to be screened each year – and these are highly censored.
According to the World Bank, in 2019, China ranked 31st for ease of doing business while the U.S. was 6th. Yet, China was the 2nd largest in terms of foreign direct investment, second only to the U.S.
Do The Math
Size does matter – especially in the area of consumption. At 1.4 billion, the Chinese populace offers massive opportunity for businesses. Therefore, even though, China is very ‘unfriendly’ and restrictive to foreign business it is still a very enticing market. Many businesses are more than willing to cave-into China’s demands to have access to its consumer market.
For the last quarter century U.S. businesses have bowed to Chinese foreign business restrictions; however, that is now changing. Banking, investment, and insurance companies ceased lobbying the Chinese regarding allowing them into the Chinese market. Others have packed-up and relocated to other, ‘more hospital’ Asian locales, such as Singapore, Thailand, or the Philippines. But the lure of the huge Chinese consumer market is hard to resist and businesses will still gravitate to it. Just keep in mind that if you are contemplating entering the China market that you do so knowing all of its pitfalls and constraints. Research, research, research and be prepared for a long startup process and a costly entry fee.
By: Jim Lavorato 4mperformance.com