Doing Business in China Guide produced by IMA in association with the Institute of Export & International Trade (IOE&IT).
Table of contents
At the city level, much more momentum is building, with local governments selling out of noncore activities such as hotels and many manufacturing businesses. The anticorruption campaign continues aggressively throughout state-owned enterprises, and government has itself become a material brake on growth.
Officials and executives are simply unwilling to make decisions that could possibly be held against them later. President Xi has pursued anticorruption as a theme for more than a decade; he is not going to back off. Only if they remain confident in their personal economic future will they continue to increase their spending and become a larger driver of economic growth.
China is now more than 50 percent urban , but 10 million to 15 million people a year will still be moving to cities from the countryside. Rural migrants already in the cities need to be better integrated. City governments need to make their cities more livable, more efficient, and better able to integrate their migrants. Many businesses are coming under a new level of cost and margin pressure.
Doing Business in China Guide
Margins of industrial state-owned enterprises have fallen by a third over the past four years. Often the industries they compete in, from steel production to telecom-network equipment, are simply growing much more slowly. By the standards of China over the past 30 years, state-owned enterprises have become mature industries. This leads to three outcomes: The latter two are more often conducted on the basis that prior success in one industry in China will automatically lead to success in the next industry and country.
Multinationals selling to Chinese consumers often continue to perform extremely well, using their skills in consumer insights, branding, and pricing to differentiate from local companies that, while large, are still developing world-class functional capabilities. Multinationals selling to government, at the other end of the spectrum, find market access much more challenging. The pace at which Chinese consumers are embracing the Internet is at the cusp of causing major disruptions to many sectors in China.
Perhaps because consumers are still new to our traditional ways of shopping or banking only having had modern shopping malls for a decade in many cities , consumers are very willing to switch to buying online. Almost no consumer-facing business in China can succeed without an online and offline strategy today. Mall owners are struggling to find a new economic model.
Retailers are trying to bring order to their nationwide distribution chains to exert control over the price at which their products are sold online. The impact on employment is just starting to appear, but many millions of sought-after white-collar jobs will be eliminated in the next few years. This growth is not risk free. Perhaps most critically, Chinese consumers remain relatively unsophisticated. A loss of confidence as a result of a default in a wealth-management product, or a decline in housing prices in a specific city, could easily become a nationwide contagion creating a vicious cycle of consumers who withdraw from spending, thereby worsening market conditions.
One has to be over 40 to remember a recession in China. A final and rising risk is the underemployment of graduates. Of the seven million graduates each year, maybe only three million find jobs that require a degree. The remainder discovers that their aspiration of joining the middle class and owning a home and a car is possibly out of reach permanently. They are a large, dissatisfied, and growing segment of society.
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Many of the industries with the highest growth potential in China over the next decade are in the services sector, but not all. For example, energy and agriculture will have segments with very rapid growth. Below is a very brief snapshot of where we see opportunities. E-tailing The online share of retail in China, at 8 percent in , is higher than it is in the United States and is not close to reaching saturation.
Increasingly, this is conducted through mobile devices. The payments system is in place, logistics are improving, and online providers are trusted.
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Many retailers will adapt, often with far fewer physical locations. Malls will have to become destinations for services beyond retail. Modernization of supply chains is a key enabler of increasing productivity in many sectors in China today. Until recently, most goods were carried by individual truck owner—operators. Alibaba alone is committed to spending billions of dollars on its own logistics. The trick is to try a sample of each dish. Leaving an empty dish signifies that you were not given enough food and not touching your food is offensive as well.
Sadly or not, part of this implies participating in the drinking culture existing in the country. If you go for it, make sure to eat something beforehand; otherwise find a good excuse - a medical one will be accepted. If you receive eight of something, consider it a gesture of good will. Did you find this article useful? If so, you might also enjoy our guide to business etiquette in Brazil.
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Doing business in China
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Find the guidance you need to help you trade securely and cost-effectively overseas. This Global Business Guide was produced in January The materials contained in this document provide a snapshot at that time and were based on the law enforceable and information available at that time. China ranked 84 th in the World Bank's Doing Business rankings, falling one place from 83 rd in the year prior. China rated highly in the category Enforcing Contracts where it ranked seventh in the world.
Its weaknesses were in the Dealing with Construction Permits and Starting a Business categories, where it ranked th and th , respectively. The rankings recognised that China had made paying taxes less costly for companies in Shanghai by reducing the social security contribution rate.
China's attractiveness as an investment location can be attributed to a number of factors, including its vast domestic market and growing middle class. Nevertheless, in order to make an informed decision, it is critical to understand the nuances of any local regime. The manner in which people conduct business in China may differ from the home countries of investors. Furthermore, variations on these distinctions may exist depending on the region and industry in which a company operates.
China's official language is Mandarin. However, there are many dialects spoken across the regions of the country. English is widely used in businesses. Dress codes in the workplace are typically conservative and understated. Punctuality is expected when doing business in China.
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A handshake is the typical business greeting. Business cards will usually be exchanged after initial introductions.