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The consumer

Consumer Profile
The Chinese population is estimated at 1.43 billion in 2022 according to UN data, with a relatively small share of young people under 25 due to the one-child policy (1.702 fertility rate in 2022). China has an average population density of 153 inhabitants / km2, with population growth of around 0.4% per year. The ratio of men to women is broadly balanced with the 15-64 age group accounting for 70% of the total population in 2022. The base of Chinese consumers is made up of relatively young people (between 20 and 35 years old): generally educated, they tend to save less spend more on leisure than their parents make increasing purchases online, prioritise more quality over low prices. The areas of higher consumption are concentrated in major cities such as Beijing, Shanghai, Shenzhen and other Chinese urban areas with high per capita income and high purchasing power. According to the latest data, the employment rate of the 2021 Chinese college graduates remained stable at 84,8%, with the private sector being the biggest recruiter for graduates. China’s People’s Daily newspaper reports that there are more than 8.34 million people who graduated from a higher education or university, up from 8.2 million in 2018. The agricultural sector employs about 24.7% of the labour force while the industrial sectors employs 28.2% of the population. Finally, the tertiary sector is the most represented category and employs 47% of the workforce in China.
Purchasing Power
The Gross Domestic Product per capita in China was recorded at $18,210 in 2022, when adjusted by purchasing power parity (PPP). The Chinese market is varied in its composition. Some parts of the country have experienced increases in confidence and spending (particularly in coastal areas such as Shanghai), while others have experienced lower growth or even negative growth. Regional differences are the result of increased demand for labour in China's coastal cities, which has disproportionately pushed the urbanization of the eastern provinces. China’s coastal provinces often boast higher per capita income levels than inland provinces even after taking into account the rural-urban income gap. The middle class represents about 400 million people in 2022, that is, 30% of the total population. According to the National Bureau of Statistics, a middle class household in China earns a monthly income of RMB 2,000 (US$295) to RMB 5,000 (US$740). According to McKinsey, 76% of China’s urban population will enter the middle income bracket by 2022. However, there is a net difference between lower-middle class and upper-middle class. In China, 75% of the middle class falls into the low-income category, earning $10 to $20 a day, while the upper-middle class can rely on $20 to $50 a day.
Today, almost 60% of Chinese people live on 2-10 dollars a day and more than 82 million Chinese still live on less than 1 dollar a day. The Gini coefficient, which measures the level of inequality, decreased slightly in 2019 vs 2018 to 46.5. Gender income inequality was 20.8% lower for women of equal work, placing China in the 103rd place (out of 149 countries) - ILO.
Consumer Behaviour
China is going through a consumption revolution: whereas in the past function and price were important factors in the buying decision buying behaviour has become more complex and Chinese consumers are taking increasing criteria into account when making a purchase. Brand awareness is becoming increasingly important and marketing is starting to play a key role in attracting Chinese consumers with advertising and research techniques. Chinese consumers believe that price is an indicator of the quality of a product, with price and sales services second. Certain aspects such as reimbursement guarantees of a product are less important. In general, the Chinese inquires a lot before purchasing, the main source of information being word of mouth. Chinese consumers are curious about what is on offer, especially with respect to foreign products.

With the improvement of living standards people are increasingly focusing on high quality products (luxury goods manufacturers and service providers are experiencing significant growth in China), making China the largest market for luxury brands. Despite mounting global social and economic challenges, China’s luxury goods market finished 2021 with strong double-digit growth overall, with some brands exceeding a 70% increase. Chinese consumers have continued to shop mostly in the mainland, given limited international travel options. This has led to a 48% increase of China’s domestic sales of personal luxury goods in 2020, and another 36% in 2021 totalling nearly RMB 471 billion, a near doubling in just 2 years (Bain & Company’s annual China Luxury Report 2021). Despite the Covid-19 crisis, consumer confidence is recovering and demand for luxury products from Chinese buyers is expected to increase by as much as 30% in 2021.

