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How to Find & Verify Suppliers in China

Shaking hands with a supplier


Sourcing products in China can be a cost-effective strategy for companies looking to expand their supply chain. However, with the multitude of options available, selecting the right supplier can be a daunting task. In this article, we review the various strategies for identifying suppliers in China, and the importance of evaluating potential suppliers before committing to a partnership.

Supplier Identification – Options on Hand

There are a handful of options available when searching for suppliers in China. Below you can find some of the most common options that foreign companies choose.

Attending trade shows

Attending trade shows can be successful for manufacturers looking to source products or find new customers in China. They can help you connect with various potential suppliers and provide learning opportunities of industry trends. Additionally, these can help you in establishing personal relationships with suppliers, which can be crucial in business dealings. This is not the case when using online directories unless you visit them on-site.

On the other hand, attending trade shows in China can also have its disadvantages. These can be expensive to attend, with travel and exhibition costs adding up. Not to forget, the language and cultural barriers can make it challenging to navigate trade shows and communicate effectively with potential suppliers.

Some examples of trade shows for manufacturers in China include the Canton Fair, the China International Industry Fair, and the China International Machine Tool Show. These trade shows cover a wide range of industries, including electronics, machinery, and textiles. A recommendation is to carefully consider the costs and benefits of attending trade shows in China before deciding to participate.

Online directories

B2B online platforms like Alibaba, Made-in-China, and Global Sources have become popular options for companies looking to source products in China. These platforms offer a quick and efficient way to search for products, view supplier profiles, and even place orders online.

The benefits of using B2B online platforms for sourcing in China include a wide range of suppliers offering diverse products and services, time and cost savings compared to traditional sourcing methods, easy communication between companies and suppliers, and verification and certification of suppliers.

However, there are also disadvantages of using B2B online platforms for sourcing in China, including limited quality control, language and cultural barriers, competition, lack of personal relationships, and limited customization. You should weigh the pros and cons carefully before deciding to use B2B online platforms for sourcing in China and consider other sourcing strategies.

Working with sourcing agents

Companies can find sourcing agents in China through online directories, referrals, or by attending trade shows or networking events. If you decide to work with a sourcing agent, it’s important to conduct due diligence and select a partner that have sufficient experience in your specific industry and product categories offered.

The benefits of working with sourcing agents in China include their local knowledge and expertise, which can indeed help in navigating the local cultural and business landscape. Additionally, sourcing agents can provide cost savings and efficiencies by leveraging their relationships with suppliers and handling logistics and quality control.

With that said, there are also disadvantages such as additional costs, reduced control, and potential communication issues if the agent’s English language skills are not strong. You should carefully consider the benefits and disadvantages of working with sourcing agents in China and evaluate whether this approach aligns with their specific needs and requirements.

Word of mouth

Word of mouth referrals can also be an effective way to find suppliers in China. Companies can ask their industry contacts, trade associations, or even their competitors for recommendations. Referrals provide valuable insights into the supplier’s reputation, reliability, and quality of products. Companies can also leverage social media platforms, such as LinkedIn, to connect with professionals in the industry who may be able to provide referrals.

Consulting firms

Consulting firms can help you to identify suppliers in China by leveraging their experience and expertise locally. By offering end-to-end solutions, they can help with both the supplier identification and evaluation, including:

Market research: Extensive research on the Chinese market and identify potential suppliers based on their experience and knowledge. This research can include market trends, competitive analysis, supplier capabilities, and pricing information.

Supplier assessment: Evaluating potential suppliers in terms of their capabilities, quality standards, production capacity, CSR, and other factors that are important to the clients’ businesses. This assessment can help companies make non-biased and informed decisions about which suppliers to work with.

Supplier verification: Verification of the legitimacy of potential suppliers by conducting site visits, auditing their operations, and verifying their capabilities.

Negotiation support: Concerning contracts and pricing with suppliers. This can include providing insights into local business practices and cultural nuances that can impact negotiations.

Supply chain optimization: By identifying opportunities to reduce costs, improve quality, and increase efficiency. This can involve evaluating the entire supply chain from sourcing to delivery and recommending improvements.

Evaluating the Suppliers

It’s essential to evaluate the suppliers carefully before committing to a partnership. By conducting a thorough evaluation of potential suppliers, you can ensure that you select a reliable and qualified partner who meet your needs. When evaluating potential suppliers in China, you should consider a range of factors, for example, export experience, quality, corporate social responsibility (CSR), and also soft values.

Export experience

Export experience is essential when evaluating suppliers and you should look for suppliers with a solid track record of exporting goods. This will help in demonstrating their knowledge of export procedures, compliance with international trade regulations, and ability to navigate potential language barriers.


Is another critical consideration when evaluating local suppliers. You should assess the supplier’s quality control measures, including their adherence to industry standards and certifications, such as ISO 9001. It is also essential to inspect the supplier’s facilities and processes to ensure that they meet the company’s quality requirements.

Corporate social responsibility

Becomes increasingly important for companies when selecting suppliers in China. Companies should evaluate a supplier’s CSR practices, including their labor conditions, environmental policies, and commitment to ethical sourcing. A supplier with a strong CSR track record is more likely to contribute to a sustainable and ethical supply chain. This becomes increasingly important for end users and governments alike.

Soft values

Communication, flexibility, professionalism, and responsiveness are also important to consider when evaluating suppliers. Effective communication is essential for successful collaboration, something that should be confirmed earliest possible.


In conclusion, sourcing products in China can be a cost-effective strategy for companies looking to expand their supply chain. However, selecting the right supplier can be a daunting task due to the multitude of options available.

