China - Market Entry & Business Opportunities

China, with its capital in Beijing, is a vast country located in Eastern Asia. It has a population of approximately 1.4 billion people, with the Han Chinese as the majority ethnic group. The official language is Mandarin Chinese. The country covers an extensive area of around 9.6 million square kilometres. China shares borders with 14 countries and has maritime boundaries with several others through seas such as the East China Sea and the South China Sea. The currency used in China is the Chinese Yuan Renminbi (CNY). The population growth in 2021 has been recorded as 0.1% according to the World Bank.

Economic Overview

In 2023, the country's economy is expected to rebound with a growth rate of 5.4%, followed by a slightly lower rate of 5.1% in 2024. The lifting of COVID-19 restrictions has led to increased demand for in-person services, benefiting sectors like tourism and entertainment. Property sales have stabilized due to relaxed housing regulations and lower mortgage costs. Infrastructure projects and construction are also contributing to the economic growth. However, weak global demand may limit export growth. Inflation is expected to remain moderate, and monetary policy has become more supportive with interest rate cuts. Capital outflows and currency depreciation have started to reverse. Tax deductions, exemptions, and user charge reductions are supporting small and micro firms. Structural reforms are needed to foster private firm recovery and promote gender equality. In Q1 2023, GDP growth rebounded by 4.5%, primarily driven by the lifting of COVID-19 restrictions, with in-person services recovering strongly. However, consumption of goods remains weak due to high unemployment rates and increased graduate students entering the job market. Investment growth is gaining traction, supported by infrastructure investment and new measures to mitigate real estate contraction. Overall, the economy is experiencing a gradual recovery.

Market Overview

The People's Republic of China (PRC) is the world's second-largest economy, with a GDP surpassing several major economies combined. While the PRC has focused on consumption and services, investment and manufacturing remain important. Despite the COVID-19 pandemic, the PRC achieved positive growth, though with some disparities. Challenges include a shrinking workforce, debt reduction measures, increasing provincial debt, and trade tensions. The PRC has made progress in poverty reduction but still has a lower per capita GDP compared to developed economies. Strict pandemic control measures have affected household spending and private business activity, impacting growth targets. The IMF revised its 2022 GDP growth prediction for China to 3.3%, with a decline in private consumption growth.

Bilateral relations between India-China

• India and China have established over 30 dialogue mechanisms at different levels to enhance bilateral ties. These mechanisms cover various aspects such as bilateral, political, economic, and consular issues, as well as dialogues on international and regional matters.
• The Indian community in China is on the rise, with an estimated strength of approximately 94,439 individuals.
• A significant portion of the Indian community in China consists of students, with over 18,000 pursuing courses in various Chinese universities.
• The modern relationship between India and China traces back to April 1950, when India became the first non-communist country to establish diplomatic relations with the People's Republic of China.

Taxation in China

China has a comprehensive tax system that includes various taxes applicable to businesses operating in the country. These taxes can impact the profitability and financial obligations of Indian companies doing business in China. Some key taxes and their features include:

• Corporate Income Tax (CIT) has a standard rate of 25%, with lower rates for state encouraged and high-tech enterprises.
• Thin Capitalization Rule restricts excessive interest expense from related-party loans.
• Withholding Income Tax (WHT) is 10% for non-resident enterprises, but lower rates or exemptions may apply under tax treaties.
• Non-Tax Resident Enterprises with a permanent establishment (PE) are subject to CIT on attributable profits.
• Capital Gains are taxed as part of operating income at the normal CIT rate.
• Value Added Tax (VAT) ranges from 3% to 17% or 13% for certain goods.
• Business Tax (BT) ranges from 3% to 20% depending on the service or transaction.
• Other taxes include consumption tax, urban construction tax, stamp tax, real estate tax, motor vehicle acquisition tax, and education surcharges.

Subsidies and Incentives offered by China

China offers a range of subsidies and incentives to promote economic development and attract foreign investment. These subsidies and incentives aim to support industries, encourage innovation, and foster sustainable growth.

