With global trade dynamics evolving rapidly and China remaining one of the world’s largest and most complex markets, many European SMEs find themselves weighing the opportunities and challenges of doing business in the country. Navigating such a vast and highly regulated environment can be daunting without reliable, practical information. Our new report, “Ways to Enter the Chinese Market”, is meant to guide SMEs seeking clarity on how to export, conduct online sales, or establish a local presence, with real-world examples of SME peers in the market.
To help European businesses make informed decisions based on their specific commercial objectives, the guide outlines a range of market entry strategies. These include both direct and indirect exporting methods, options for online entry, the use of Employer of Record (EOR) services, and establishing a presence through licensing or franchising. We provide strategic comparisons and illustrative case studies, such as scaling from indirect exporting to setting up a Wholly Foreign-Owned Enterprise (WFOE), or adapting a franchise model to suit local market preferences.
The report then details options to export goods and services, offering SMEs a detailed breakdown of the logistical, legal, and practical issues that can arise when exporting to China. It explains the roles of intermediaries such as agents and distributors, addresses the growing relevance of cross-border e-commerce (CBEC), and outlines service sector opportunities and associated regulatory requirements. The challenges and benefits of each route are examined to help businesses assess their entry model with greater clarity.
The report also explains business establishment options in China, including WFOEs, joint ventures, representative offices, and partnerships. It delves into China’s Pilot Free Trade Zones (PFTZs) and their potential benefits for SMEs. Case studies show how some firms have leveraged local partnerships or free trade zones to improve market access, operational efficiency, or fulfilment logistics.
Further sections address key legal and regulatory considerations, such as foreign exchange control, compliance requirements, intellectual property (IP) protection, and potential business risks. We also assess the the role of Hong Kong as an entry point to the Chinese market today and explore sector-specific opportunities. Concluding with strategic considerations and practical recommendations, this EU SME Centre report, written with the contribution of experts from MSA Asia, aims to guide European SMEs seeking structured, neutral information on entering and operating in the Chinese market.
Report Contents
1. Introduction
1.1 The Chinese Market
1.2 Purpose of the Guide
2. Market Entry Strategies
2.1 Overview on Entry Strategies for SMEs
2.2 Direct Exporting and Indirect Exporting
2.3 Online Market Entry, Setting Up in China, and Using Hong Kong as a Stepping Stone
2.4 Employer of Record (EOR)
Case Study: Starting with Indirect Exporting, Then Scaling to WFOE
2.5 Licensing and Franchising
2.5.1 Market Entry Through Licensing & Franchising
2.5.2 Legal Requirements & Benefits
2.5.3 Technology Transfer
2.5.4 Franchise Agreements & MOFCOM Registration
Case Study: Entering via Franchising and Adapting to Local Tastes
3. Exporting Goods and Services
3.1 Direct Exporting to China
3.1.1 Key Considerations: Shipping, Tariffs, and Customs Regulations
3.1.2 Challenges in Logistics and the Role of Local Distributors
3.2 Indirect Exporting: Using Intermediaries like Distributors and Agents
3.2.1 Working with Agents
3.2.2 Working with Distributors
3.2.3 Advantages and Disadvantages of Indirect exporting
Case Study: Exiting a Challenging Distribution Partnership and Transitioning to Direct Sales
3.3 Cross-Border E-Commerce (CBEC) Platforms
3.4 Exporting Services to China
3.4.1 Growing Demand for International Services
