The Chinese market is a rapidly growing one with tremendous business opportunities. Many foreign companies have been seeking to advance their businesses into the Chinese market in recent years. Nevertheless, opportunities are always accompanied by risks and challenges. Foreign companies may face many obstacles when entering and operating in the Chinese market.
In order to help you navigate these issues and avoid common pitfalls, we have listed several potential challenges you may encounter. The following is a list of the five top challenges of doing business in China.
Challenge 1: Foreign exchange control
Founded in 1979, the State Administration of Foreign Exchange (SAFE) oversees all the activities in China’s foreign exchange market. SAFE practices strict foreign exchange policies and complicated administrative procedures. For instance, capital investments and loans from abroad must be registered prior to remittance. Businesses need to be meticulous to meet these compliances. Without a comprehensive knowledge of China’s foreign exchange regulations, foreign companies will face operational challenges and could even encounter legal problems.
Challenge 2: Intellectual property rights and forced technology transfer
Challenges in the enforcement of intellectual property rights (IPR) in China may be another issue for foreign companies. Enforcing IPR is difficult because of challenges in obtaining evidence, limited damage awards and the failure of foreign companies to timely register their IP rights in China.
One step that the Chinese government has taken to improve the IP environment, is to include relevant provisions in the Foreign Investment Law (FIL). In the revised FIL, which was adopted at the Second Session of the 13th National People’s Congress on 15 March 2019, Article 22 stipulates that the State must protect foreign investors’ and foreign-funded enterprises’ intellectual property rights, and “no administrative department or its staff member shall force any transfer of technology by administrative means”. The revised FIL suggests stricter IPR protection and improved the trust issue to a certain extent. Nonetheless, many foreign companies still feel hesitant when deciding whether to enter the Chinese market and make their intellectual properties public to Chinese businesses.
Challenge 3: Language and cultural barriers
The language barrier is a challenge for foreign companies that seek to enter the Chinese market.
Chinese is more than a mere language but a complex language system. Besides Mandarin and Cantonese, there are a variety of dialects in China, including Wu (Shanghai dialect), Gan (Jiangxi dialect), Min (Fujian/Taiwan Hokkien), Kejia (Hakka), Xiang (Hunan), Yue (Canton) and Ping (Guangxi). While some can be mutually understood (slightly different accents, slightly different localisms), others are not the same. Basic knowledge of Chinese does not suffice for business interactions.
Foreigners without an educational or professional background in China oftentimes find it difficult to communicate in Chinese. In addition, English is neither an official language nor the business language in China. Although many Chinese are able to communicate in English, accents and language habits have proved to be challenges for both Chinese and foreign companies.
As a result, foreign companies that want to enter the Chinese market should consider hiring professional translators. It is important that the translator is able to understand local accents, slang and idioms.
Furthermore, a good translator can also assist in overcoming cultural barriers. There are many aspects of Chinese culture which require people to adjust their wording or approach. The main example is “face” or “miànzi”. An oversimplification of “face” is that actions and words which are disrespectful may cause “loss of face” to counterparts. Whilst gifts, awards and other respect-giving actions may “give face”. Besides the face, there are many different elements of Chinese culture to consider when doing business in China.
Challenge 4: Visa application
There are various types of visas you can apply for. You need to carefully choose the type of visa you apply for since your eligibility depends on the purpose of your visit to China. The table below outlines a description of each type of visa.
The COVID-19 pandemic introduced additional challenges and uncertainty regarding visa applications and approvals for foreign businesses entering China. Even though China has eased the visa restrictions since early 2023 and the application returned to normal, given the uncertainties of the evolving global health situation, companies should stay informed about the latest travel restrictions, quarantine requirements, and visa application procedures before coming to China.
| Visa Type | Visa Description |
|---|---|
| C – crew members | Issued to foreign crew members entering China on international planes, vessels of trains. |
| D – permanent residents | Issued to foreigners who intend to stay in China permanently. |
| F – non-business exchanges and visits | Issued to foreigners who go to China for non-business activities, such as exchanges, volunteer work, visits, giving lectures and other activities. |
| G – China Transit Visa | Issued to those who intend to transit through China. |
| J – foreign journalists | Issued to foreign journalists. The J1 visa is for journalists staying in China for more than six months. The J2 visa is for journalists staying in China for less than six months. |
| L – tourist | Issued to foreigners who intend to travel to China. |
| M – business or trade purposes | Issued to foreigners to conduct business and trade activities, such as visiting clients, negotiating with clients and signing contracts. |
| Q – family reunion | Issued to relatives of Chinese citizens or foreigners living in China with a permanent residence permit. The Q1 visa is for a stay of longer than six months. The Q2 is for a stay of less than six months. |
| R – high-level talent and skill | Issued to those who are high-level talents or whose skills are urgently needed in China. |
| S – private visit | Issued to foreigners who intend to visit family members working or studying in China. The S1 visa is issued to foreigners staying in China for longer than six months. The S2 visa is issued to foreigners staying in China for less than six months. |
| X – studying in China | Issued to foreigners who wish to study in China. The X1 visa is for students studying in China for more than six months. The X2 visa is for students studying in China for less than six months. |
| Z – work in China | Issued to foreigners who intend to work in China |
Challenge 5: Fierce business competition
Because of China’s economic growth, there has been an increasing number of foreign companies that are already in or intend to enter the Chinese market. The total number of foreign business operations in the Chinese market has long exceeded 1 million since 2019.
Competition not only comes from fellow foreign businesses but also from domestic Chinese companies. In recent years, many domestic Chinese companies have been improving the quality of their products and services to compete with foreign companies and to occupy market shares. With advantages in local knowledge and familiarity with the Chinese market, domestic Chinese companies have become ever stronger rivals for foreign companies that intend to enter the Chinese market. Moreover, Chinese governments do sometimes tend to favour national champions-companies that enjoy regulatory protections, tax breaks and subsidies that offer an advantage in their home markets against foreign competitors.
Conclusion
In spite of the above challenges that foreign companies may face, the Chinese market still proves to be an attractive one with great business potential. Do not let those obstacles barricade your entrance to or development in the Chinese market. Through the assistance of Acclime, we will overcome these barriers together.
Acclime is a premier provider of professional formation, accounting, HR & advisory, and tax services in China. We focus on offering high-quality consulting and outsourcing services to our international clients in China and throughout the region.
Contact our teams for expert support and further information about entering the market and setting up a legal entity in China.
Maxime Van ‘t Klooster, Partner, m.vantklooster@acclime.com
Bram Voeten, Regional Business Development Manager, b.voeten@acclime.com
Julia Jin, Corporate Formation Director, j.jin@acclime.com
Contact our teams for expert support and further information about corporate governance in China to ensure you are compliant in the market.
Maxime Van ‘t Klooster, Partner, m.vantklooster@acclime.com
Bram Voeten, Regional Business Development Manager, b.voeten@acclime.com
Christophe Marquis, Director, Shanghai, c.marquis@acclime.com