• Preferential tax policies: China offers tax incentives like reduced rates and exemptions based on location, industry, and investment nature.
• R&D grants: Grants and subsidies are provided to support research and development activities, encouraging innovation and offering tax benefits.
• Industry-specific subsidies: Strategic industries such as renewable energy and advanced manufacturing receive subsidies for investment, infrastructure, and capacity building.
• Land and infrastructure support: Discounts on land use rights and infrastructure development aid in attracting investment and facilitating business operations.
• Financial support: Low-interest loans, guarantees, and venture capital funds are available to reduce financing costs, particularly for SMEs and high-tech start-ups.
• Export incentives: Export tax rebates, VAT refunds, and subsidies for export-oriented industries encourage foreign trade and competitiveness.
• Regional development programs: Initiatives promote economic growth in less-developed areas through investment incentives, job creation, and improved infrastructure.
• Free Trade Zones (FTZs): FTZs offer favourable policies, simplified customs, relaxed investment restrictions, and pilot programs for financial reforms to facilitate international trade and investment.

Financing Business in China

• Equity financing: Seek investment from venture capitalists or private equity firms in exchange for ownership.
• Bank loans: Chinese banks offer various loans, requiring a comprehensive business plan and collateral.
• Government support: Access grants, subsidies, tax incentives, and low-interest loans through government programs
• Crowdfunding: Use platforms like Zhongchou and JD Crowdfunding to solicit small investments from individuals.
• Strategic partnerships and joint ventures: Collaborate with established Chinese companies for funding and resources.
• Incubators and accelerators: Join programs for funding, mentoring, and networking opportunities.
• Alternative financing: Explore options like peer-to-peer lending, supply chain financing, and invoice factoring.

TOP 10 COMPANIES IN CHINA – 2022

Rank	Company	Industry	Revenue in 2022 (USD)
1	Sinopec	Oil and Gas	$ 484.14 B
2	Petro China	Oil and Gas	$ 462.94 B
3	China State Construction Engineering	Construction	$ 304.33 B
4	China Railway Group	Construction	$ 168.24 B
5	Jingdong Mall	Retail	$ 152.32 B
6	China Life Insurance	Insurance	$ 147.95 B
7	China Mobile	Telecommunication	$ 139.53 B
8	ICBC	Financial Services	$ 129.31 B
9	Alibaba	E-Commerce	$ 125.98 B
10	Ping An Insurance	Insurance	$ 116.57 B

MOST POPULAR E-COMMERCE COMPANIES IN CHINA – 2022

RANK	COMPANY	Headquarter
1	Alibaba	China
2	Taobao	China
3	Pinduoduo	China
4	TMall	China
5	SMZDM	China

TOP 5 START-UPS IN CHINA – 2022

RANK	COMPANY	INDUSTRY	FOUNDED IN
1	Byte Dance	Artificial Intelligence	2012
2	Horizon Robotics	Artificial Intelligence	2015
3	Linked Care	Software	2015
4	Du Xiaoman	Financial Services	2018
5	SOUL	Social Networking	2016

Business Clusters in China

China has established several prominent business clusters that have played a significant role in the country's economic development. These clusters have emerged as hubs for specific industries, fostering innovation, collaboration, and competitiveness.

• Zhongguancun: Beijing's Silicon Valley, known for technology and innovation in IT, software, and telecommunications.
• Shenzhen-Hong Kong Greater Bay Area: A growing tech and innovation hub encompassing Shenzhen, Hong Kong, and Macau, with a focus on electronics manufacturing and hardware start-ups.
• Pudong New Area: Shanghai's financial and commercial district, attracting multinational corporations and hosting industries like automotive and aerospace.
• Chengdu High-Tech Zone: Chengdu's high-tech industry cluster, specializing in electronics, IT, biomedicine, and aerospace.
• Wuhan Optics Valley: Wuhan's hub for the optoelectronics industry, focusing on optical communication, laser technology, and precision optics.
• Guangzhou Automobile Industry Cluster: A thriving automobile industry cluster in Guangzhou, hosting major manufacturers and benefiting from advanced manufacturing capabilities.
• Hangzhou Internet Industry Cluster: Hangzhou's vibrant internet industry, known for e-commerce, digital media, and technology innovation.
• Dalian Software Park: Dalian's software and IT services cluster, offering software development, outsourcing, and related services.
• Tianjin Binhai New Area: A major manufacturing and logistics hub in Tianjin, specializing in advanced industries such as aerospace and petrochemicals.
• Xiamen Software Park: Xiamen's dedicated area for software development and services, attracting companies from finance, telecommunications, and e-commerce.
• Qingdao Blue Silicon Valley: Qingdao's innovation hub for the marine industry, focusing on marine biotechnology, engineering, and oceanic IT.
• Jinan High-Tech Industrial Development Zone: Jinan's high-tech zone specializing in software development, IT, biotechnology, and advanced manufacturing.

