2023 opened in China with a promising message for the international business community: Since January 8th, all Covid-19 related policies have been lifted, from borders opening to removing mandatory quarantines. This dramatic shift is anticipated to reposition China as a lucrative business destination, with brighter growth forecasts and supportive policies already in place.
Many foreign companies have been hesitant to enter the Chinese market or start a business in China during the last three years. However, now it’s time to reconsider. Keep reading our outlook for doing business in China in 2023.
Economic recovery is underway
In view of China’s declared intentions and active measures taken to rebound local economy, analysts have raised their prediction for China’s GDP growth in 2023, from 4.7% to 5.2%. likewise, at J.P. Morgan, the current estimate for China’s annual growth rate has increased from 4% to 4.3%.
However, despite the optimistic forecast, recovery is expected to be gradual. That is to say, a slower H1 – reflected in declining business confidence and work disruptions caused by the Chinese New Year and high Covid-19 infection rate – but a stronger business activity throughout H2. In the meantime, the Chinese government is rolling out preferential policies and regulations aimed at facilitating a business-friendly environment and realizing the predicted growth rates.
Old & new business regulations in 2023
The Chinese government is constantly adjusting existing regulations and introducing new ones, some are favorable for international companies in China, and some pose challenges. Below are the most relevant regulations for international companies in China in 2023.
* Note that all of the following regulations are already in effect.
Expansion of the Foreign Investments (FI) Encouraged Catalogue
The “Catalogue” details the industries and sectors that enjoy preferential policy treatment by the Chinese government. Historically, there is a continuous trend of increasing the number of items listed in the Catalogue, and the 2022’s version is no different – the updated Catalogue includes 39 new sectors open for foreign investment – a 19% increase from the 2020’s version.
It is noteworthy that adding/removing items from the Catalogue reflects China’s current agenda. Yet, the Catalogue grants international companies more widespread access to the Chinese market. This year, the “benefiting” companies are those operating in the fields of high-end tech manufacturing, software, automotive, green energy, healthcare, and production-oriented services.
Reduced tariff rates
This one is for companies engaged in import & export activities in China: first, 1,020 additional products are now subject to new tariff rates, lower than the Most-Favored-Nation (MFN) duty rates. Also, starting from July 1st 2023, China will significantly cut the MFN duty rates of 62 Information Technology products.
Read more on China’s import fees.
Tightened restrictions on data management and cross-border information transfer
In 2023 China keeps solidifying its “data protection framework” with new additions to the Data Security Law. More specifically, the government released Trial Measures applying to companies in the industrial sector, telecom, software, and IT services. These measures categorize data into three types and determine the respective compliance requirements.
Furthermore, as for the Personal Information Protection Law, international companies are now required to obtain a special certificate to process and transfer personal information between China and the HQ. Be mindful that regardless of the company’s core business, cross-border data transfer is carried out by any company doing business in China, for example, when recruiting and hiring in China. Therefore, it’s advised to double-check the specific regulations pertaining to each activity that needs to be performed, as they might vary based on the company type, size, location, and the activity itself.
Our recommendation: Implement HR policies in your workplace
With a surge in Covid-19 cases predicted for the foreseeable future, we recommend that companies formulate workplace-specific policies to mitigate the impact of sick employees on the ongoing business operation. Such work arrangements include updating former Covid-19 prevention protocols and enforcing them in your Employee Handbook, coordinating a hybrid office schedule, dedicating one office space for sick employees, installing air purifiers, etc.
Business opportunities ahead
Amid China’s growth forecast and the steps taken to push economic development forward, China market entry plans can be put on the table again. Where should you start? Here are our recommendations:
1) Software & tech industries
These areas have been a top priority for the Chinese government for over a decade. Therefore, the government keeps incentivizing local and foreign companies that can help position China as a top innovation leader. As a result, these domains are thriving. For instance, according to Goldman Sachs, the Chinese software industry’s accumulative revenue in 2023 is expected to grow by 24%, compared to 14% only in 2022.
2) The manufacturing industry
Most of the new items added to the FI Encouraged Catalogue belong to the manufacturing industry, particularly, parts for autonomous driving, high-performance materials, and industrial water-saving equipment, to name a few. As such, foreign high-tech components manufacturers can benefit not only from Beijing’s policy support, but, more importantly, from the significant advantage inherent in manufacturing in China. That is, a complete production process, from raw material availability to high-end manufacturing and assembly facilities.
3) The healthcare industry
The Chinese healthcare sector is considered the second largest in the world, and in 2023 alone, it is expected to grow by another 40%. Among the main contributors to this massive expansion are Covid-19 triggered health awareness, the aging population, efforts to improve the overall quality of life, etc. Given this expected upturn, foreign medical device producers and biotech companies can now benefit from the Chinese interest in healthcare issues and set foot in the Chinese market.
After three challenging years, 2023 is opening with a positive outlook. China’s proactive approach to restoring business activity is an invitation for international companies to rethink their China strategies and grab their share in the world’s second-largest economy. True that it won’t come without challenges, but this is what we are here for.
PTL Group is a veteran service provider in China, with over 20 years of experience helping foreign companies enter and grow in the Chinese market. Keep abreast of recent news in China’s business landscape – subscribe to our quarterly newsletter, and contact us today for China business support.