With double-digit growth rates in the past three decades, the People’s Republic of China has become the world’s second largest economy after the United States. China’s Gross Domestic Product (GDP) reached nearly US$8.3 trillion in 2012. It is also the world’s largest manufacturing economy, as well as the largest exporter and second largest importer of goods. China has become one of the key markets that foreign companies wish to penetrate.
This rapid growth can be attributed to two factors in China’s recent history: the “open-door policy” implemented in 1978 that has drastically helped to promote foreign trade and set up the foundation for economic reforms; and China’s acceptance into the World Trade Organisation (WTO), which led to a surge of trade and goods from US$509 billion in 2001 to US$3.7 trillion in 2012 – representing a Compound Annual Growth Rate (CAGR) of 20%.
Despite the challenge of the 2008 global economic crisis, China has continued to exceed expectations. Although China’s GDP growth rate has been slowing due to the government’s recent attempts to establish a more sustainable economic growth model, its trade balance is still going strong. China remains one of the top destinations for Foreign Direct Investment (FDI) in the world, with FDI inflows reaching US$112 billion in 2012.
With more than 1.3 billion people – representing 20% of the world’s population – China is the world’s most populous country. As the Chinese economy continues modernising, there has been a developing urbanisation phenomenon in China with an estimated urban population of 690 million. The urbanisation rate is predicted to grow by 1% for the next two decades, which is equivalent to urbanising 300 million people in 20 years. As a result, China’s emerging middle-class with an annual salary of over US$8,000 is fast expanding and is projected to exceed 400 million people by 2020.
The Chinese market is highly fragmented with 34 administrative units, including 23 provinces, five autonomous regions, four municipalities – Beijing, Chongqing, Shanghai and Tianjin – directly under the jurisdiction of the central mgovernment, as well as two special administrative regions (SARs) – Hong Kong and Macau – that are both semiautonomous and self-governing. China’s cities are informally ranked into a tier system according to population, historical status and levels of economic development and infrastructure. Beijing, Shanghai, Guangzhou and Shenzhen, are generally considered to be the “first tier” cities because their economies are the most advanced and are saturated with major international companies. However there are still significant growth opportunities in second tier cities such as Nanjing, Chongqing and Tianjin, third tier cities such as Suzhou, Qingdao and Dalian, as well as fourth tier cities such as Tangshan and Yangzhou.
The Chinese market is highly fragmented and most industries are underdeveloped, with inconsistent or non-existent regulations. China’s business environment also lacks independent institutions, which means there is low transparency in both state and local government operations. Foreign companies often find it difficult to operate in an environment where foreign invested companies are held to a higher standard than locally invested firms. It is therefore vital for foreign companies to conduct adequate market research and analysis to assess their entry strategies in China and choose the best option to ensure smooth corporate set up procedures. Companies should also adopt and update market strategy as the business and regulatory environment evolves if they are to maintain a long-term successful business presence in the market.
Sovereign China
Sovereign China was created by the merger of Sovereign’s existing China operations with the JLJ Group in 2013. It has offices in Shanghai and Beijing. The JLJ Group was established in 2003 to accelerate international clients’ ability to understand and operate in the China market and has successfully assisted more than 500 companies from over 50 countries with their China market entry.
With the expertise of in-house specialists in market research and consulting, corporate formation, and accounting combined with the management of HR and legal services, Sovereign China provides the tools and support to enable clients to focus on making their China businesses a long-term success.
i. Market Research and Consulting
Entry and/or growth in the China market can be significantly more challenging than in more developed countries due to:
the size and diversity of the country – geographically China is equivalent in size to the US but with multiple cultures and languages;
- the lack of reliable official or centralised data – China is not a “free” society and information is carefully guarded;
- the constant and extremely rapid change – China’s economic system is not in equilibrium.
Sovereign China offers consultancy services both to companies considering market entry in China and to companies already established in China that are considering market expansion. Our methodology, including extensive primary research, provides clients with the information on the market dynamics, future trends, customer or consumer preferences, and the competitive landscape that will enable them to make informed decisions and minimise the risk of conducting business in this rapidly changing market. Each engagement is customised for the specific needs and objectives of the client to help develop optimal solutions for entry and growth in the China market.
With hundreds of consulting assignments successfully executed across multiple industries, Sovereign China is positioned to help its clients accelerate their time to market and to mitigate many of the risks of operating in an emerging market.
ii. Company Formation
Sovereign China has extensive experience across the entire spectrum of business entities in China, from simple representative offices to more complex foreign investment enterprises such as Wholly Foreign Owned Enterprises (WFOEs) and joint ventures. We have served clients across a wide range of industry sectors that includes logistics, trading and distribution, ICT-Internet, communication and technology, automotive, aerospace and marine, industrial and manufacturing, as well as financial and investment. Our consultants have developed an extensive network of local connections to expedite business registration projects and to negotiate favourable incentives for large Foreign Direct Investment (FDI) projects.
Nobody understands your business better than you do. Sovereign China does not just provide candid advice, we ensure that our clients are well briefed on China’s regulatory and business environment so that they can make informed decisions. We are also aware of the questions that clients may not, but should, be asking in the context of China, enabling us to provide all the answers that clients need for market entry.
iii. Accounting and Back Office Outsourcing
Sovereign China also provides a wide range of business support services tailored to the needs of representative offices and newly established foreign invested companies in China. Sovereign China can assist companies of all sizes with their accounting needs.
Due to China’s unique and complex labour regulations, managing back office administrative processes can be a daunting task for any company. Our clients work with us because we provide a seamless integration with their China operations – from a full back-office outsourcing solution to standard tax and regulatory compliance. As clients’ needs change, our services will adapt accordingly. Sovereign China provides clients the freedom to focus on their business objectives while we take care of their administrative needs. We work exclusively with foreign invested enterprises so our bilingual accountants understand our clients’ needs – often before they do.
For more details on China Entry and Growth Services, go to our China section.