China: Growing opportunities and rising risks

China’s economy is the second-largest in the world and continues to develop at an astounding rate. Foreign companies are pouring in for a quick buck. With immense opportunities, many foreign companies are viewing it as a place to set up their production facility at costs that are far less as compared to their home market. However, with these lower costs come risks of doing business in China.

While economic growth brings business prospects, extensive corruption in China affects the government’s sincerity in maintaining prosperity in the region, bringing a horde of risks to foreign companies doing business in China.

With a government, which is constantly changing its rules and regulations, a business owner must keep in mind the thought of government interference. This is especially important to foreign companies, because, unlike locals, they do not have the luxury to avoid many of these laws. The practice of paying off government officers is still quite common in China. Foreign companies have to shell out greater costs as compared to their Chinese counterpart, in order to meet with laws and regulations.

Additional risks of rising employment costs are also dominant. With the country growing, the rate of unemployment drops, making it expensive to find and maintain good employees. The one child policy and growing infrastructure has created an aspiration for higher education among Chinese children. This has plunged the pool of manual labour, creating an increase in demand and therefore an increase in employment costs. These costs are then multiplied by growing demands of the government to improve work conditions and increase fees paid to the government for per employee hired.

Foreign companies must find ways to lower their costs to remain economical in the price market and shifting base to smaller remote cities in China is one of the way of doing this as labour and rental cost are much lower in remote cities.