You have several strategies available to identify suppliers in China, including attending trade shows, using online directories, working with sourcing agents, leveraging word of mouth referrals, and by hiring third parties such as consulting firms.

Once potential suppliers are identified, it’s important to evaluate them thoroughly before committing to a partnership, considering items such as export experience, quality control measures, and corporate social responsibility practices. Ultimately, careful evaluation and selection of suppliers can help companies establish long-term partnerships that contribute to success.

Overall, identifying and evaluating suppliers in China requires a comprehensive approach, including thorough research, due diligence, and effective communication to overcome the challenges posed by language barriers, cultural differences, and verification processes.

Read more about our sourcing & supply chain experience or other consulting capabilities.


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    Supply Chain Financing in China

    Consultants discussing supply chain financing


    With the impact of the epidemic, the differentiation of the global supply chain has accelerated. As a business owner, no doubt that you have the nonsystematic risk of delayed deliveries and delayed payments. In 2022, the Chinese government raised attention to encouraging enterprises to improve operational efficiency through supply chain financing.

    In this article, we review supply chain financing and why it has become increasingly important in China. The topics covered are:

    • What is supply chain financing?
    • Improving Financial Liquidity with Supply Chain Financing
    • Reducing Operational Costs in the Supply Chain
    • Legal Service Providers in China for Foreign Companies

    What is supply chain financing?

    Supply chain financing, as an innovative financing option, has developed rapidly in China. It has become an important field for banks, financial information service agencies, and enterprises to expand their service offerings and enhance their competitiveness because of the unreplaceable benefits. Examples include more efficient financing process, lower operation costs, and more reliable cooperations between companies and institutions.

    It provides liquidity for companies promptly and helps each company to conduct business smoothly in international trade. The participants include core enterprises (debtors), financial institutions (creditors), upstream suppliers, and downstream buyers of core enterprises. Sometimes, the creditors can also be core enterprises (non-financial institutions) only if it’s a funding provider in the supply chain.

    Diagram explaining supply chain financing

    Small-and-medium sized companies benefit greatly from supply chain financing as this helps them solve their financing difficulties, which is crucial for their survival. Supply chain financing also improves the competitiveness of small and medium-sized enterprises in terms of high capital liquidity, which attracts many long-term cooperation. For example, the Shandong Provincial Department of Finance encourages small, medium, and micro enterprises to improve the efficiency of accounts receivable financing, and rewards supply chain financing innovation projects with a maximum of 5 million yuan.

    Core enterprises can also act as fund providers for other members in their supply chain members, to improve the overall efficiency.
    This is particularly the case when providing funding for small and medium-sized companies, to support with bank credit and long-term accumulated industry expertise and resources. China’s supply chain finance market has benefited from the increase in the volume of accounts receivable and financing markets. Its scale has expanded by 85.3% in four years, from 11.97 trillion in 2015 to 22.18 trillion in 2019.

    Graph showing supply chain finance market scale

    Graph showing supply chain finance participation rate

    Looking at industries, supplier financing is most commonly used in automotive (59.29%), retail (45%), and steel (43.57%). Taking the automobile industry as an example, commercial banks were the main institutions providing supply chain financing services ten years ago, but now the main providers of financial services are gradually diversifying, including Sino-foreign joint ventures, auto finance companies, and other banks and non-bank financial institutions.

    In addition, the upstream and downstream of the automotive industry are closely connected, and core companies often choose supply chain financing to help repay suppliers quicker and promote the long-term and stable development of supply chain relationships.

    Improving Financial Liquidity with Supply Chain Financing

    In recent years, most international payments and settlements are not pay-as-you-go but adopt a transaction model that separates money from goods such as payment in advance or goods in advance. One settlement way called prepayment or sales on credit becomes popular as of its liquidity benefits.

    According to the statistics of SWIFT (Society for Worldwide Interbank Financial Telecommunications), 80% of international payments and settlements are sales on credit that means after the buyer and the seller sign a goods agreement, the buyer can take the goods without payment, but pays on the specified date according to the agreement or pays in installments. Sales on credit start to stimulate the single order quantity of downstream companies, reduce inventory, and enhance seller competitiveness.

    However, with the continuous development of supply chains, in addition to stimulating sales, sales on credit are also widely used by core companies to optimize their own cash flow. In contrast, traditional bank international trade finance focuses on financing products under traditional settlement methods such as telegraphic transfer (T/T), letters of credit (L/C), and bills, and lacks products based on sales on credit, making supply chain SMEs face increasing financing pressure. Supply chain finance compared to traditional finance is better in terms of liquidity.

    Chart comparing traditional and supply chain finance

    Let’s take accounts receivable financing as an example, suppliers of core enterprises can transfer their accounts receivable to commercial banks, which can generally be divided into those with recourse and those without recourse. Since the commercial bank has already conducted a complete credit rating on the core enterprise, the commercial bank can provide timely payment for the supplier based on the credit facility of the core enterprise, to alleviate the shortage of funds in the entire supply chain and improve company’s financial liquidity.

    Reducing Operational Costs in the Supply Chain

    Supply chain financing saves electronic transaction details in the supply chain IT system within enterprises and uses AI technology and cloud computing automation to complete real-time data collection, analysis, and evaluation.

    It improves the capital turnover rate of enterprises, reduces operating costs, builds a developed, interactive, and information-sharing platform for banks, core enterprises, and upstream and downstream, and promotes the improvement of supply chain operation methods.