How to set up Business in China?

Following steps are to be undertaken to start a business in China:

• Selecting a Company Name
• Listing all Controlling Partners
• Providing Details of Managerial Structure
• Deciding Legal Address
• Providing Articles of Association
• Apply for Approvals Certificate
• Apply for Business License
• Register with Public Security Bureau
• Open a Bank Account
• Register at the Tax Bureau  

To know more about our services and how we can help you in China – CLICK HERE

Best locations to set up Business in China

China offers numerous attractive locations for setting up a business, each with its own advantages and considerations. Here are some of the best locations to consider:

• Beijing: China's capital city, known for excellent connectivity, infrastructure, and proximity to government agencies.
• Shanghai: A global financial centre with diverse industries, a large consumer market, and strong international connectivity.
• Shenzhen: A rapidly growing city near Hong Kong, recognized for its technology and innovation sector, special economic zones, and global supply chain integration.
• Guangzhou: A major manufacturing and trading hub in the Pearl River Delta, offering a well-developed transportation network and supportive business environment.
• Chengdu: Located in southwestern China, known for its strong manufacturing and automotive industries, lower operating costs, and strategic access to western markets.
• Hangzhou: A technology-driven city with a supportive business environment, home to Alibaba, and close proximity to Shanghai.
• Suzhou: Situated near Shanghai, known for advanced manufacturing and high-tech industries, favourable investment environment, and well-established industrial base.
• Tianjin: Close to Beijing, with a focus on aerospace, petrochemicals, and logistics industries, offering preferential policies for foreign investment.
• Xiamen: A thriving port city on the south-eastern coast, known for trade and logistics, strategic location for accessing Southeast Asian markets, and favourable investment climate.
• Nanjing: An economic and cultural centre in eastern China, offering diverse industries, a skilled workforce, and supportive business environment.

Visa and Immigration

Following are the common visa options for China for business-related activities:

• Business Visa (M-Visa) - The M Visa is designed for individuals engaging in commercial or trade activities in China on a short-term basis. It is suitable for attending business meetings, conferences, negotiations, or exploring potential business opportunities. The M Visa can be single-entry, double-entry, or multiple-entry, with varying validity periods.
• Work Visa (Z-Visa) - The Z Visa is required if you plan to work for a company in China. It is specifically for individuals who will be employed by a Chinese company or organization. To apply for a Z Visa, you need a work permit issued by the Chinese authorities.
• Residence Permit - If your stay in China exceeds the validity period of your visa, you will need to apply for a residence permit. The residence permit allows you to legally reside and work in China for an extended period.
• Temporary Entry Permit - For short-term business activities, such as attending conferences, exhibitions, or conducting market research, you may be eligible for a temporary entry permit.

Despite being a challenging marketplace, China offers wide range of opportunities for foreign investors and entrepreneurs across the sectors. Over the past two decades, the middle-class in China has experienced significant growth especially due to the transformation from labour-intensive manufacturing to more technology-intensive high-value production creating a large customer base for variety of products. Therefore, it is important to understand different market dynamics, cultural and regulatory aspects prior to entering the Chinese market.

India Law Offices LLP has strong global footprint and we have forged strategic alliances with premier law firms that enable us to serve our clients from any part of the world. In China, we are working closely with Shanghai Founder Law Firm, a reputable law firm located in Shanghai, China that specializes in encompass legal feasibility study, commercial contract, letter of credit and guarantee, international payment, foreign trade tax, foreign trade control, debt recovery, dispute resolution, e-commerce and customs and commodity inspection.

If you are from China seeking legal assistance in India or an India national or corporate planning to enter the Chinese market, our firm can provide the necessary legal guidance and support you require.


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