The collective feeling is important in Chinese society the group taking precedence over the individual. Thus, the standards, preferences and norms of the group to which an individual belongs have a huge influence on buying habits. For this reason, advertising is often directed towards group recruitment rather than individuals. Today, the elite of the one-child generation aspire to a pleasant life and are not reserved in their spending - including education, luxury goods, travel, leisure and consumer goods - especially in big cities. For more and more Chinese consumption is often targeted at high-end products of major brands, as shown by the strong growth in sales of luxury cars. Similarly, once a product is adopted by the reference group, the craze it generates spreads rapidly and widely. Nevertheless, there is a development of independence and individuality in consumer behaviour in China. In 2022 there is around 983 million social media users in China (DataReportal, 2022). The same year, online retail should generate 1.5 trillion USD, representing a quarter of China’s total retail sales volume, and more than the retail sales of the ten next largest markets in the world combined. Dematerialised and online payments are set to grow. Collaborative platforms like Tujia, Xiaozhu and AirBnb are present and used in China.
Consumer Recourse to Credit
Historically, China is a country with a very high savings rate one of the largest in the world. In recent years, Chinese consumers are getting into debt quickly. Data from China's central bank show that consumer loans are up 50% since 2016, when the government encouraged loans to households. The IMF believes that the debt ratio of Chinese households could double over the 2016-2022 period compared to the previous decade. Real estate loans represent the majority of new loans to Chinese households in terms of value, with auto loans growing even faster in percentage terms. Credit card debt is also growing rapidly: according to Deutsche Bank, short-term consumer credit is growing by 35% a year and could soon reach 40% a year
Growing Sectors
Renewable energies, health, e-commerce, food and beverages, education, consumer goods, automotive, construction products and services, high-tech products.
Consumers Associations
Association of Chinese Consumers
 

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Importing & Distributing

Import Procedures
The Chinese importer (agent, distributor, joint-venture partner, or FIE) gathers the documents necessary for importing goods and provide them to Chinese Customs agents. These documents include: the bill of lading, the invoice, the packing list, the customs declaration, the insurance policy, the sale contract and the inspection certificate of the AQSIQ (General Administration of the PRC for Quality Supervision, Inspection, and Quarantine) or other licenses of safety and quality. To reduce customs clearance time, certain companies can- in cases where description, specifications and quantity of import of goods are determined- declare to the customs in advance and present the documents after the imports are dispatched, before the arrival or in the three days which follow the arrival of the goods in a customs surveillance zone. The Customs authorities will examine the goods directly and will release the goods after their arrival.

Customs declarations can be done via the customs site. Exporters must indicate the place of arrival of the goods and they must complete all customs data. Once the data is analysed by the customs, a receipt will be sent, so that the company can complete the cargo of the goods. Custom duties can then be paid by bank transfer.

For more information, please visit the website of Chinese Customs.
Specific Import Procedures
The import of food and beverage in China is supervised by multiple government agencies and departments, mainly the State Administration for Market Regulation (SAMR), the National Health Commission of China (NHCC), and the General Administration of Customs of China (GACC). Exporters and Importers of foreign food and beverage must be recorded through the “Registration Systems of Imported Food and Cosmetic Importers and Exporters” or the “Internet + customs platform” of the GACC. Furthermore, the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) requires registrations for the import of cereals and oilseeds and live seafood.  Similarly, the China Food and Drug Administration (CFDA) has issued registration requirements for infant formulae, health food, food for special medical purposes and new requirements for online food trade.

