There are many cities in China on the brink of a development boom or in the middle of it. Chengdu is one of these cities. Considering our recent research into Tier 2 cities, we are seeing a growth of business in Chengdu from western companies due to their “Go-West Strategy”. With new transportation connections to Chengdu, such as the One Belt One Road (OBOR), it is no surprise that it will become even easier to make use of all the potential business in Chengdu. Is it time to start doing business in Chengdu? Is it a Chengdu or a “Chengdon’t”?
Many larger Chinese Cities are showing promising growth, which makes them interesting for business. Each city has their own focus area and their own interesting industries. The larger cities in China receive a status as Tier 1 or Tier 2 cities. This ranking is based on a number of criteria, like GDP, inhabitants, spending power and more. Tier 1 cities are Beijing, Shanghai, Guangzhou and Shenzhen. Much of the growth in these cities can be explained do to international trade, which is easier to do when sea fare is a possible mode of transportation. These coastal cities are prosperous but are unable to grow as fast as in the past.
However, when you visit Chengdu it sometimes feels like a haven for foreigners. The culture of the city is very appealing and has a sort of Mediterranean relaxed vibe. This aspect makes the city also very attractive for foreigners looking to do business in Chengdu. We’ve explored the other basics of Chengdu which might be useful to know before doing business there.
An Overview of Chengdu
Chengdu is the capital of the Sichuan province and is situated on the Western edge of the Sichuan Basin. This capital city serves as the economic, financial and commercial center of Southwest China. More than 15 million people live in Chengdu. The province of Sichuan is known to tourists for its spicy food. Chengdu is famous for their cute habitants: The Panda. Economically, it is ranked as the 15th most competitive city in China. The ranking will probably move up quickly, as experts estimate that Chengdu will soon be upgraded from a Tier 2 to Tier 1 city. The growth which makes the Tier upgrade possible, is fueled by infrastructure and connectivity investments like the OBOR initiative and the Chengdu – Poland railway connection.
Business in Chengdu
Chengdu is currently ranked as the second Tier 2 city for foreign investments. In 2016 the GDP of Chengdu was $USD 184 billion and in 2015 Chengdu received $USD 7.52 Billion of foreign investments. These foreign investments were spread over a multitude of industries.
The chart below shows different companies from various countries are starting their business in Chengdu. This growth will most likely continue with the upgrade to a Tier 1 city.
While Chengdu’s economic growth has stabilized from 15.2% in 2011 to 7.7% in 2016, the growth percentage is still higher than China’s national average. As can be seen in the industries of investment, Chengdu has a service-oriented economy with tourism as one of the pillars. The city itself now encourages innovation and entrepreneurship, like many other cities in China. Chengdu has many universities which will probably provide the required talent and innovation for the future markets.
The GDP of Chengdu was 184 Billion $USD in 2016, up from 126 $USD in 2012. This growth number is impressive but is quite far removed from the Tier 1 cities in China.
Major Industries
While the numbers above are impressive, there are still some industries which will perform better in Chengdu than others. Two of these industries are:
Biomedicine
In Chengdu, the life science industry is targeted as a key emerging sector. The city is currently building an industrial chain focusing on biomedicine. An area especially developed for this industry is called the Chengdu Tianfu International Bio-Town. The Bio-Town already attracted more than 70 projects worth 90 million RMB since March 2016.
IT Sector
Another important industry which Chengdu is targeting, is the IT sector. They target the sector by developing a new area called the Tianfu New Area. Tianfu will be near Xinglong Lake and the six clusters aimed for are: Information networks, biomedicine, valorization of science, civil-military integration, international cooperation and creative design.
Outlook of Chengdu
In 2017, the most recent outlook of Chengdu’s future was that the economic output of the city would be 500 billion Chinese Yuan by 2022. The economic output will be driven by the tech and science industry. The city expects that more than 100.000 companies related to new economy will be in the city, joined by the “7 unicorns”. Unicorns in China are companies like Tencent and DJI, both based in Shenzhen. Also, the city predicts more than 280.000 technological entrepreneurs will be welcomed for business in Chengdu in the upcoming 4 years.
