Over the last four decades, the Mainland of China has steadily opened up its market, giving foreign companies access to operate in a wide range of sectors. Reform has also helped grow a much larger middle-income group, further increasing the potential of its consumer market.
To build a presence in the world’s second-largest economy, however, companies need to prepare ahead and have a strong market entry strategy.
In this Expert Q&A, Jessie Ye – Associate Director in our Shenzhen office – shares insights into what it means to do business in the Mainland of China, the advantages, and how companies typically approach expansion here.
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In your experience, what attracts businesses to set up in the Mainland of China?
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Once a business is established in one city, what patterns do you see in their subsequent expansion?
About Jessie Ye
As Associate Director in Hawksford’s global business development team, Jessie is responsible for facilitating foreign direct investment (FDI) into the Mainland of China and outbound direct investment (ODI) from the Mainland of China. Based in Shenzhen, she is experienced in helping foreign invested enterprises establish and maintain their structures in the Chinese market, involving incorporation and subsequent compliance.
Jessie also works closely with our global offices to support Chinese enterprises with business expansion in overseas markets, providing guidance on entering different regions.
1. How would you describe the sentiment of businesses currently operating or expanding in the Mainland of China?
Jessie Ye (JY): This is a common question I get from clients looking at the Mainland of China. Overall, I’d describe the sentiment as cautiously optimistic.
Despite global uncertainty, the Mainland of China’s policy direction has been relatively stable. The supply chain is still strong, and the business environment on the ground continues to improve. Because of this, the Mainland of China is still attracting a meaningful level of foreign investment and new enterprises.
Some companies remain cautious due to short-term economic uncertainty and intense industry competition… But, from what we’re seeing, many are still coming in and continuing with plans to expand their presence in the Mainland of China. So yes, overall, we remain optimistic.
2. In your experience, what attracts businesses to set up in the Mainland of China?
JY: Firstly, the Mainland of China has a massive consumer base. It has one of the world’s largest consumer markets, with a huge middle-income group. The Mainland of China also has advanced infrastructure, strong policy support, and a growing number of innovation-driven sectors.
Secondly, the Mainland of China has been working to optimise its business environment. Over the past few years, the government has continued to reduce the “negative list”, which sets out the areas where foreign investment is restricted. In the past one to two years in particular, restrictions have been removed in several sectors, and there has been a continued push for a fairer environment for both domestic and foreign capital.
Finally, there is a strong innovation ecosystem here. In cities such as Shenzhen, where I live, there has been significant investment in technology. We often say that if you have a new product concept in the morning, you can have a sample by the afternoon and move into production fast. That speed and ecosystem is a key reason why the Mainland of China continues to attract foreign businesses.
3. In your opinion, what trends are currently shaping consumer behaviour in the Chinese Mainland market?
JY: I think the younger generation of consumers are more rational and more focused on value. They are less interested in paying purely for luxury branding at high prices, and they pay closer attention to what is often described in the Mainland of China as the “emotional benefit” of a product or brand.
We’re also seeing certain domestic consumption trends growing quickly. The Mainland of China’s booming pet market is a good example. At the same time, the digital lifestyle here is very mature. Social commerce and live streaming have become mainstream channels in the Mainland of China, which is not the case yet in many other markets.
On top of that, the local brands are adapting to the market very quickly, and their innovation capability is strong. They are competing directly with international brands and expanding into other jurisdictions.
It's important to realise that the Chinese consumers, especially the younger groups as I mentioned, often choose products that resonate with their cultural values. So when foreign companies ask us about setting up in the Mainland of China, one point we always stress is localisation. It is crucial to understand and connect with the Chinese culture because that will shape how you position the business once you are on the ground.
4. Do you see Tier 1 cities (Beijing, Shanghai, Guangzhou and Shenzhen) remaining the popular choice for company establishment?
JY: Yes, I’d say Tier 1 cities are still the most common first stop for foreign companies. In my experience, overseas businesses are generally more familiar with Tier 1 cities, especially Shanghai.
Shanghai has attracted a large share of foreign investment over the years. Many luxury and consumer product companies would open their first store, or even their flagship store, in Shanghai to “test the water”. If that goes well, then we usually see them expanding into other cities, such as Shenzhen or Guangzhou, depending on the sector.
Some also move into Tier 2 cities such as Hangzhou, Suzhou, Dongguan or Foshan. But overall, what we see is that Tier 1 cities remain the most popular starting point for businesses establishing a presence in the Mainland of China.
5. Are there any important incentives that companies should leverage when entering the Chinese market?
JY: Foreign companies ask me this all the time: “What incentives does the Mainland of China offer?” And my first response is always that the Mainland of China is a vast market. The local authorities structure incentives differently, so it really depends on the city you’re looking at.
There are preferential policies in places such as Shenzhen and in areas such as the Shanghai Free Trade Zone and Hainan Free Trade Port. You may see a 15% corporate income tax preferential rate, compared to the standard 25%.
