Is China a business friendly country?

When it comes to the question “Is China a business friendly country?”, don't be in a hurry to jump to conclusions. We might as well look at the data and authoritative reports first, and then combine them with real-life cases, to get closer to the truth. Many foreign-funded enterprises will shout out “great opportunities”, while others express doubts: regulatory compliance and policy changes are often complicated. So, what is the truth about the business environment in China after 2025? Let's take a look at some solid data.

Key rankings and FDI inflows

• World Bank “Doing Business” report: In 2018, China's “Ease of Doing Business” ranking was still 46th; by 2020, it had quickly climbed to 31st, showing that the government has invested a lot in optimizing the business environment. Although the series of reports has since been suspended, this jump is enough to illustrate the problem.
  
• Foreign direct investment (FDI): According to data from the Chinese Ministry of Commerce in mid-2022 (the data released at the time was often for the first half of the year), China's actual use of foreign capital increased by about 21.5% year-on-year, with high-tech manufacturing and high-tech services being particularly popular. Even in the context of increasing global uncertainty, foreign capital can still see the potential opportunities in the Chinese market.

In other words, if we look at the statistical indicators and the scale of foreign investment projects, China's score in the “business friendly” exam paper is not low. However, these figures need to be weighed against the specific compliance and competitive landscape.

Policy-driven: more open or more cautious?

The Chinese government has indeed introduced measures such as the expansion of free trade zones, tariff reductions and the reduction of negative lists in some industries to signal its continued opening up to the outside world.

At the same time, the entry barriers for foreign companies in some areas, such as the financial sector (removal of restrictions on foreign ownership) and some service industries, are also being relaxed.

However, don't ignore the changing regulatory landscape: cross-border data transmission, security reviews, and environmental standards are all becoming stricter, which means that while companies are seeking opportunities, they may have to devote more capital and resources to compliance.

Whether or not a country is “business-friendly” is often a double-edged sword: if your business is in line with the government's encouragement, you will have a green light all the way; but if you touch a red line in a sensitive area, you must be prepared to be interviewed or rectified.

Consumer market and digital penetration

With China's per capita GDP continuing to rise, and the digital habits of a massive consumer group, many companies are looking to expand in this market. To give a simple example, in the field of e-commerce, data shows that China's online retail sales will reach a record high of 13.8 trillion yuan by 2022 (National Bureau of Statistics). This explosive digital consumption, combined with the unique local social and live-streaming e-commerce models, is an “exciting point” for many multinational brands.

However, if you want to “localize”, you must customize your strategy to target consumer habits, the platform ecology, and the increasingly fierce competitive landscape. Otherwise, having a brand endorsement alone is not enough, and you will be surpassed by local competitors in no time.

Regional differences: first-tier cities vs. emerging cities

If the business environment in first-tier cities such as Beijing, Shanghai, and Shenzhen is more diverse and international, then the central and western regions or new first-tier cities have more potential for economic rise and preferential policies. Many local governments offer generous subsidies, tax reductions, and even free office space to attract talent and projects.

However, it should be noted that these emerging cities may need to improve their talent pool and the maturity of their supply chains. Foreign companies need to make a comprehensive assessment: go to a “window city” to bear higher rents and labor costs, but enjoy a sound ecology? Or go to second- and third-tier cities to embrace preferential policies, but face the challenges of insufficient resources and networks?

Outlook for the future: 2025 and beyond

• Technology and innovation: According to IMF forecasts for 2024-2025, China is still expected to maintain an economic growth rate of over 4%, and the hard technology and green development sectors are particularly promising. For foreign companies, if they can take root in fields such as high technology, ESG (environment, society, governance) or carbon neutrality, the probability of receiving support will also increase.
  
• Global economic turmoil: Under the impact of the undercurrent of de-globalization and geopolitical games, many foreign companies have chosen a more cautious approach: setting up “localized” subsidiaries in China to form a multi-regional supply chain to offset the impact of tariffs or export restrictions.
• Compliance upgrades: With the further implementation of the digital RMB, data security laws and anti-monopoly laws, related legislation and law enforcement will continue to strengthen. Companies doing business in China need to be sensitive to this ever-expanding and tightening compliance space.

The balance between opportunities and challenges

When friends overseas pay attention to the Chinese market, they always ask me, “Is China a business-friendly country? Is it worth entering on a large scale?” I usually ask them in return, “Have you done any work on data, regulations and cultural differences? Any business environment has both positive and negative aspects, and China is no exception. If you are willing to invest resources in research and development, you can provide technological upgrades or meet new local consumer demand, it will be easier to gain the approval of both the government and the market. However, if you just want to arbitrage at low cost, or are unfamiliar with compliance essentials, you may be eliminated unexpectedly.

Whether it can be considered “business-friendly” or not depends on how you implement and position yourself. Companies that have a deep understanding of the direction of industrial development, focus on long-term investment, and can adapt to policy fluctuations will often be able to survive better in this huge market.

Back to the core question – “Is China a business friendly country?” – it cannot be answered in a few words. Combining World Bank data, foreign investment figures and various policy trends, it can be seen that China is quite attractive. However, in the face of new digital regulations and global competition, it is also necessary to be on guard. Therefore, if you want to enter the Chinese market in 2025 or even further into the future, you should consider it a marathon that requires long-term investment and constant adjustment of strategies, rather than a one-time sprint. After all, the opportunities in this market are huge, but there are also no shortage of challenges.