3 Reasons Why Foreign Firms Don’t Need to Shut Down China Operations

The escalation of US-China trade war has prompted many businesses to relocate their business from China. According to the expert China business lawyers, the fear of Chinese authorities crack down on the foreign businesses is quite obvious. But the on ground reality is, foreign businesses don’t need to press the panic button immediately. Here we are explaining the reasons why overseas companies can continue their business operations in China without any hesitation:

Chinese Government will not Shut Down Foreign Firms-

In spite of the Huawei incident, it is quite unlikely that China will go after every foreign firm. There is no incident reported that suggest even a single US or European company has been told to close down their operations from China. US President Donald Trump wants to lower the trade deficit by imposing tariffs, making Chinese imports expensive. This, he hopes, will prompt US citizens to buy products that are made in their country. However, no one is forcing US companies to manufacture goods in China. At the same time, no one is forcing Americans to buy goods made in China. They do so because they see value for money in it.

Chinese Government will not Disrupt Supply Chain-

Given the economic situation of the country, the Communist government of China will hardly disrupt the supply chain. Marriott, Delta Air Lines, Zara and all the other big brands are rapidly expanding their business in the mainland China and signing new deals. The good thing is, Chinese government is fully supporting their new ventures and taken credible actions to reduce the red tape that may disrupt any sort of foreign investment.

China Welcoming Foreign Investment-

Chinese president Xi Jinping at the World Economic Forum in Davos this year, promised improved market access for foreign companies. China is becoming increasingly friendly towards foreign firms operating in the country. A greater number of investor-friendly policies are on the cards to smoothen the overseas investment. However, you need to make sure your China WFOE actually exists and is licensed to do what it is actually doing.

Chinese government is attaching equal importance to the foreign companies as well as the state-owned enterprises in providing a safe business environment. The structural reforms initiated by the Chinese government is a strong signal that this country is still the best place for doing business.

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Options of Diversifying your Business Away from China

Companies from all over the world are trying to diversify their business away from China. But the problem is, over the last two decades, China has become one of the finest places for starting up a manufacturing hub and global companies have invested heavily over here. Suddenly, relocating the entire set up to another country is a mammoth task. Moreover, it is hard to find the manufacturers of other countries who can match the efficiency of a Chinese manufacturer.

The ongoing trade war between the USA and China seem to be going long and long. The US companies are trying hard to relocate their business to somewhere else, but still about 20% of their China manufacturers make 80% of their products. It shows how difficult it is to diversify business away from China. As the trade war is refused to die down, it is a good idea to think about relocating your business away from China.

The U.S. and European companies need to realize the fact that diversifying into other markets will take time and money, and it will be stressful and challenging. You need to locate other manufacturing spots according to your business requirement. For instance, if your business requires human labor, countries like India, Bangladesh, Philippines could prove to be a good option. Countries like Taiwan, South Korea, Malaysia are ideal for high-tech manufacturing. You need to analyze your business aspects before diversifying your business away from China. On the other hand, businesses that see potential in China’s new economy might upgrade their investments by moving to one of the country’s dynamic coastal cities for more advanced functions that may previously have been executed primarily within their home markets.

Both Washington and Beijing appear to be digging in for a long battle, although US officials say President Donald Trump would go through with plans to meet Chinese President Xi Jinping at the G20 summit next month if it looked like the discussions would be positive. Even if the hot phase of this trade war passes, tensions will linger and continue to reshape the economic relationship between the world’s two largest economies.

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