As an emerging tech giant, China’s digital reforms have opened up opportunities and innovative pathways in the country. As of 2022, the gap between China and US continues to narrow, with the former’s GDP growing at a rate of 3.3%, making it the second largest economy in the world.
What are some of the significant trends brewing in this nation state that is drawing in a number of businesses and how will the economy’s digital transformation impact the way companies operate?
Construction of a Digital Government
According to the statistics of the China Academy for Information and Communications Technology (CAICT), the scale of China's digital economy is constantly improving. In March 2021, China included the construction of a digital government as the first chapter of their 14th Five-Year Plan for national, economic and social development and outlined the 2035 vision, drawing a blueprint for a “digital government”.
The country’s aim to bring about digital economy developments is targeted to “comprehensively deepen the digital transformation of key industries" and "promote the digital transformation of industrial parks and industrial clusters.”
This push for transformation at a national level has already been effected within the compliance and regulatory operations of businesses. A case in point is China’s upgradation of its Golden Tax System which is currently running its Phase IV stage.
China’s Golden Tax System (GTS) Phase IVJust like how businesses are leveraging technology for better efficiency, the tax authority has gone through several rounds of “technological enhancements” over the years. With the stronger integration and sharing of information across different government agencies, it has now become common practice to apply big data techniques for identifying high risk companies and ensuring compliance.
The upgradation of GTS under Phase IV is one of China’s major projects that aims to bring about “one network” that interlinks data between the Tax bureau, HR bureau, market regulators, banks and other institutions. This would allow for an easy monitoring of corporate tax information and tracking compliance of taxpayers’ business through it.
- The resultant cross-sectoral information sharing brought about by the upgradation will also allow a close monitoring of social insurance contributions. In 2022, many cities in China officially announced that the tax authorities will take over the collection of social security contributions.
- In other words, tax authorities are now able to facilitate the data sharing between the tax bureau and the labor bureau. In the event of discrepancies between locations paying the social security contributions and the income tax, the tax authorities can identify non-compliance & order relevant companies to action rectification or repayment.
- Ultimately, the system will promote employers to fulfill their responsibility in ensuring that all their employees are covered with a reasonable social insurance.
With the development of technological innovation at a nation-wide level, adoption of digital transformation strategies has also become more commonplace for companies of all sizes and types.
This enables companies to improve their business capabilities, operational efficiencies and their customers’ experiences and hence bring about newer opportunities to enterprises.
Given the rippling effects caused by the Covid-19 pandemic, the rise in demand for certain critical industries have been pushed in favour of businesses in the healthcare, communication technologies, manufacturing, and e-commerce & retail industries. This trend includes digital services, covering technology and service providers embedded in supporting online businesses that convert data to relevant business information.
Foreign investors in China often prefer setting up accounts with international banks because of either existing relations or a preference to stay within familiar processes. However, it is advisable to establish an account with a local Chinese bank to allow for efficient direct deduction arrangements with government agencies.
An interesting trend that businesses can encapsulate on is the unique rise of super apps in China. With no access to westernised social media platforms, companies can leverage the use of super apps like WeChat and AliPay to connect with customers that may fit their target range.
Other regulatory considerations when setting up a business in China relate to shareholding structures, site selection, compliance obligations, tax subsidies, and transfer pricing. Depending on business needs and operational objectives, these requirements would vary from company to company.
Conclusion
As China continues to introduce digital solutions to resolve pain points and integrate operations across systems, businesses are presented with a commensurate platform of opportunities to capitalise on.
Without doubt, the nation’s evolving regulatory changes and digital market trends can be used to reach a massive market and build stronger connections with consumers at an unprecedented level that ever before.
Latest on COVID 19 measures (as of 12 December 2022): China continues to lift several of its Covid-19 policies including removal of centralised quarantine requirements and the health code; easing regulations concerning access to public transport and spaces etc. The situation is expected to evolve as the country prepares for economic recovery.Reach out to our experts at SBA Stone Forest with offices across in Beijing, Suzhou, Shenzhen, Chengdu, Hangzhou and Hong Kong to help you navigate the ever-changing regulatory and business environment of China with ease. Contact us here.The contents of this article are extracted from the RSM Stone Forest Seminar on “China Briefing – Trends in a Digitally Opportune China- What’s Brewing?” - with speakers RSM Stone Forest Business Advisory Director Yeo Leo Soon, and Guest Speaker from Verticurl Singapore, Vice President Kenneth Goh.
