Foreign investors to rethink business models in China

Recent trends in China will drive foreign investors to rethink their business models, Tan Lee Lee, Director of Business Advisory, said at our China Briefing on 29 September 2017.

Foreign businesses in China should find ways to leverage economic restructuring, urbanisation and rising disposable incomes of local consumers, as well as productivity-enhancing technologies to grow in a sustainable manner, she said.

As China shifts towards a service- and consumption-based economy, businesses might have to restructure to take advantage of this trend. Part of the country’s economic restructuring efforts involves a relaxation of legislation on foreign direct investments, with foreign businesses now allowed to operate in certain sectors where they were previously prohibited.

“Our general feel is that the legal environment will be more favourable for foreign investors in China, with greater ease of incorporation,” Lee Lee said.

Foreign investors in China’s 11 free trade zones (FTZs) may apply for the establishment or de-registration of a foreign-invested enterprise without official approval as long as the industry is not on the “negative list” of prohibited or restricted sectors for FTZs, which has also been shortened.

There have also been more bilateral agreements between China and other countries in recent years to reduce employment costs and enhance trade.

However, challenges remain. For example, China’s new work permit system that took effect on 1 April 2017 categorises foreign applicants into three classes based on points scored for factors such as annual salary, education/certification, work experience, age and Mandarin proficiency. Issuance of work permits to those who fall under the third class (less than 60 points) would be greatly restricted. This process seeks to moderate the influx of unskilled foreign workers into China in favour of highly skilled professionals, and is expected to become more rigorous in the future.

Companies that re-employ workers who have reached their retirement age need not make social insurance contributions for them. As China’s retirement age is expected to increase over the next few years, employers may be required to make social insurance contributions over a longer period.

James Chang, Group Chief Cross-border Officer of Lazada Group, highlighted the rapid growth of cross-border e-commerce in Southeast Asia, driven by positive trends such as rising incomes, greater adoption of online shopping, and the widespread use of mobile apps. Given this favourable environment, Lazada has expanded its services over the past five years to areas such as global shipping and cross-border fulfilment.

James noted that Southeast Asia’s e-commerce market is expected to grow a whopping 16 times to reach US$88 billion by 2025, compared with 2015. “As the online market continues to evolve, the issue is how traditional retailers can adapt to compete with online retailers,” he said.

Organised by SBA Stone Forest, the seminar was held in Singapore with the theme, “New World of Business”, and ended with a panel discussion.

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