Despite the geopolitical tensions and the ongoing COVID-19 pandemic, China still rules the roost as an attractive investment destination. So much so that it overtook the US to be the largest foreign direct investment in 2020. China’s FDI is expected to increase by 10.8% every year to RMB 1 trillion (equivalent to US$160 billion). On a more positive note, 41,600 new foreign-invested enterprises were established in the first three quarters of 2021 alone.
Doing Business with China – 2021 Edition
2021 has been an eventful year for doing business with China. It has been facing untoward pressures including:
- Delays in the real estate sector
- Carbon reduction policies
- Weak consumption trends
Above all, the new rules and regulations, especially the data and privacy protection laws, have made compliance challenging, if not tricky, on the business front. With the ongoing changes to China’s business landscape, investors should get familiar with the changes beforehand. They should determine the risks and take the necessary steps to prepare for new opportunities.
Crackdown on the Big Firms
China had an uncurbed growth in the technology front without many regulations. 2021 was spent on taking action to prevent monopolies and curbing the power of the technological giants. For example, the CCP stopped the highly anticipated initial public offering (IPO) of Ant Group. Ant Group is the financial arm of the eCommerce giant Alibaba.
No company, big or small, was spared the long arm of the government. In May, Alibaba faced a massive fine to the tune of US $2.8bn as an antitrust fine. Before long, the Chinese government launched a probe into the online business platform Tencent.
Soon after that, in the Summer, a multi-million dollar industry was wiped overnight with China’s ban on online private tutoring. The crackdown continued with Alibaba and Tencent pledging a massive sum of money to promote economic growth in China.
Ride-hailing app Didi Chuxing tried going public in the US but had a disastrous opening in the New York IPO. This caused many companies to turn back on their plans of going public in the US.
Doing Business with China in 2022
Going into 2022, experts predict that the real estate and banking sector will be the next going through reforms. With firms such as Evergrande and Kaisa Group defaulting on payments, the real estate industry could be the next target for clampdowns by the Chinese Government. The highly indebted industry is in line for economic reforms due to its risk for the country’s financial stability.
Online brokerages such as Futu Holdings and UP Fintech Holding look to be next in line for the governments’ crackdown. However, early signs indicate that the government will reduce the crackdown to stabilize the economy.
China is undoubtedly the biggest growth market for the next 20 years. But, investing in China carries risk since China looks forward to social cohesion and stability over the interest of the investors.
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