Certain items are prohibited from entering China: arms, counterfeit currencies, documents which are deemed to be detrimental to the political, economic, cultural and moral interests of China, lethal poisons, illicit drugs, disease-carrying animals and plants, foods, medicines, and other articles coming from disease-stricken areas, used garments, local currency, etc.
Distribution channels
China's retail sector offers great opportunities for food product exporters. In 2021, total retail sales of consumer goods in China reached 44,082.3 billion yuan, up by 12.5% over the previous year with an average two-year growth of 3.9%. In December 2021 the retail sales of consumer goods in urban areas was 3.52 trillion yuan (532 bn USD). However, there still are many challenges in selling foreign food products in the retail sector. Demand for imported food and beverage is expected to remain resilient, as consumers  perceive imported products to be safe and of high quality. The major drivers of China's retail growth include rapid urbanisation and an increase in the number of middle class consumers. China's consumers expect their food purchases to be easy and convenient. As a result, electronic commerce (e-Commerce) has become an important tool for businesses in the retail sector to use and to adapt to in order to reach their customers.

Many different business models within the retail industry have emerged recently. Small convenience stores and specialty stores remain the most common retail model. In recent years, however, large retailers are increasing market share as they are able to realise greater efficiencies through better supply chains and wider distribution channels. Furthermore, the industry has undergone many mergers and acquisitions (M&A) which has strengthened the large retailers' position in the market.

Traditional retailers are transitioning to include online components to their business. The era of traditional standalone retail stores is being phased out in China. Offline food retailers include hypermarkets, supermarkets, specialty stores, discount stores, community stores and convenience stores. Online food retailers, who supply food products online and deliver the items to the consumer, are the fastest-growing sector recording record-breaking figures.
In 2021, retail sales of supermarkets increased by 6%, department shops by 11.7% and specialist shops by 12% compared to the previous year. However, the upward trend in China's online retail sales can easily be seen by looking at the 2021 turnover, which reached 198.7 billion USD), an increase of 24.6% over the previous year.

High quality and premium priced food products, including imported food and beverage will remain in demand in the market, although there are some difficulties: high import tariffs, regulations and expensive shipping costs. As a result of globalisation and development, China's younger populations have become accustomed to imported food products being available at retail stores in major cities.
Distribution market players
Mass distribution in China is dominated by large Asian groups, with Chinese distributors taking the most significant market share. According to the USDA Foreign Agricultural Service, the top ten national retailers’ combined sales reached over $88.4 billion in 2019.

Gaoxin Retail semi-annual report for the 2022 fiscal year stated a revenue of 41.534 billion yuan or 6.22 billion USD  (as of September 30, 2021) down 5.0% year-on-year, and net profit of 112 million yuan, down 87.6% year-on-year. CR Vanguard and Lianhua own more than 3,000 shops and have an average turnover of $13.6 billion and $7.8 billion, respectively. Yonghui, is also a major player in China. Among these leading retailers, there are two internationally recognized brands, Walmart and Carrefour. In 2021, Walmart's sales reached 11.43 billion USD.
Convenience stores are widespread and their numbers are increasing in response to a growing number of consumers who are looking to save time and money. The leading chain in terms of outlets is YiJie with more than 27,000. The only international convenience store is 7 eleven.
Moreover, there are five major e-commerce players: Tmall.com is considered the largest, followed by JD.com, VIP.com, Pinduoduo and Suning.

Retail Sector Organisations
China Chain Store and Franchise Association

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Operating a Business

Type of companies

Wholly foreign-owned enterprise (WFOE)
Number of partners: One juridical person or one or more shareholders.
Entity owned 100% by foreign interests that have the same rights as a local company.
Capital (max/min): Minimum varies according to the sector of activity.
Shareholders and liability: Limited to the amount of contributions.
Equity Joint Venture (EJV)
Number of partners: Minimum of one Chinese entity and minimum one foreign entity.
Capital (max/min): No minimum capital required, but at least 25% must originate from foreign investors.
Shareholders and liability: Limited to the amount of contributions.
Co-operative Joint Ventures (CJV)
Number of partners: Minimum of two partners: one Chinese entity and one foreign entity.
Capital (max/min): No minimum capital required.
Shareholders and liability: Limited to the amount of contributions.
Foreign Investment Joint Stock Company (JSC)
Number of partners: Minimum two partners.
Capital (max/min): Minimum capital needed: CNY 5 million if domestic capital, CNY 30 million if foreign capital.
Shareholders and liability: Each shareholder contributes the same amount to the share capital and is linked to the company by its share of the share capital.
Holding
Number of partners: Minimum one  partner.
Capital (max/min): Minimum capital USD 30 million.
Shareholders and liability: Each shareholder contributes the same amount to the share capital and is linked to the company by its share of the share capital.
 