    In supply chain finance, the level of information sharing among small and medium-sized suppliers has increased, thereby reducing the workload of banks in related credit review processes such as due diligence. Therefore, each bank will appropriately lower loan interest rates in the process of quoting customers, which will reduce supplier’s financing costs. On the other hand, increased liquidity and continuous production of suppliers have prompted manufacturers to increase orders and revenue.

    Core enterprise (manufacturer)

    Compared with the traditional financing model, the supply chain operating under the supply chain finance model is stable, and the manufacturer can increase additional benefits, such as: reducing out-of-stock costs, increasing customer loyalty, and increasing market share, etc.

    Financial Institutions

    For banks, the qualification review tasks for SME suppliers in supply chain finance are mainly completed by core enterprises, and banks only play the role of review. Therefore, the reduction of review costs and the increase in the number of loans make the overall earnings improve.

    Legal Service Providers in China for Foreign Companies

    Due to China’s strong financial regulatory system, foreign banks are mainly able to provide supply chain financing services for foreign companies in China. The reason is that foreign banks can complete due diligence for foreign companies more efficiently than Chinese local banks.

    Supply chain financing providers in China

    We find that in the above ranking list, many service providers implemented 5G and blockchain technology. For example, DBS is helping companies in the Asia-Pacific region access more affordable working capital globally, using its suite of technologies such as APIs, blockchain, and partnerships with Fintech and e-procurement platforms. Its digital solutions have helped companies of all sizes move to paperless transactions, revealing greater efficiencies and cost savings in their supply chains. Bank of America leverages blockchain technology to bring greater efficiency and transparency to previously opaque paper transactions, which in turn gives the bank the confidence to offer a wider range of financing solutions to customers.


    Supply chain financing has grown rapidly in China for the past few years and as an innovative financing option. It offers advantages such as efficient financing process, lower operation cost, and has since become a crucially important financing option for international banks. While the automobile and steel sector dominated the landscape, sectors around logistics and consumer goods have begun to catch up on the supply chain finance trend.

    Core enterprises can promote the transformation of their internal organizational structure and corporate governance through the development of supply chain financial services, and thus promote the improvement of supply chain management. In addition, companies can look forwards to greatly capitalize on benefits such as improving financial liquidity through sales on credit and using supply chain finance’s real-time data collection methodologies for operational cost reduction.

    Lastly, the management of core enterprises should carefully and carefully analyze the risk characteristics of each link in the supply chain, so that the supply chain management and financial management of the enterprise can promote each other and improve the overall operation ability of the enterprise.

    Read more about our sourcing & supply chain management experience or other consulting capabilities.


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      Fundraising in China: Opportunities & Challenges

      Discussion over charts showing financial data


      China’s economy has been growing at an impressive rate over the past few decades, and its fundraising landscape has gone through significant changes as a result.

      While the government has historically been the major source of funding for companies in China, there has been a shift towards private investors and venture capital firms in recent years. The country’s venture capital market has grown exponentially over the past decade, with tech startups being the main beneficiaries.

      With that said, fundraising in China can be a complex and challenging process due to the country’s strict regulatory environment and cultural differences, which make it more difficult to navigate compared to many other markets.

      In this article, we review the equity fund raising in China, covering the following topics:

      • The Fundraising Landscape in China
      • Challenges with Equity Fundraising in China
      • Opportunities of Equity Fundraising in China
      • Strategies for Fundraising in China
      • Success Stories of Fundraising in China

      The Fundraising Landscape in China

      China’s fundraising landscape has gone through significant changes in recent years, particularly as the government has been the major source of funding previously. In recent years, we’ve seen a shift towards private investors and venture capital firms.

      The country’s VC market has grown exponentially over the past decade, reaching USD 131 Billion in 2021, with tech startups being the main beneficiaries.

      One of the most significant factors shaping the fundraising landscape in China is the government’s policies and regulations. While the government has historically encouraged investment in high-growth sectors like technology and healthcare, recent regulatory changes have made it more challenging for companies to raise funds through equity financing.

      Despite the challenges, there are still many opportunities for investors seeking to support companies in China with equity to expand. There’s been a surge in the number of startups and early-stage companies seeking investment, particularly in sectors such as fintech, e-commerce, and logistics.

      In addition to traditional venture capital firms, we also see increasingly more angel investors, corporate venture capitalists, and government-backed investment funds that are engaging in the market. These investors bring a diverse range of expertise and resources to the table, making them valuable partners for companies looking to raise funds.

      Worth highlighting is also the emergence of new financing models like crowdfunding and peer-to-peer lending, even if these have faced regulatory challenges in recent years. With that said, they remain attractive options for companies looking to raise funds from a broader range of investors.

      Challenges with Equity Fundraising in China

      Fundraising in China can be a complex and challenging process due to the great regulatory and cultural differences, making it more difficult to navigate compared to many other markets.

      One of the biggest challenges is navigating the regulatory environment as China has strict rules and regulations governing foreign investment, IPOs, and fundraising activities. Companies looking to raise capital in China must therefore be prepared to comply with these regulations, which can be both time-consuming and costly.

      Another notable challenge is the process of building relationships with Chinese investors and venture capitalists, many local investors have different expectations and investment criteria compared to Western countries.

      Building trust and credibility indeed takes time and effort, and companies must be willing to invest in building relationships with local investors and partners, which can be a tedious task. Companies must be willing to invest time and resources in building relationships and communicating effectively with local partners.

      Opportunities of Equity Fundraising in China

      China has a range of promising sectors for investors to consider, primarily in technology, healthcare, consumer goods, renewable energy, and financial services. Let’s take a closer look at some of these sectors.