3.4.2 Entry Models for Foreign Service Providers
3.4.3 Regulatory Considerations for Service Exports
3.4.4 Key Service Sectors with High Potential
Case Study: Market Research Services WFOE
4. Setting up a business in China
4.1 WFOE & JV as Long-Term Investment Strategies
4.1.1 Wholly Foreign-Owned Enterprises
4.1.2 Joint Ventures
4.1.3 Legal Requirements and Approval Process for WFOEs and JV
4.1.4 Estimated Costs and Price Positioning: WFOE vs. JV
Case Study: Working with a Local Partner Through a Joint Venture in a Restricted Industry
4.2 Partnerships and Representative Offices in China
4.2.1 Function and Purpose of Representative Offices in China
4.2.2 Benefits and Limitations of Representative Offices
4.2.3 Legal Considerations and Registration Requirements for Representative Offices
4.2.4 Approval Process for Representative Offices
4.2.5 Partnerships in China: Importance, Benefits, and Key Considerations
Case Study: Improving Procurement Efficiency with a Representative Office
4.3 Pilot Free Trade Zones
4.3.1 Overview of China’s Free Trade Zones
4.3.2 Tax Incentives & Regulatory Benefits
4.3.3 Key PFTZs & Their Advantages for SMEs
4.3.4 Greater Bay Area & Qianhai: Strategic Launchpads for SMEs
Case Study: Leveraging a Free Trade Zone for Better Fulfilment
5. Legal & Regulatory Considerations
5.1 Introduction to Regulations on Foreign Investment
5.2 Foreign Exchange Control
5.2.1 Understanding China’s Foreign Exchange Controls
5.2.2 How SMEs Can Navigate Currency Restrictions & Profit Repatriation
5.2.3 Foreign Exchange Controls: Current vs. Capital Accounts
5.3 Compliance
5.3.1 Compliance Requirements for SMEs in China
5.3.2 Key Regulations for Foreign Businesses Operating in China
5.3.3 The Role of Local Legal Experts in Ensuring Compliance
5.3.4 Foreign Exchange Control and Compliance
5.4 Intellectual Property (IP) Protection
5.4.1 Importance of Intellectual Property (IP) Protection
5.4.2 Registering Trademarks, Patents, & Copyrights
5.4.3 Common Challenges & Best Practices in IP protection
5.4.4 IP Enforcement in China
Case Study: Registering IP Early to Avoid Infringement Disputes
5.5 Potential Risks and Mitigation Strategies in the Chinese Market
5.5.1 Risks Involved in Entering the Chinese Market
5.5.2 Mitigation Strategies for SMEs: Reducing Risks Through Due Diligence and Strategic Planning
5.5.3 Role of Insurance and Local Advisors in Risk Management
5.5.4 Engaging Local Advisors for Regulatory and Compliance Support
6. Selling Online in China for EU SMEs
6.1 E-Commerce Opportunities in China
6.2 Legal Considerations for Online Sales and Digital Marketing
6.2.1 E-Commerce Law
6.2.2.Business Registration
6.2.3 Platform-Specific Compliance Requirements
6.2.4 Product Compliance
6.2.5 Data Protection Laws
6.2.6 Advertising Regulations
6.3 Logistics and Delivery Challenges
6.4 Types of E-Commerce Platforms: B2C, C2C, O2O, CBEC
6.5 Comparing CBEC and Domestic E-Commerce
6.6 Selecting the Right Platform
Case Study: Using CBEC to Test Products Before Mainland Expansion
7. Hong Kong as an Entry Point
7.1 Strategic Importance for Market Entry into Mainland China
7.2 Advantages of Using Hong Kong as a Stepping Stone
7.3 Setting Up in Hong Kong & Transitioning to Mainland China
7.4 China-Hong Kong CEPA: Trade Agreement Benefits
7.5 Challenges of Using Hong Kong as an Entry Point to Mainland China
Case Study: Establishing a Hong Kong Holding Company with Mainland Operations
8. Sector-Specific Opportunities in China
8.1 Sectors Poised for Growth
8.2 Sector-Specific Entry Strategies and Models
8.3 Regulatory Hurdles and Licensing Considerations by Sector
8.3.1 Licensing Requirements
8.3.2 Market Challenges
8.3.3 Strategic Considerations
9. Closing Remarks
9.1 Considerations for European SMEs Entering the Chinese Market
9.2 Resources and Support Networks for SMEs
9.3 Our Recommendations for European SMEs