Setting Up a Company China East Asia & Pacific
Procedures (number) 4.0 7.3
Time (days) 8.5 29.7

Source: Doing Business - Latest available data.

 

Cost of Labour

Minimum Wage
The minimum wage varies across the provinces. Currently, the highest monthly minimum wages are in parts of Guangdong, Jiangsu, and Zhejiang provinces, which have all surpassed the RMB 2,000 (US$289) mark. Shanghai continues to have the highest minimum wage in China, at RMB 2,480 (US$358) per month, followed by Shenzhen and Beijing, both at RMB 2,200 (US$318) per month. Among the lowest minimum wages are those in some rural areas: Liaoning (1,120 RMB/US$162), Hunan (1,130 RMB/US$163) and Anhui (1,150 RMB/US$166).

Consult China Briefing's 2020 minimum wage guide for more information.
Average Wage
The average monthly salary was 8,452 yuan ($1,228.38) in 37 major cities during the second quarter of 2019, with Beijing, Shanghai and Shenzhen all topping 10,000 yuan.
NB: the average wage varies according to the provinces.
Social Contributions
Social Security Contributions Paid By Employers:

Contributions vary across the country and for different schemes. China’s Social Security System consists of 5 mandatory insurance schemes (pension fund, medical insurance, industrial injury insurance, unemployment insurance, and maternity insurance) and a housing fund (only applicable to Chinese employees). In Beijing, the employer's share of social insurance contributions amounts approximately to 27.8% to 29.5%:

  • Pension 16%
  • Medical expenses 10%
  • Unemployment 0.8%
  • Maternity 0.8%
  • Work-related injury 0.2% to 1.9%

Social Security Contributions Paid By Employees:

Contributions vary across the country and for different schemes. China’s Social Security System consists of 5 mandatory insurance schemes (pension fund, medical insurance, industrial injury insurance, unemployment insurance, and maternity insurance) and  a housing fund (only applicable to Chinese employees). In Beijing, the employee's share of social insurance contributions amounts approximately to 10.2%:

  • Pension 8%
  • Medical expenses 2%
  • Unemployment 0.2%
  • Maternity 0%
  • Work-related injury 0%
 

Intellectual Property

National Organisations
China National Intellectual Property Administration (CNIPA)
Trademark Office (SAIC)
Regional Organisations
Expert Group on Intellectual Property Rights (IPEG)
International Membership
Member of the WIPO (World Intellectual Property Organization)
Signatory to the Paris Convention For the Protection of Intellectual Property
Membership to the TRIPS agreement - Trade-Related Aspects of Intellectual Property Rights (TRIPS)
 

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Tax Rates

Consumption Taxes

Nature of the Tax
Value added tax (VAT) and Consumption tax
Tax Rate
While the standard rate is 13%, it varies depending on the taxpayer status, type of product and service and type of sector.
Reduced Tax Rate
Goods and services taxable at 3% include: certain taxable used goods; consignment goods sold by consignment agencies; certain goods sold by pawnbrokers; specific duty-free items sold by duty-free shops; certain electricity produced by qualified hydroelectric-generating businesses; certain construction materials; certain biological products; tap water (rate applies if the taxpayer chooses simplified computation method with no input tax recovery);  certain concrete cement goods sold by general VAT taxpayers; non-academic education services; interest income from agricultural loans provided by Agricultural Development Bank of China and its affiliates; certain rare disease drugs (orphan drugs).

Goods and services taxable at 5% include labour dispatching service and human resource outsourcing service.

