China is designated one of the world’s fastest growing economies. With an annual GDP growth of more than 9% on average for the previous three decades, the sheer pace and scale of its development had been unprecedented. Despite its slackening growth since 2015, it still manages to boast a healthy growth of 6.5% when pitted against other major global economies. In addition, a cheaper yuan as a result of the recent devaluation helps to lower operating costs in China and enhance the competitiveness of export sales.
New Growth Model
In March 2016, the Chinese government announced that it would channel resources and capital into pursuing a more sustainable path of development. Its transition from an economy reliant on labour-intensive industries to one that is service-based and driven by innovation and domestic consumption has seen an increase in spending on research and development and infrastructure. The newly defined growth model is underpinned by five main tenets: innovation, openness, green development, coordination and inclusive growth. In particular, the shift to innovation is illustrated in the record number of China outbound M&A in the technology sector ($17.6bn in the first quarter of 2016).
These economic reforms coupled with structural reforms on the political front, evident in President Xi Jinping’s campaign to “rejuvenate the nation” by stamping out corruption in favour of fairer competition, indeed bode well for businesses and are conducive to the successful entry of new businesses wishing to gain a foothold in the Chinese market.
A Railway of Opportunities
Keen to dispel the outdated image of an “inward-looking” and “isolationist” nation cast upon her, China has been engaging in so-called “railroad” and “peripheral diplomacy” to prove that she is more open for business than ever. The roll-out of the “One Belt, One Road” project—promoting connectivity on an epic scale—aims to facilitate China’s geoeconomic integration with neighbouring Central Asia and South Asia, stimulate trade between Asia and Europe as well as to generate a wealth of business opportunities for participating nations via a labyrinth-like network of high-speed railways, ports, pipelines and highways.
Liberalisation of China’s Financial System
Investors and the likes also wait with eager anticipation to jump on board the Shenzhen-Hong Kong Stock Connect train launched in December 2016, which grants overseas investors access to the Shenzhen Stock Exchange whilst allowing mainland brokers to trade stocks in Hong Kong. This adds to the fleet of “through trains” with the first one between Shanghai and Hong Kong introduced in 2014. Further developments that are also being hailed as positive milestones in the liberalisation of China’s capital accounts include the setting up of offshore RMB centres in major financial hubs, such as Hong Kong, Singapore and London, in order to promote the use of the yuan in international trade; and the admittance of the yuan into IMF’s select basket of Special Drawing Rights (SDR) reserve currencies alongside the euro, dollar, pound and yen, which will pave the way for the enshrining of the yuan as an international currency.
Hong Kong as China’s Right Hand
Without a doubt, China’s “going out” strategy is evidence of her unrelenting desire to consolidate her role as a protagonist on the global stage, as she continues to look increasingly outwards. It is also important to highlight the significant role that Hong Kong—a Special Administrative Region (SAR) of China and one of the most important financial centres in the world—as a supporting actor plays by acting as the “super-connector” for China and the outside world and vice versa.
What CW can do for you
By keeping abreast of changes and developments in the macro environment and carefully assessing the impact they have on our clients, we are ideally placed to help and guide overseas enterprises in sailing through the mainland Chinese market.
With our presence in Hong Kong, Guangzhou, Shenzhen and Shanghai, we can help you:
- to determine the feasibility of the legal entity structure and establish operations in mainland China;
- to ensure compliance with audit and other assurance requirements;
- to manage tax-related obligations in accordance with local taxation laws, regulations and practices;
- to ensure compliance with local customs and excise laws and regulations;
- to take care of time-consuming business processes, e.g. accounting, payroll and other HR operations.