      Technology is a particularly interesting sector in China, with the country becoming a global leader in areas such as e-commerce, fintech, and artificial intelligence. Companies such as Alibaba, Tencent, and Baidu have achieved impressive growth rates in recent years, and there are many other promising technology startups emerging in China’s innovation hubs.

      As the Chinese government continues to invest in technology infrastructure and innovation, the opportunities for investors in this sector are likely to continue to grow.


      Healthcare is another sector that is experiencing strong growth in China, driven by China’s aging population and rising demand for quality healthcare services. The Chinese government has identified healthcare as a priority area for investment and is implementing policies to encourage private sector participation in the industry. This has led to the emergence of a vibrant healthcare startup ecosystem, with companies focused on areas such as medical devices, digital health, and pharmaceuticals.

      Consumer goods

      The consumer goods sector is also interesting for equity fundraising in China, as the country’s middle class continues to expand and demand for high-quality consumer goods increases. This has led to growth in areas such as premium cosmetics, luxury goods, and high-end food and beverage products.

      The growth of China’s equity fundraising market is being driven by a range of factors, including the country’s strong economic growth, its large and growing consumer market, and its increasingly supportive regulatory environment for private sector investment.

      As China continues to innovate and expand, it is likely that the opportunities for investors will continue to grow as well.

      Strategies for Fundraising in China

      There are several strategies for equity fundraising which can be explored. Below you can find some of the most popular options.

      Initial Public Offering (IPO)

      An IPO is the most common strategy for equity fundraising in China, involving sales of company shares, capital raising, and listing on stock exchanges. China’s stock exchanges, such as the Shanghai Stock Exchange and the Shenzhen Stock Exchange, are among the world’s largest, making them attractive for companies looking to go public.

      Private Equity (PE) and Venture Capital (VC)

      PE and VC firms are a popular source of equity funding for local businesses. These firms provide funding to startups and early-stage companies in exchange for an ownership stake, and provide expertise and guidance to help the businesses grow.

      Secondary Market Financing

      This strategy involves selling shares in the secondary market, which includes exchanges like the National Equities Exchange and Quotations (NEEQ) and OTC Markets. The secondary market provides an alternative to the primary market for companies that may not meet the listing requirements of the stock exchanges.

      Corporate Bonds

      Corporate bonds are a debt financing option for companies seeking capital. In China, corporate bonds are regulated by the China Securities Regulatory Commission (CSRC). Companies can issue bonds on the Shanghai and Shenzhen stock exchanges, as well as on the NEEQ.


      Crowdfunding is a relatively new method of equity fundraising in China. It involves raising capital from a large number of individuals, usually through online platforms. Crowdfunding is popular among startups and early-stage companies that may not have access to traditional sources of funding.

      Success Stories of Fundraising in China

      Many success stories have emerged from China’s fundraising market, including everything from large tech giants to startups. Below are some examples and you might have heard about some of the cases.

      Alibaba Group

      Alibaba Group, one of China’s largest e-commerce companies, went public on the New York Stock Exchange in 2014, raising a record-breaking USD 25 billion. This IPO was the largest in history at the time and set the stage for other Chinese companies to follow suit.

      Tencent Holdings

      Tencent Holdings, a Chinese tech conglomerate, has also enjoyed success in equity fundraising. The company raised USD 5 billion in a bond sale in 2017 and has also invested in many startups and early-stage companies through its venture capital arm.

      Didi Chuxing

      Didi Chuxing, a Chinese ride-hailing company, raised USD 4 billion in a funding round in 2017. The company has also secured investments from major players such as SoftBank and Apple.

      Xiaomi Corporation

      Xiaomi Corporation, a Chinese electronics company, went public on the Hong Kong Stock Exchange in 2018, raising USD 4.7 billion. The company has since expanded into other markets, including India and Europe.


      Pinduoduo, a Chinese e-commerce platform, raised USD 1.6 billion in a funding round in 2018. The company has seen rapid growth in recent years, becoming one of the largest e-commerce platforms in China.

      These success stories highlight the potential for companies to raise significant amounts of capital through equity fundraising in China. While some of these companies have gone public, others have opted for private equity or venture capital funding. Regardless of the strategy, these companies have been able to secure funding and grow their businesses.


      China’s fundraising landscape has evolved considerably in recent years and government funding has largely been overtaken by private investors and venture capital firms. This has resulted in the VC market growing exponentially over the past decade, reaching USD 131 Billion in 2021.

      The government has played a significant role in shaping the fundraising landscape, with regulatory changes making it more challenging for companies to raise funds through equity financing. However, opportunities remain, especially in sectors such as fintech, e-commerce, logistics, healthcare, consumer goods, and renewable energy.

      The biggest challenge in fundraising in China is navigating the regulatory environment, which is complicated due to strict rules and regulations governing foreign investment, IPOs, and fundraising activities. Building relationships with local investors and venture capitalists can also be challenging, given different expectations and investment criteria compared to Western countries.

      Various strategies exist for fundraising in China, including IPOs, private equity and venture capital, secondary market financing, corporate bonds, and crowdfunding. Many successful stories have emerged from China’s fundraising market, including tech giants and startups. As China continues to innovate and expand, opportunities for investors will continue to grow.

      Read more about our market entry & market expansion experience or other consulting capabilities.


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        Setting Up a Company in China: A Complete Guide

        Meeting to discuss company setup

        China has been active in lifting restrictions on foreign investments in the past years, with a goal to make the market more attractive.

        One example is the Negative List, a list of industry sectors that prohibit foreign investments, which had 117 items in 2022, down from 151 items in 2018. The government also removed restrictions on foreign ownership in automotive manufacturing in 2022, as well as on foreign shareholding ratios of securities/investment fund companies in 2021.