Goods and services taxable at 6% include: R&D and technology services; information and technology services; culture and creative services; logistics supporting services; authentication and consulting services; radio, film and television services; business supporting services; other modern services; value-added telecommunication services; loan services; direct financial services; insurance services; financial product trading; cultural and sports services; education and medical services; tourism and entertainment services; catering and accommodation services; daily services; other lifestyle services; sales of intangible assets.

Goods and services taxable at 9% include: agricultural products (including grains); tap water; heating; liquefied petroleum gas; natural gas; edible vegetable oil; air conditioning; hot water; coal gas; coal products for household use; food-grade salt; farm machinery; fodder, pesticides; agricultural film; fertilizers; methane gas; dimethyl ether; books; newspapers; magazines; audio-visual products; transportation services; postal services; basic telecommunication services; construction services; sales of immovable properties acquired or developed after 1 May 2016; leasing of immovable properties; transfer of land use rights.

Zero-rated (exempt-with-credit) goods and services include: exports of goods (excluding prohibited or restricted exports) and  services rendered by domestic entities or individuals to overseas entities and consumed entirely outside the country, including international transportation services, including transportation services for Hong Kong SAR, Macau SAR and Taiwan, China; space transportation services; research and development services; contractual energy performance services; design services; radio, film and television programs (works) production and distribution services; software services; circuit design and test service; information systems services; business process management services; offshore outsourcing services, including information technology outsourcing (ITO), business process outsourcing (BPO) and knowledge process outsourcing (KPO); technology transfer.

Taxpayers that supply items eligible for VAT reduction must book these sales separately. Otherwise, no reduction applies.

Other Consumption Taxes
Consumption tax applies to prescribed nonessential and luxury or resource-intensive goods (including alcohol, luxury cosmetics, fuel oil, jewellery, motorcycles, motor vehicles, petrol, yachts, golf products, luxury watches, disposable wood chopsticks, tobacco, certain cell and coating products), and it mainly affects companies involved in producing or importing these goods. The tax is calculated based on the sales value of the goods, the sales volume or a combination of the two. Exports are exempt.

A tobacco tax is levied on the purchase of tobacco leaves within the country's territory, at the rate of 20% on the purchasing value.

Stamp duties may be levied on specific legal documents (rates between 0.005%-0.1%).

China levies a motor vehicle acquisition tax on the purchase and importation of cars, motorcycles, trams, trailers, carts, and certain types of trucks. The rate is equal to 10% of the taxable consideration. A vehicle and vessel tax is also levied at fixed amounts according to the weight.

A vessel tonnage tax is levied on any vessel entering into a port inside the territory of China from overseas, calculated according to the tonnage multiplied by the applicable tax rate that is determined based on the net tonnage and the term of the tonnage tax license.

 

Corporate Taxes

Company Tax
25%
Tax Rate For Foreign Companies
An enterprise is resident in China if it is established in or if its place of effective management is in China. Effective management is defined as substantial and overall management and control over manufacturing and business operations, human resources, financial and property aspects of the entity. A foreign company will also be subject to tax in China if it has an "establishment" in China or if it derives income from China. The definition of an establishment is broad and includes also independent agents. When a foreign company has an establishment in China, it will be subject to China tax on all income effectively connected with that establishment.
Capital Gains Taxation
There is no separate capital gains tax in China; capital gains (and losses) of companies generally are combined with other operating income and taxed at the corporate income rate (25%).

The sale of real estate and net development costs are subject to the land appreciation tax at four bands ranging from 30 to 60% (depending on the percentage of gain realised).

Main Allowable Deductions and Tax Credits
Generally, all documented expenses, costs and losses in generating taxable income are deductible up to a limit: entertainment expenses are 60% deductible up to 0.5% of total income, advertising (up to 15% of total income, 30% in some cases) and donations (up to 12% of total income; although donations for poverty alleviation in certain areas can be fully deducted - donations made via charitable organisations or governments to counter the COVID-19 epidemic are fully deductible for CIT purpose). Non-deductible items include dividends, management fees, Enterprise Income Tax (EIT) paid and late tax payment surcharge fees.

