Foreign investments in China down to 18-year low in 2022

One of the primary hurdles is the language barrier.

Foreign investments in China have hit an 18-year low in late 2022, with nuances of language and communication in China being one of the primary challenges.

“Knowing the language in China, the correct tone, and the correct communication with your partners, staff, and government agencies is an important aspect of doing business,” Yeo Lee Soon, RSM Singapore’s Director of China Business Advisory, said.

He also pointed out the legal restrictions for foreign businesses, known as the ‘negative list,’ which impacts the type of structure businesses can set up in China.

Furthermore, human resources and employment law peculiarities present additional challenges. “Foreign businesses need to be aware of the differences in labour contract law and how compensation packages should be designed,” Yeo added. 

Agnes Cheung, RSM Hong Kong’s Managing Partner for Tax, highlighted the stringent nature of tax administration in China and the importance of proper documentation for smoother business operations. 

“Businesses need to consult with professional service providers with local expertise to help smooth the process,” Cheung advised, noting  that despite economic downturns, there are growing needs in other business areas. 

“With the population’s increased spending power and the demand for high-end and luxury goods, there are opportunities for foreign investors,” she stated.

When considering potential pitfalls, Cheung pointed out that certain industries, such as retail, cosmetics, financial services, and investment products, are in high demand. She suggested that foreign businesses can leverage Hong Kong as a platform to invest in China, benefiting from its infrastructure and professional services.

However, the overall economic conditions in China have been affected by political tensions with Western economies, a weakened property sector, and a restrained job market. Yeo notes that these factors have led to diminished consumer spending power and more stringent internal evaluations for investment plans. 

He also mentioned that location is a key consideration, with cities like Shanghai still attracting significant foreign direct investment.

Cheung concluded, “With the right business angle and industry, businesses can still prevail in the market.” She emphasises the importance of identifying the right industry to enter the market, especially considering the evolving consumer base in China, such as the 'single child 2.0' version, which is reshaping consumer habits.