When a company wants to reduce costs or conquer new markets, foreign direct investments (FDI) are essential. It is one of globalization’s key driver and a major factor in the growing multinationalization of companies. They are used to remotely exploit the natural resources of another country, benefit from a cheaper labor force and many other advantages (in particular fiscal ones). These international capital movements can be used to develop or maintain a subsidiary abroad or to exercise control or significant influence over the management of a foreign company. However, one question arises: in which country invest? It is not so easy. We will explain in this article why China is the right one to invest.
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China is already experiencing the biggest consumer boom ever seen. Indeed, China was still a country with a relatively poor population not so long ago. But since the economic opening of China, the country has changed and developed at a crazy speed. It was the same for the purchasing power of the inhabitants. Moreover, with the emergence of the middle class, the Chinese spend more than before and are more likely to do so. Several signs prove that it is not ready to stop. Notably the example of e-commerce in China, which is the largest market in the sector in the world, ahead of the United States.
In addition, the development of China is becoming more and more qualitative. Although their success was based on the quantitative in the first place. The country is now investing hundreds of billions of dollars in research and development more than any other country. Today they are trying to create their own intellectual properties (especially in artificial intelligence) rather than copying others as before.
A significant competitiveness
Although it is not as interesting as before (with the rise of the minimum wage), the competitiveness of the Chinese market remains one of the best in the world. This is particularly the strength of its power of attraction for investments. China has many resources and infrastructure, as well as a skilled and productive workforce. It is therefore wise for foreign companies to take advantage of what China has to offer by investments.
The regulations are numerous and are strict, they can discourage many. It will take a lot of time and money. However, once installed, you can enjoy several benefits. Because to encourage investment, the government has introduced various tax benefits such as tax exemptions, concessions, low-interest loans and subsidies. These different aspects can therefore be motivating factors for investors, because they allow to make more money in a shorter period of time.
Political, economic and social stability
Before investing in a country, it is important to know if the situation of the country is stable, so as to ensure that its investment will not be threatened by outsiders. But also, to be able to hope that this investment is fruitful, pushed by the good economic, political and social health of the country. Without all this, the future of the country remains uncertain and investments are therefore very risky. It is also prudent to invest in a country where the legal system is fair and not corrupt. Although corruption still exists in China, the government has made efforts to reduce it.
A market like no other
Because of its population, China represents a huge and unique market. On the one hand, the country has more than 1.4 billion inhabitants. Any market can therefore be promising here, as potential customers are numerous. But they are also big consumers since their purchasing power has been increased. In addition, estimates for the future are very optimistic. Developed regions will attract investments, investments will develop these regions, which will attract even more investments…
However, even though China is in many ways the ideal country to invest in, you must remain vigilant. The country is very different from many points and you should not behave like in any other country. Some rules are to know before investing:
- China is a country with its own rules. We do not do business with a Chinese as we would with an American. Some things that may seem futile will be very important to them. To learn how to negotiate with a Chinese, please read our article.
- The Chinese probably have one of the most distant cultures of ours. We do not have the same language, the same history, the same values, the same ideologies etc. Some cultural aspects can sometimes be problematic. Chinese behavior is influenced by Taoism and Confucianism.
- One of the most important concepts in China is that of “Guanxi“, ie relations / network. It is much easier to do business in China when you know the right people. Guanxi is very important, the Chinese will not do business with you if they do not trust you!
- Although more and more developed, China remains a relatively poorly organized country on several points. You have to be careful, attentive and patient.
- If you want to locate in China, it can be complicated. As in many countries, laws favor locals. As a result, joint ventures are almost mandatory. Justice will also tend to always be in favor of locals.
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