A deduction is allowed for amortisation of intangible assets, such as, but not limited to, patents, trademarks, copyrights, and land use rights. Intangible assets have to be amortised over a period of at least ten years. Organisational and start-up expenses are tax-deductible fully in the first year of activity. Interest on loans is also tax-deductible (subject to conditions). 200% of the salary expenses paid to handicapped staff are deductible.

Tax losses can normally be carried forward for a maximum of five years starting from the year subsequent to the year in which the loss was incurred, while carryback of losses is not permitted.

Preferential tax treatment in the form of incentives are further granted to new high-technology enterprises (HNTE), companies in special economic zones (SEZ) and pilot free trade zones (FTZ), while exemptions may apply to agriculture, forestry, fishery, software, infrastructure and other specified environment and technology developments.

Other Corporate Taxes

A real estate tax based on the value of the property or rental received is levied annually on land and buildings used for business purpose or leased. The tax rate is 1.2% of the original value of buildings. A tax reduction of 10% to 30% is commonly offered by local governments. Alternatively, tax may be assessed at 12% of the rental value (may be reduced to 4% for the leasing of residential property by individuals).

A deed tax, generally at rates between 3% and 5%, may be levied on the purchase, sale, gift, or exchange of ownership of land use rights or real properties and paid by the transferee/assignee.

An urban and township land-use tax is levied on taxpayers who use land within the area of city, country, township, and mining districts. The due amount depends on the area of lands actually occupied multiplied by a fixed amount per square metre determined by the local authorities. The same principle applies to the arable land occupation tax, which is levied on companies and individuals who build houses or carry out non-agricultural construction on arable lands.

The sale of real estate and net development costs (or land use rights) are subject to the Land Appreciation tax at 30 to 60% (depending on the percentage of gain realised).

Stamp duty (0.005% - 0.1%) is levied on specific legal documents.

The employer contributes around 16% of basic payroll to the state-administered retirement scheme, as well as to medical insurance, maternity insurance, unemployment insurance, and work-related injury insurance funds (bringing the total to approx. 40% of base monthly salary, with actual rates varying across the country).

An urban construction and maintenance tax is levied on the amount of indirect tax (VAT, consumption tax), at a rate of 7% for urban areas, 5% for county areas, and 1% for other areas. The same calculation base is used for the national (3%) and local educational surcharge taxes (2%) paid on the amount of VAT and consumption tax.

A motor vehicle acquisition tax is levied at 10% of consideration on automobiles, tramcars, trailers, and motorcycle. A vehicle and vessel tax also applies (generally at fixed amounts).

Companies and individuals active in the entertainment and advertising businesses are subject to a cultural business development levy at 3% on the relevant income.

Local authorities levy a resources tax on natural resources, including crude oil, natural gas, coal, salt, raw metallic metals, and non-metallic metals, mineral water, carbon dioxide gas, and water (in 10 provinces). This tax is applied on a sales turnover or tonnage/volume basis.

An environmental protection tax (EPT) is levied on enterprises that directly discharge taxable pollutants within the Chinese territory. It is calculated based on the volume of pollutants discharged multiplied by a specific EPT coefficient.

For further information, including the information on other common fees, costs or compulsory donations other than taxes that are collected from companies by the Chinese tax authorities, please consult the following soources:

Other Domestic Resources
State Administration of Taxation of the PRC
Doing Business: China (a summary of taxes and mandatory contributions)
Worlwide Tax Summary on Corporate and Individual Taxes in People's Republic of China (PwC)
 

Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed
International tax treaties signed by China
Withholding Taxes
Withholding tax rates in China are 10% for dividends, interest and royalties paid to non-resident companies. When paid to resident and non-resident individuals, the rate is 20%.
A 6% VAT generally applies to interests and royalties (which could be waived in case of royalties paid for technology transfer).

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