Economic Conditions for Doing Business in China
China ranks 89th out of 183 economies in terms of ease of doing business. The process of starting a business in China involves complex administrative procedures and requires 14 procedures, 37 days, and costs an average of 4.9% of gross national income per capita to run an LLC. Registering property requires on average 4 procedures, takes 29 days and costs 3.1% of property value. Though this seems tedious, other countries, such as India, have
China is an extremely lucrative location to set up business largely for it’s cheap labor costs. Even the city with the highest minimum wage, Shenzhen, only pays employees $147 (US) per month. (Euromonitor).
The Chinese government tends to welcome foreign investment and even implements a wide range of incentives policies for foreign businesses. However, currently foreign investors have grievances about China’s complicated business environment, corruption, it’s lack of transparency, inconsistent law enforcement, and it’s protective policies for local firms. In 2009, China increased its support for the export sector, imposed restrictions on government procurement from foreign companies, and used a new anti-monopoly law to block foreign investment, coming under pressure from trade markets for its “dumping” policies. Despite all of these challenges, however, China’s economy remains competitive and it remains one of the main destinations for foreign capital investment.
China’s investment laws have gradually been improved to conform to the World Trade Organization’s investment requirements. The government prefers investments that meet its goals for development and prohibits media-related investments as well as compulsory basic education investments. The government also protects local companies by implementing administrative measures to limit foreign investors’ ability to participate in local markets.
Government closely regulates China’s labor market. For example, in 2008 a new Labor Contract Law came into effect, and it required that firms award open-ended contracts to employees who have been working for over 10 years as well as employees who have been working for two years with fixed term contracts. With regard to taxes, China has set up a unified corporate tax rate of 25% for both domestic and foreign investors. Smaller companies enjoy a tax rate of 20%. This tax rate of 25% is one further benefit of investing in retail locations in China, as this rate is less than the current corporate tax rates in India (34%), Japan (30%), Australia (30%), and Mexico (28%). Furthermore, in order to boost the economy during economic slowdown, the Chinese government has offered tax cuts to a number of sectors including automobile, real estate and environmental protection.