China Market Entry – Some Key Points and Observations

7 January 2025

Chinese markets have always played an integral part in the operations and growth strategy of many foreign companies. However, rapid changes in demographics, rising income and new laws have not made the foreign companies’ entry strategies any easier. The changes have also meant that the operational costs in China are increasing. Entering the Chinese markets may be a daunting task to foreign companies because of the complexity and uniqueness of the business environment. Therefore, a trusted advisor with hands-on experience is a must-have in order to execute China strategies successfully.

Location. It is important to understand that China is not one big homogeneous market. It is, in fact, fragmented geographically into plethora of markets. For example, what is considered market practice (incl. regulation and practice) in Shenzhen might not correspond to what is considered market practice in Beijing. Moreover, the variations between the provinces and places also include different consumer spending habits, education levels, regional culture, number of expats, and lifestyles. It should also be noted that different provinces and cities have slightly different focuses in terms of industry. For example, Shenzhen & Beijing areas are heavily concentrated in electronics and IT whereas more traditional industries can be found in Zhejiang and Guangzhou. In other words, choosing the right location within China is crucial.

Types of entries. There are various ways that a foreign individual or company may enter the Chinese markets. Direct investment, cooperation and engaging a distributor or agency are common ways that have often been used in the last decades. Each of these entry styles has its own pros and cons and choosing the correct entry style really depends on what the foreign party is aiming to achieve in China. We will explain the pros and cons of each of the said entry types in our later blogs.

Legal entities. There are two types of legal entities that are available to foreign companies in China: Foreign Invested Enterprise (“FIE”), which can either be owned 100% by foreign investor(s) or co-owned with Chinese investor(s). The second alternative is a representative office (“RO”). Both options have their own advantages and disadvantages that should be carefully considered when choosing the right legal entity. Very often foreign companies opt for 100% owned FIE to keep the control of the business, but, as strange as it may sound to foreign companies, this may not always be the right strategy.

Regulation. In tandem with the economic growth of China, the amount of regulation has increased accordingly. The new laws are more stringent than before and aim to capture all the companies established in China, whether local or foreign-owned. New laws and regulations in the area of personal data protection will also have an extraterritorial effect on foreign businesses that are not established in China but offer services to Chinese individuals. Understanding the regulatory environment is an important part of your homework before entering into the Chinese markets.

Digitalisation. China has been on the forefront of creating wildly successful tech companies, e.g., Alibaba & Tencent. The growth of tech companies in China has also led to a widespread digitalisation of all consumer business: it is fair to say that almost no transaction in China happens without a mobile phone and an app (and a Chinese credit/debit card connected to the said app). The digitalization has, however, also increased the amount of data security laws and personal information protection laws that needs to be factored into the strategy of any company taking part of the digital economy of China.

HR. One of the biggest challenges that foreign companies face in China is finding and recruiting the right talent. For example, posting job adverts or conducting searches in social media platforms is not going to work before you have established a legal presence in the market. The same goes for actually hiring an employee in China: no Chinese legal entity, no local employees. Therefore, if you want to find personnel before entering the Chinese markets, you may have to rely on HR companies specialized in recruitment.

IPR. There are thousands of articles about IPR strategies in China, so let us just make a few concluding remarks: (i) register your trademarks before/whilst entering the Chinese market, (ii) engage a Chinese trademark expert to register your Chinese trademarks, (iii) vet your business partners before disclosing too much information, (iv) use NDAs, (v) monitor Chinese platforms that may sell products similar to yours. And still, at the end of the day, be prepared for the possibility of IPR infringement, but trust that your brand will beat the competition.

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WDL has a decade of hands-on experience in cross-border transactions with China as well as in assisting foreign companies with their entry and operations in China. Our multi-national team of legal professionals and our long-term local partners in China will assist you with company establishment, legal, HR and administrative matters. We are here to help you explore the opportunities in the Chinese markets and support you every step of the way with your China entry strategy.