        Even if we’ve seen easing of restrictions, setting up or divesting a company in China is often challenging, considering red tape and local regulations. In this article, we review the company types available in China, the registration processes, and explain common pitfalls.

        Company Types in China

        Foreigners can set up three company types in China, including Wholly Foreign-Owned Enterprises (WFOE), Sino-Foreign Cooperative Joint Venture (JV), and Representative Offices (RO).

        The following table summarizes the three options:

        Table showing types of company that can be set up by foreigners

        Let’s review the options in greater detail below.

        Wholly Foreign Owned Enterprise (WFOE)

        WFOE refers to a limited liability company that is 100% invested, owned by foreign investors, and independently operated. Almost 60% of foreign-owned companies are WFOEs, making it the most adopted business type. Famous multinational companies such as Apple, Amazon, Oracle, and General Electric are all examples of WFOEs.

        Setting up a WFOE can bring more risks compared to the other company types due to the higher investment requirements, and if foreign companies lack knowledge of the Chinese market. With that said, there’s also a reason why this is the most popular option among foreigners.

        Foreign companies can maintain complete ownership of the companies, convert RMB income into USD, and remit profits to parent companies overseas. As WFOEs give foreign enterprises total ownership, there are also no restrictions relating to the company’s internal operating structure.

        Worth mentioning is also that WFOEs must have a board of directors with three to thirteen members.

        Sino-Foreign Cooperative Joint Ventures (JV)

        A JV refers to an enterprise in which a Chinese partner and a foreign partner jointly invest and share company stakes in proportion to the investment. JV is another common business type for foreign companies, with over 35% of the one million foreign enterprises in China operating as JVs.

        SAIC Volkswagen, SAIC General Motors, and BMW Brilliance are household names that have local JVs in China.

        JV, in common terms, would have no mandatory registered capital requirements for foreign investors. However, foreign investors’ general capital investment ratio should be at least 25% of the total investment.

        This company formation type has many preferential treatments depending on the different regions in China. For example, foreign JVs headquartered in Shandong’s designated development zones can all have 15% reductions on corporate income taxes.

        Other benefits can be gained with the help of your Chinese partner as they provide more marketing channels and utilize business connections, build a stronger brand image, and offer investment support.

        Common pitfalls with JVs in China

        Conflict of interests and imbalances of contribution are potential issues when foreign companies set up JVs with local Chinese partners. You should also fully evaluate the local laws as JVs are scrutinized harder and with more reporting obligations.

        Additional reporting obligations can be related to annual capital contribution ratios, the structure of the board of directors, and methods of hiring/firing the company’s top management. You must maintain a positive relationship with your Chinese partner to fulfill all the reporting obligations and have smooth business operations.

        As a result, it’s crucial to carefully screen your potential Chinese partner before signing a full-on JV agreement.

        When the JV is established, a board of directors must be set up to manage and oversee the operations. Representatives from both the foreign and Chinese parties can serve as the board’s chairperson, where the chairperson would then become the legal representative of the JV. The chairman is also responsible for selecting managing directors for the JV’s operation and management.

        Representative Office (RO)

        An RO is a liaison agency representing the parent company established by a foreign-invested enterprise in China. Since ROs are not recognized as independent legal entities, they cannot conduct standard business operations, generate profits, and send money abroad. Non-direct business activities, including liaison work, product promotion, market research, and setting up bank accounts, are all permitted.

        You can consider RO as a market-entry option with fewer initial risks. Foreign enterprises commonly use ROs to study the Chinese market and build business connections, to “test the water” and before entering the market with full force. This is possible as enterprises have no capital limits when investing in and registering ROs in China.

        Enterprises should beware that ROs can only recruit employees through government-recognized HR agencies and can only set up offices in a foreign-related office building (buildings designated by the government that can have foreign enterprises as tenants).

        The current RO’s license period is three years, yet ROs can extend their license unlimited times.

        Foreign Invested Commercial Enterprise (FICE)

        FICE is also called trading WOFE which allows foreign companies to import and export franchise brands, sell products, open an E-commerce store, get export tax refunds, and deliver related consultation services in China. A FICE can also operate storage, warehousing, inventory management, repair maintenance, training, and delivery services.

        Apart from the FICE (trading WOFE), you can also choose other types of WOFE according to your business scope, such as technology WFOE, food & beverage WFOE, and manufacturing WFOE that the company can manufacture industrial products in China, etc. There are some limitations that you should know about FICE. You can only do trading business, and VAT(Fapiao) issues can be complex. Also, you must apply for separate licenses before any import-export activities.

        Before setting up a FICE, you should confirm three things during document preparation: company name, business scope, and registered address. The company must have a lease agreement of at least 12 months for the registered address and cannot share with other companies. Online pre-approval application with the provincial bureau of the Ministry of Commerce (MOFCOM) and the Administrative Committee of Economic and Technological Developments Zones (for FICE set up in economic and technological development zones) is necessary for the license, and you should upload identification documents of the registered personnel.

        Once approved, you can proceed with the procedures to obtain your Import-Export License Record with the Customs Bureau, State Administration of Foreign Exchange (SAFE), and the local MOFCOM and required Import-Export license depending on your business scopes, such as Foreign Trade Operator Filing Record, Customs Registration Certificate, China E-port IC Card Application, and Goods Trade Foreign Exchange Administration Service Activation. For business owners who think FICE is the most suitable legal entity type, the processing time is around six months, and there is no minimum capital requirement.

