China - Country Commercial Guide
Market Challenges

Learn about barriers to market entry and local requirements, i.e., things to be aware of when entering the market for this country.

Last published date: 2021-02-03

China remains a challenging place to do business, further complicated by the COVID-19 worldwide pandemic. According to the American Chamber of Commerce (AmCham) China 2020 American Business in China White Paper and 2020 China Business Climate Survey Report, while AmCham members continue to view the market as critical for their business, they generally hold pessimistic views about market growth and future investment plans.  
 
Many of the challenges American firms face are longstanding. Firms seeking to export to China face various headwinds including fragmented and inconsistently implemented local regulatory requirements, preferred treatment for local competitors, and the need to localize products and services to meet Chinese consumers’ expectations and requirements among others.
 
Firms interested in establishing operations in China should note that the World Bank ranks China 31 out of 190 countries in its 2020 Ease of Doing Business Report. Despite significant Chinese government efforts to streamline bureaucracy and reduce red tape, foreign companies continue to complain about lengthy and opaque administrative procedures, especially with respect to permits, registration, and licensing. Furthermore, foreign enterprises continue to report that Chinese government officials may condition approvals on a foreign enterprise’s agreement to transfer technology, conduct research and development in China, satisfy performance requirements relating to exportation or the use of local content, or make valuable, deal-specific commercial concessions.
 
China continues to pursue industrial policies that limit market access for imported goods, foreign manufacturers, and foreign services providers, while offering substantial government guidance, resources, and regulatory support to Chinese industries. The principal beneficiaries of these policies are state-owned enterprises as well as other favored domestic companies. Provincial and local governments can have an ownership stake in private companies, incentivizing support of these enterprises. 

Intellectual property (IP) infringement is widespread in China. It is incumbent upon U.S. firms to take steps to protect and enforce their IP rights. Please see the Protecting Intellectual Property section for more information.

Market conditions also create persisting challenges, with rising labor costs among American firms’ top concerns about the Chinese market. Increasingly competent domestic challengers and industrial overcapacity in some segments are also frequently cited challenges.

In addition to these longstanding challenges, American companies report that regulatory compliance risks, including insufficient time to comply with new regulations, as a growing challenge.  Recent tensions in the U.S.-China bilateral relationship have also reportedly made it more difficult for companies to conduct business, both due to the impact of tariffs applied by both countries, but also due to the results of economic issues becoming more intertwined with national security challenges.  Specifically, U.S. companies report Chinese customers questioning whether American firms can be relied upon, dampening U.S. firms’ competitiveness vis-à-vis local and third market businesses.