Professional Documents
Culture Documents
Danai Krokou
The Chinese Market: Entry Methods & Investment Strategies
10 9 8 7 6 5 4 3 2 1
To all of you who dare and take risks. . .
China has telescoped in one generation what other countries took
centuries to achieve. No country has managed to accomplish so
much in such a short time. China’s unique attempt to complete two
transitions at once—from a command to a market economy and from
a rural to an urban society, is without historical precedent.
Keywords
China investment; company structure; WFOE; U.S.–China joint
ventures; U.S.–EU joint ventures China business; China investment;
Chinese market; China strategy; China corporate structure; entry
methods; market entry
Contents
Author’s Statement��������������������������������������������������������������������������������1
Introduction������������������������������������������������������������������������������������������5
“Know before You Go”: Devising Your China Strategy������������������������11
Foreign Direct Investment (FDI) Inflows and
Outflows in Today’s China������������������������������������������������������������������15
China’s Belt and Road Initiative (BRI)������������������������������������������������21
Broad Methods of Market Entry���������������������������������������������������������27
Market Opportunities and Challenges�������������������������������������������������31
Industry Applications��������������������������������������������������������������������������41
Types of Companies with Easier Access to China��������������������������������47
Licensing and Franchising�������������������������������������������������������������������53
Representative Office (RO)�����������������������������������������������������������������55
Investment������������������������������������������������������������������������������������������59
Establishing and Running a Business in China������������������������������������77
How to Establish a Representative Office��������������������������������������������81
How to Establish a Wholly Foreign-Owned Enterprise (WFOE)��������89
How to Establish a Joint Venture (JV)�������������������������������������������������93
How to Establish a Trading Company (FICE) in China����������������������97
Shortcut Options: Third Jurisdictions as a Gateway to China������������101
Tax and Accounting��������������������������������������������������������������������������111
Location Options������������������������������������������������������������������������������123
Human Resources�����������������������������������������������������������������������������129
Intellectual Property Rights Protection����������������������������������������������139
Due Diligence�����������������������������������������������������������������������������������145
Final Thoughts�����������������������������������������������������������������������������������149
Useful Links���������������������������������������������������������������������������������������151
About the Author��������������������������������������������������������������������������������155
Index�������������������������������������������������������������������������������������������������157
Broad Methods
of Market Entry
Since China’s entry into the WTO back in 2001, the Chinese government
has continued to fulfill its WTO engagements by gradually opening up
various sectors to foreign investors. Along these lines, the government’s
stated goal is to further improve the foreign investment structure espe-
cially by encouraging foreign investment in the high-end manufactur-
ing industry as well as the strategic and modern service industries with
subsidies, administrative convenience, as well as tax and tariff incentives.
Despite the current tumultuous global financial environment, recent data
published by MOFCOM, the Chinese Ministry of Commerce, shows
that China is continuing to attract impressive amounts of FDI. Foreign
investment into China comes in several foreign-invested entity forms.
Choosing the appropriate structure depends on a number of factors,
including business scope, industry sector, and investment size.
Despite certain challenges, China is a great place for many compa-
nies. Foreign companies have the possibility to manufacture in China,
to sell into China, or to source their goods from China. Exporting your
products is one way to enter the Chinese market and it is the least risky
one, in terms of both operational cost and invested capital. While each
mode of entry presents its strengths and weaknesses, the great majority
of companies usually prefer to develop a gradual approach based on their
available resources and time. When deciding which method of entry is
the most suitable for your business it is necessary to consider the size of
your c ompany, the time and resources available, the nature of the prod-
ucts or services you want to sell, the business conditions and regulations
applying to the particular industry your products belong to, and whether
there is need for on-the-ground representation (e.g., marketing and
after-sales service).
28 The Chinese Market
Wholly forelgn-
owned enterprise
Joint Venture
INCREASE IN TIME AND RESOURCES NEEDED
INVESTMENT
Partnership
ENTRY MODES
Representative
Office
Direct Selling/
Exporting
Overseas Agent or
Distributor
EXPORTING
Franchising
Licensing/
Technology Transfer
Broad Methods of Market Entry 29
800
700
600
500
400
300
200
100
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
China Indonesia Malaysia Mexico
Philippines Thailand Vietnam
Index
ABC Consulting (Shanghai) LTD, 90 structure, 72, 90, 106, 108
Annual cooperative examination, trading, 47
121–122 Compensation, 134–135
Approval Certificate and Business Competitive threat, 26
License, 94–95 Consulting services company, 47
Articles of association, 79–80 Consumer pull, 25
Association of South East Asian Consumption, 37–38
Nations (ASEAN), 107 growth, 10
Consumption tax (CT), 118
BeiDou, 51 Contracts, 132
Belt and Road Initiative (BRI), 1, Cooperative/contractual joint venture
21–26, 49–51 (CJV), 66–67
Branch office, 108 Corporate income tax (CIT),
Bureaucracy, 126 111–112, 115
Business tax (BT), 117 Costs, 127
COVID-19, 2, 3, 8, 18–20, 33, 49
Catalogue for the Guidance of Custom duties (CD), 118–119
Foreign Investment Industries,
41, 43 Decision-making, 150
Catalogue of Priority Industries for Demographics, 38–39
Foreign Investment, 41, 43 Deng Xiaoping, 17
Central-Western Region, 43 Digital Silk Road, 50
Certified Public Accountant Documents, 78–79, 83–87, 91–92,
(CPA), 65 94–95, 98–99
Chen Zhaoxiong, 50 Domain names, 142
China, 5–10, 123–124, 129–130 Due diligence, 145–147
investment, 16, 112
location choice, 124–127 Employee handbook, 133–134
major cities, 124 Encouraged industry, 41, 42, 44
strategy, 11–13 Entry methods, 3, 55
China Securities Regulatory Environmental Impact Report, 94
Commission (CSRC), 74 Environmental Protection Evaluation
Chinese Labor Law, 133 Report, 80
Chinese law, 28, 59–61, 84, 111 EO intelligence, 42
Circular economy, 36 Equity joint venture (EJV), 64–66
Climate, 126 Establishment process
Closer Economic Partnership articles of association, 79–80
Arrangement (CEPA), 102 documents, 78–79
Communist Party of China, 6 feasibility study, 79
Company FICE, 97–99
consulting services, 47 joint venture, 93–96
manufacturing, 48 preparation, 77–78
158 Index