        National Enterprise Credit Information Publicity System

        The Chinese government has an online platform where you can find information related to business credit information, abnormal/illegal operations, and other company information.

        The platform is handy for companies that want to know more about potential Chinese business partners. You can receive information regarding untrustworthy business activities, which often result from delayed or missing payments from previous business activities. Simply input the company name, company registration number, or the Unified Social Credit Code of the company.

        Companies should carefully look for reporting deadlines required by the government. Late reporting on information such as company equity transfer, outbound investment activities, and change of company address have all resulted in serious consequences in the past.

        Wrongful reporting activities may likely appear in the company’s information page under the National Enterprise System, which would seriously hurt the company image, particularly for new entrants in the Chinese market.

        The Importance of Stamps and Business Licenses in China

        Business licenses and stamps might have less importance in other countries, yet they have entirely different levels of power in China.

        Business license and copies

        The government issues the original business license, and enterprises can print copies of them. However, the original and copies of the business license have the same legal power. The original must be hung in a noticeable place in your office. In contrast, the copies are generally used for activities such as opening bank accounts and signing contracts requiring traveling.

        Company stamp

        The company stamp is the most important stamp of an enterprise, as it is the stamp used for internal and external business activities. The stamp is often controlled by the legal person and can be used to verify documents, contracts, certificates, and other materials.

        Financial stamp

        Used only for accounting and bank settlement purposes.

        Contract stamp

        Contract stamps are mainly used to sign contracts with clients, which can also be replaced by using the company stamp.

        The importance of stamps and business licenses must be recognized as stamps are more important than signatures. It’s better to have a standardized process in case of any misconducted risks, including the dedicated person is responsible for the stamp custody and the strict approval process for using the stamps

        Application documents notarization

        Sometimes, the authenticity of the foreign applicants’ documents may not be identified by the Industry and Commerce Bureau, which can waste much time during the application process. In one previous case, we helped a client who encountered a problem as the Industry and Commerce Bureau could not identify his passport without China travel records.

        The passport therefore had to be sent back, which resulted in the client losing weeks of time. Before you submit your documents, it’s therefore recommended to notarize them locally in advance.

        Time coordination

        Foreigners must often ship documents several times due to issues with failed identifications. For example, that you can not travel freely while the authorities use your passport during the application process.

        As a result, it’s important to understand the process in advance and effectively coordinate the shipping of documents, including passports.

        How Asia Perspective Helped a European Client in Setting Up a Company in China

        A large Finnish company that specializes in the food industry needed help with a market entry in China, a project where Asia Perspective also helped with the legal entity setup.

        During the project, we assisted the client with research on local regulatory requirements, preparation of application materials, materials translation, format alignment, and more. The client also benefitted much from our local presence, as we were able to visit related agencies on-site.

        Asia Perspective ultimately helped the client to complete the establishment of a Chinese legal entity by developing a thorough company analysis, evaluating local regulatory requirements, and efficiently submitting required documentation.


        Before setting up a company in China, it’s crucial to understand the regional and provincial benefits across China. You should also carefully review the Catalogue for the Guidance of Foreign Investment Industries. Chinese economic zones, preferential policies on foreign-owned entities from provincial and regional levels, and industry-specific incentives can be identified and leveraged through initial research.

        In this article, we have reviewed the process of setting up a company in China in brief. However, it’s recommended to seek company formation consultancy services, to save time and costs. Without adequate knowledge of the company types and setup processes, the processing time can take months, with additional work such as visiting local registration offices, as well as document verifications.

        With different regional benefits on provincial and district levels, as well as economic zones’, foreign companies can enjoy tax discounts, financial awards, and foreign employee benefits.

        Read more about our market entry & market expansion experience or other consulting capabilities.


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          Industrial Equipment Manufacturing in China

          Industrial welding robot


          Machinery and industrial equipment manufacturing is one of the biggest industries in China. It’s also the biggest exporter of the products globally, having a market share of around 30% and with many foreign companies relying on its supply market.

          In this article, we review the industry in China, what kinds of machinery and equipment are produced, and more.

          China’s Machinery and Industrial Equipment Manufacturing Industry

          The machinery manufacturing industry comprises the manufacturing of all machinery used in mining, manufacturing, energy, construction sectors, and domestic appliances. Examples of specific products include machine tools, material handling systems, heavy machinery, industrial machinery, and propulsion and powertrain technologies.

          When reviewing the size of the industry, it grew at a rate of 8.2% from 2012 to 2021, which speaks for itself. By the end of 2021, more than 105,100 enterprises in the equipment industry had realized significant growth in revenues while total assets, operating revenues, and profits climbed 92.97%, 47.76% and 28.84% since 2012.

          Overall, the Chinese equipment manufacturing industry is at a key stage for the development of high-end technology. These days, due to the heavy investment in industrial independent development ability, industrial equipment manufacturing in China, such as shield tunneling machines and cranes, has continuously developed innovation while the degree of localization and autonomy has been significantly improved.

          Notably, China now masters core technologies such as digitalized high-speed and high-precision motion control and multi-axis linkage at the same time covers the most complete engineering machinery categories and the most integrated supply chain around the world.

          What types of machinery and equipment are manufactured in China?

          China is a leading country in the production of many machinery and equipment categories. Below we have included some examples.

          Rail transit equipment

          Urban rail transit equipment includes, for example, escalators, air conditioning, ventilation equipment, subway vehicle traction, switch equipment, power control equipment, and more. The export of rail transit equipment has developed quickly in recent years, from around 530 million USD in 2008 to 7.51 billion USD in 2021.