The Hainan Free Trade Port, for example, offers a reduced 15% corporate income tax rate alongside personal income tax reductions for high-end and urgently needed talents who meet the conditions. But not every industry can qualify. You will need to fall within the government’s encouraged categories.
Overall, though, I believe what we’ll see more of is support through subsidies that take into account your company’s size, industry, and other factors. If you're making a significant investment, the local authorities may also be open to case-by-case discussions. The same applies for well-known brands or major store launches. Our China team can support you in having those discussions.
On the individual side, the Mainland of China adopts a progressive individual income tax (IIT) rate, ranging from 3% to 45%. The 45% is applicable for annual incomes exceeding CNY 960,000. But for top talent working in Shenzhen and other locations, subsidies are available upon application, which may bring the effective rate down to around 15%, depending on eligibility. This can be quite attractive for foreign companies looking to bring in senior talent.
There are also incentives designed to encourage reinvestment. If you use profits earned in China to reinvest into your China operations, you may benefit from local support and, in some cases, a preferential treatment that brings the effective corporate tax down further to 10%.
I would say, to understand the incentives in a meaningful way, you first need to consider where you plan to set up, what sector you’re in, and how much you intend to invest. With this information, our team can help you assess what is available and whether your company is likely to qualify.
6. When foreign companies first expand into the Mainland of China, what are some of the common challenges that they face?
JY: From a corporate service provider’s perspective, the main challenges are usually understanding the complexity of regulations and the pace of change in the Mainland of China. As the Mainland of China introduces new tax incentives and regulations from time to time, including updates to the Company Law and foreign investment policies, businesses need to pay close attention.
Some may also find it tricky to identify and appoint suitable people for key corporate roles during the setup process. This usually comes up with positions such as the legal representative and director, which typically need someone based locally. If this is a gap, we can help.
There are market access restrictions, which the government may adjust over time – and, of course, cultural differences can also be a factor for foreign companies.
This is where we work closely with clients, especially at the start, because many are not yet familiar with the business environment in the Mainland of China. We provide end-to-end support, from company set-up and bank account opening, through to ongoing compliance. That includes accounting, tax, payroll, and hiring-related matters. The goal is to help foreign companies, so they can feel comfortable and confident operating in the market.
7. Hawksford also sponsored the China-Britain Business Council’s China Consumer 2025 programme. Were there any insights from the discussions that stood out to you?
JY: Much of the conversation was on the Mainland of China’s culture and how different the market can be. One point that really stood out was how savvy Chinese consumers are in evaluating brands and value as well as how emotional connection, like I mentioned earlier, matter.
There was discussion on how foreign companies may consider e-commerce first and work with a distributor or local partner in the Mainland of China. This approach is often easier when starting out in the Mainland of China. And after a few years in this model, they may then set up their own entity or open their own physical store to continue their growth in the market.
Social media was another major theme. There was discussion about key opinion leader (KOL) marketing, live streaming, and using platforms such as Xiaohongshu (RedNote). One of the panel speakers was from RedNote and she shared how the platform can support brands in promoting their products.
Many of the UK brands that I spoke with expressed interest in bringing their products into the Chinese Mainland market – whether it’s chocolate, biscuits, tea, personal care, or other consumer goods.
8. Once a business is established in one city, what patterns do you see in their subsequent expansion?
JY: As mentioned earlier, companies will usually set up their first operation in a Tier 1 city, usually Shanghai. Then, once they start expanding, they will then focus on building a regional hub structure.
We see this quite often with our clients. Take a catering company as an example. If the plan is to open 40 or 50 outlets across East and South China, we would suggest setting up a regional hub in Shanghai to support East China, and positioning Shenzhen as the regional hub for South China.
For some industries, the expansion strategy might be planned around what each location will be used for. A company might set up a research and development (R&D) centre in Shenzhen because high technology is more concentrated here. Manufacturing operations might be placed in Tier 2 cities because of lower rent and manpower costs.
There’s also the Greater Bay Area (GBA) that integrates finance, technology, and manufacturing, and it provides an efficient platform for regional expansion. This is a key advantage for foreign companies coming to start a business in the Mainland of China.
So, these are some of the common patterns, but it really depends on the company’s industry and its size.
9. Finally, what advice would you give to companies planning long-term investments in the Mainland of China?
JY: You really need to take a long-term view and be patient because there will still be some uncertainty in the market. At the same time, localisation is extremely important in the Chinese market. You’ll need to localise your product, your marketing approach, and your team on the ground. And just as importantly, you need to build trust and stable relationships with your local partners, as well as with your vendors and clients.
The second point is agility. You have to stay agile as policies and regulations change. From a compliance and risk management perspective, that’s critical because updates can happen and you don’t want to be reacting late.
That’s also why entering the market with a professional firm, such as Hawksford, can help – whether by mitigating risk or supporting your operational efficiency while you grow.
The Hawksford Expert Q&A series features commentary on market developments and industry trends that matter to our clients. Our subject matter experts across Hawksford share their views to help businesses navigate change and make informed decisions. Subscribe to our newsletter to get the latest insights. All information presented in this article is accurate at the time of publication.
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