Starting a business in China

Widely known as ‘the world’s factory’, China has long been a global hub for manufacturing. Coupled with its standing as the second-largest economy in the world, the country has considerable appeal for business expansion and investment.

Why choose China?

China has many unique qualities that make it a compelling location to do business. Here are some of the reasons it is attractive to companies around the world.

Strong manufacturing industry

As the world’s largest manufacturing hub, China continues to be an excellent location for businesses to produce goods. By the end of 2023, there were over 3,600 manufacturing companies in the country, according to the China Association for Public Companies. Given the scale of this sector, there is the potential for partnerships when you’re running a business here.

Recent government efforts are also centred around boosting China’s advanced manufacturing industry. This includes more support in emerging areas like artificial intelligence (AI) and new energy, which can give businesses the confidence to operate in these fields in the country.

Leader in exports

As a result of its manufacturing capabilities, China is a leading global exporter. Manufactured goods make up the majority of the country's exports, with electrical machinery and equipment being the most in-demand overseas. Vehicles, plastics and furniture also play a significant role in the China’s export dominance.

Major ports, such as Shanghai, Shenzhen and Ningbo-Zhoushan, are among the busiest globally, handling an immense volume of containers each year.

China’s exports reach markets around the world, with the United States, Vietnam, South Korea and Japan among the top destinations for Chinese goods, driven by strong demand across various sectors including electronics, machinery, and textiles.

Active trade deals

China has signed over 20 Free Trade Agreements (FTAs) with other countries and regional blocs, including Australia, Mauritius, South Korea and the Association of Southeast Asian Nations (ASEAN). It also has a number of FTAs currently under negotiation as it looks to expand its treaty network.

These FTAs allow for tax reductions when you’re importing or exporting products to and from FTA partner nations.

In the coming years, you may expect to access even more markets via the Belt and Road Initiative. This ongoing infrastructure project aims to improve trade routes and can better connect your business to other parts of Asia, Europe and Africa.

Largest consumer market

By 2030, China is projected to have over one billion consumers, a 15% increase from 2024. A significant rise in its middle-class segment is helping spur a boom in local spending. As more individuals move into this bracket, their purchasing power may make China a favourable location to grow your customer base.

E-commerce has also been a major driving force behind the growth of China’s consumer market. Online platforms, such as Taobao/Tmall, JD.com, Douyin (TikTok), Pinduoduo and Xiaohongshu, are widely used among local consumers.

These channels not only showcase products but also serve as influential spaces where consumers can watch live-streaming and videos, share reviews, learn product functions and compare pricing before making purchasing decisions. This is worth exploring when you are catering to and attracting China’s digitally savvy consumers.

Increased ease of doing business

In recent years, China has implemented reforms that make it easier to do business. Various measures have helped streamline and simplify administrative procedures and reduce the time required to start a business. Lower corporate income tax rates and other incentives are also available depending on the size and sector of your business. Collectively, this may boost your capacity to compete, grow and invest in new opportunities with greater assurance.

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Business structures in China

If all of the above have ignited an interest in launching your business in China, it’s crucial to know the main business structures and leverage the most suitable option for your company’s setup.

Wholly foreign-owned enterprise

A wholly foreign-owned enterprise (WFOE) is a limited liability company (LLC) entirely owned by foreign individuals or entities. It offers a range of features that make it an attractive structure for incorporation. For example, a WFOE enables you to have full control over your business operations without the need for local partners in China.

What’s more, being an LLC, a WFOE is a separate legal entity. This means that your liability is limited to your contributed share capital, protecting your personal assets.

With a WFOE, you may opt for one of three setups: trading, manufacturing or service (consulting). Each comes with its own specific setup procedures, associated costs and scope of permissible commercial activities.

Joint venture

Starting a joint venture (JV) in China involves forming an LLC with a Chinese partner. This way, you can leverage the expertise, distribution networks, sales channels and facilities your partner provides. A JV can help ease your market entry into China and reduce the typical obstacles new businesses face.

However, this also means sharing control over the company’s operations. This may impact decision-making and strategic direction, potentially leading to conflicts if your partner's vision diverges from yours. For smooth collaboration, make sure your partner shares your goals for China before moving forward with the business registration.

Representative office

If you are simply keen to learn more about the business opportunities in China, you could establish a representative office (RO). This offers a relatively simple and cost-effective way to explore a new region, especially if your goal is to gather market intelligence and build initial business connections. However, the restrictions placed on ROs mean that this option is best suited for companies in the exploratory phase.

In comparison to WFOE and JV structures, the activities permitted for an RO are limited. They can’t, for example, engage in profit-making and should solely be used to facilitate certain activities in China. These include conducting market research and identifying potential suppliers.

Keep in mind that an RO is considered an extension of your parent company without its own legal personality, meaning any contracts signed will be bound to your company overseas.

“We’ve been working with Hawksford since 2012 when we decided to set up our own entities in Asia. The team is very professional and helpful. They took care of every step of business formation, giving us advice and responding to our needs in a timely manner."

Sophia Zhou, APAC Finance Controller, Moleskine China