          Vehicles account for much of the rail transit equipment production and exports, currently around 75% percent. Related parts and components accounted for less than 25% in 2021, on the other hand. Rail transit equipment has been exported to most parts of the world, yet developing countries account for more than 70% of the imports.

          Worth mentioning is also that the global rail transit equipment industry is highly monopolized by a few companies. China’s CRRC, located in Hunan province, dominates the global market with a market share of more than 50%. In 2021, CRRC, Bombardier of Canada, Alstom of France, Siemens of Germany, and other enterprises have a relatively high market sales share of 54.2%, 10.5%, 9.8%, and 7.6% respectively.

          However, the competitive landscape is constantly changing and intensifying due to the strong demand for technological improvement. Meanwhile, because of the loosened restriction on private enterprise in China, more and more regions and private enterprises have accelerated the layout of the whole rail transit industry chain and gradually formed the capacity to provide systematic solutions. In the context of competition, downstream enterprises can find alternative suppliers easier.

          Industrial robots

          The manufacturing of industrial robots increased 10-fold from 2015 to 2021, which speaks for itself. According to the International Federation of Robotics (IFR), China has been leading the race in implementing industrial robots for the last decade, having 243,000 robot installations in 2020 alone. Now, it has almost half of all the industrial robots in the world.

          There is no doubt that the US has the most advanced manufacturing of automation, precision, and industrial robots. Most of the smart sensors and other core components, which are used in Automatic Mobile Robots (AMR), were mainly sourced from foreign brands in the past. However, depending on the technology upgrades, China can not only offer relatively economical industrial robots but also provide customized services for different downstream customers while maintaining a short supply cycle, meeting the application demands in more downstream processes, from consumer levels to industrial levels. So far, industrial robots have been applied in 52 industrial divisions and 143 industrial groups in China, including automobile, electronics, metallurgy, light engineering, petrochemical, and medicines.

          China has the world’s largest market for industrial robots, and the market is expanding with huge potential. Localization is a must for foreign products to win a share in the Chinese market while domestic manufacturers are closer to Chinese enterprises and are in a better position to learn about domestic demand for industrial robots.

          According to the 14th Five-Year Plan issued at the end of 2021, China will build itself into a global hub of technological innovation, high-end manufacturing, and integrated application in the robotics industry. The country will also nurture some globally competitive and innovative manufacturers of robots and build three to five industrial clusters with international influence.

          Heavy equipment

          Heavy equipment mainly refers to heavy-duty machines or vehicles, specially designed for executing construction tasks or other earthwork operations. Major heavy equipment business products include concrete machinery, excavators, cranes, pilling machinery, road machinery, material handling machinery, and more.

          China has been the world’s largest manufacturer of heavy equipment and construction machinery by volume for many years and accounted for nearly 40% of all global heavy equipment sales from 2016 to 2021.

          The production and export volume of China’s construction machinery industry has been ranked first in the world. By the first half of 2021, as many as eleven Chinese companies were listed among the top 50 construction machinery companies in the world. In 2021, thanks to the productivity revival from the epidemic, industry exports hit a new high, surpassing the all-time high set in 2008.

          To illustrate, the heavy machinery industry reached a 24.36 billion USD export value, increasing 34.6% year on year while the export surplus was 19.86 billion USD, increasing 46.58% year on year.

          Agricultural machinery

          China is one of the largest manufacturers of farming equipment, and the largest market for agricultural machinery globally. As China experiences rapid urbanization, with many farmers leaving rural areas, farmer shortages and the aging population have increased the dependence on agricultural machinery significantly.

          Besides, the implementation of the agricultural machinery purchase subsidy policy has promoted agricultural mechanization greatly. While the import of agricultural machinery fluctuated little from 2021 to 2022, the exports climbed to US $6.4 billion, up 28.2%.

          Most agricultural machinery industries are mainly concentrated in Shandong, Henan, Jiangsu, Liaoning, and Zhejiang provinces. The bestselling types of agriculture machinery include large tractors and harvesting machinery products with high horsepower and high degrees of automation.

          In the Chinese agricultural machinery market, companies are not only competing based on equipment quality and promotion but are also focused on strategic moves to gain higher market shares. New product launches, partnerships, and acquisitions are the major strategies being adopted by leading companies.

          The Chinese agricultural machinery market is fragmented in nature while the top five domestic manufacturers only account for less than 25% of the market. Notably, foreign brands occupy the leading position in the high-end products market.

          China’s Major Export Markets of Machinery

          According to the German Machinery Manufacturers Federation (VDMA), the global trade volume of machinery was estimated at 1.10 trillion USD in 2020, decreasing 10% compared to 2019. Here, China’s exports of construction machinery products reached about 172.7 billion USD, accounting for 15.8% of the global market share.

          Germany’s exports amounted to 169.8 billion USD, accounting for 15.5% of the global market, showing that, for the first time, China has overtaken Germany to become the world’s largest machinery exporter.

          However, problems such as rising costs and decreasing demand still exist, putting pressure on China to ensure the industry’s stability in the export market. In the next few years, the Chinese government aims to control capital outflow to foreign industries such as real estate, sports, and entertainment, while focusing on investment in high-tech manufacturing technology industries, according to the 14th Five-Year Plan.

          Given this focus, sub-sectors such as CNC machine tools, robotics, 3D printing equipment, and energy-efficient and environment-protection equipment may receive the most input and achieve the most development in products, bringing commercial opportunities to foreign importers.