Chengdu most certainly is a city in China which is interesting for businesses. The future looks promising, but the relevance of Chengdu is already actual. Obviously, deciding to start your business in Chengdu depends on a lot of factors. The location of establishment should not be picked haphazardly. If you are interested in Chengdu, or if you are looking for a party to discuss your business plans, feel free to reach out to us. We will give you initial advice without strings attached and promise to make sure we strive for your business success.
To facilitate people who want to invest and set up business in Chengdu , here is an introduction of Types of business presence in China:
Before starting up a business in China, you have to know what are the options. Foreign Investors generally establish a business presence in China in one of five modes: Wholly Foreign Owned Enterprise(WFOE); Representative Office; Foreign Invested Partnership Enterprises (FIPE); Joint Venture and Hong Kong Holding Company.
Wholly Foreign OwnedEnterprise (WFOE) is a Limited liability company wholly owned by the foreign investor. WFOE requires no registered capital and it's liability of equity , can generate income, pay tax in China and it's profit could be repatriate back to investor's home country. Any enterprise in China which is 100 percent owned by a foreign company or companies can be called as WFOE.
Representative Office (RO) is aLiaison Office of it's parent company. It requires no registered capital. It's activities would be: product or service promotion, market research of it's parent company's business, Quality Control liaison office etc in China. RO generally is prohibited to generate any revenue nor generating contracts with local businesses in China.
Joint Venture (JV) is a Limitedliability company formed between Chinese investor and Foreign investor. The parties agree to create a entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise. JV usually been used by foreign investor to engage the so called restricted in areas such like: Education, Mining, Hospital etc.
Since March 1, 2010: Measures ofEstablishment of Foreign Invested Partnership Enterprises (FIPE) in Chinaistaking effect. The regulation, which take effect since March 1, 2010, are known as the Administrative Measures for the Establishment of Partnership Enterprise in China by Foreign Enterprises or Individuals. There's no required minimum registered capital for a Foreign Invested Partnership Enterprise (FIPE) in Shanghai, Beijing, Guangzhou, Shenzhen, Hangzhou and rest cities of China
Hong Kong Company usually been used as a Special Purpose vehicle (SPV) to invest Mainland China. Hong Kong is one of the quickest locations to Incorporate a business. Although a HK company is not a legal entity in Mainland China (Mainland China and Hong Kong, See Wiki 1 country, 2 systems), lots foreign investors, especially investors from Europe and North America still chose to setting up a Hong Kong company as SPV to invest China.
After China's entry to WTO, most industries in China welcome foreign investment, WFOE setting up in Chinabecomes the first option of foreign investment's entity structures instead of Rep. Office setting up in China. At the mean time, for tax purpose, effective licensing system etc more and more investors use Hong Kong as the holding company to invest China mainland, using this offshore company to hold their operations in China.
Business set-up in Chengdu is a big project by itself, which requires financial and time commitments, business management knowledge and China expertise. Identifying a competent agent to manage the complex process will be a cost and time effective way to avoid potential pitfalls . Tommy China Business Consulting has direct connections in the local government
Since 2006, TCBC has been focusing on consulting services for our clients to invest in Chengdu China. We are specialized in establishment of wholly foreign owned enterprises (WFOEs), setting up of offshore companies, trading services, tax minimization, Assist in obtaining government approvals and certificates for running business, negotiate and draft various legal documents provide legal advice, negotiate government officer for Land acquisition. Advising on formation of WOFE and business structures, managing and controlling WOFE in Chengdu China, drafting privacy policies and structuring commercial transactions
TCBC will manage all aspects of incorporation to get you a business license in Chengdu China. We offer a range of company formation services including helping you to set up:
-Wholly Foreign Owned Enterprises (WFOE )
-Joint Ventures (Equity/Co-operative)
-Foreign Invested Partnership Enterprises (FIPE)
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