          Import Duties for Machinery Imports from China

          In 2021, China’s exports to the EU reached 494 billion USD, accounting for about 15% of China’s total exports, and 25% of the EU’s total imports. Yet, since December 1, 2021, European countries have no longer given China the Generalized System of Preference tariff treatment, putting pressure on China’s machinery exporters. Meanwhile, due to the Carbon Border Adjustment Mechanism (CBAM), the cost of European clients’ machinery imports from China may be affected and increase correspondingly.

          Since the US-China Trade War started, large-scale machinery products are included in the additional tariff list imposed by the United States. However, the US government announced in March 2022 that it would reinstate 352 tariff exemptions for Chinese products which include many machinery products meanwhile according to Morgan Stanley, the U.S. may further ease tariffs on Chinese goods, showing a positive signal for machinery product export to America.

          Leading Manufacturers in China

          China is home to some of the biggest heavy equipment manufacturers in the world. We have listed two of the most prominent below.


          Sany is a Chinese multinational heavy machinery manufacturing company headquartered in Changsha, Hunan Province, one of the top ten biggest heavy equipment manufacturers in the world. Examples of products produced include some of the world’s best concrete machinery, excavators, hoisting machinery, road machinery, port machinery, and wind turbines.

          Sany has a dozen industrial parks in China plus manufacturing facilities in Brazil, Germany, India, Indonesia, and the United States, and has around 90,000 employees all over the world.


          Zoomlion is one of the largest heavy equipment manufacturers in China. Its headquarters are in Changsha, Hunan province. Zoomlion’s heavy equipment and construction machinery products have been well sold to markets in the Middle East, South America, Africa, Southeast Asia, and Russia as well as many high-end markets in the USA, Europe, and Australia. The company has subsidiaries in nearly 20 countries in East Asia, Southeast Asia, and Europe. They have industrial and technological parks in Italy, Germany, India, Brazil, and Belarus, as well as more than 50 resident offices around the world.


          As a consequence of the labor shortage and aging population in China, the level of mechanized production is crucial for industrial development. According to the 14th Five-Year Plan issued at the end of 2021, the machinery and industrial equipment industry in China now is at a critical stage of industry transformation and upgrade, accelerating its development toward digitalization, networking, and intellectualization.

          China has long been an industrial manufacturing giant, meanwhile, thanks to continuous technological innovations, it now shows strength in mass customization and takes the leading position in many segmented machinery industries such as rail transit equipment, heavy equipment, industrial robots, and agricultural machinery, promising a relatively flexible supply relationship by providing plentiful substitute suppliers and short leading time.

          However, in the context of frequent trade conflicts, tariffs are easily influenced by government policies. At the same time, due to the pandemic lockdowns in China, foreign companies need to pay attention to the potential risks of rising costs affected by the duty policy change and long delivery cycle.

          Read more about our industrial goods & services experience or other consulting capabilities.


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            M&A in China: An Introductory Guide for Foreign Investors

            Shaking hands on a merger


            China is one of the most active countries in M&A worldwide and has witnessed many market changes in recent years. At this stage of China’s industrial transformation and upgrading, the country’s potential is attracting foreign investors to engage more intensely in the local M&A market.

            As the regulatory system is complex but continues to develop, foreign companies often encounter problems in the investment process. In this article, we provide an overview of the Chinese M&A market, exploring investment opportunities as well as identifying potential risks of investing in China.

            China’s M&A Market

            In 2021, the global publicly disclosed value of M&A deals exceeded 5.1 trillion USD in China, hitting a new all-time high. The total number of M&A deals increased by 21% to a record high of 12,790. Nevertheless, the total transaction value declined 19% to 637.4 billion USD, falling back to normal levels. This, after the unusually large transaction values of 2020, where the government and SOEs had promoted several large transactions (exceeding 1 billion USD) which totaled a value of 88 billion USD more than in 2021.

            However, in 2021, China’s actual use of foreign investment exceeded 1 trillion for the first time, reaching 150 billion USD with a year-on-year growth of 14.9%, showing foreign investors’ long-term confidence in the Chinese market.

            The first chart below gives a better illustration of the growth of number of M&A deals and transaction values. The second graph illustrates the deal numbers by type of transactions.

            Graph showing China M&A deals 2017-2021

            Due to the new securities law released in 2020, the market has been confronted with more uncertainties and investors have become increasingly more cautious towards risks. Along with the law, a series of new regulations were also launched to strengthen the government’s supervision over M&A activities in China.

            For example, one regulation requires securities companies to enhance internal control and internal information management, leading to a rise in investors’ concerns over potential compliance issues in M&A practices. As a result, many investors adopted a more conservative attitude towards investment in China in 2021.

            Most Active Cities & Provinces for M&A Activities

            Geographically, China’s M&A market is relatively concentrated, with Beijing, Shanghai, Jiangsu, Zhejiang, and Guangdong accounting for about half of the M&A market. Among the five regions, Beijing had the largest M&A market in terms of transaction values, which reached 29 billion USD in 2021.

            Guangdong, on the other hand, was the leading province in number of transactions with 332 transactions in 2021, contributing 26 billion USD of the total transaction value in China. While Guangdong is famous for its strengths in the manufacturing industry, Shanghai, Jiangsu, and Zhejiang attract investors looking for opportunities in the technology industry.

            These regions have a business-friendly environment, a solid industrial base, and rapidly developing high-tech industries, making them preferred locations for M&A by companies both domestically and internationally.

            The M&A industry is facing unprecedented pressure from the macro environment, which, on the other hand, has also driven the transformation and upgradation of the industries. In 2021, most of the large M&A deals (exceeding 1 billion USD) focused on key economic themes such as industrial upgrading, fostering dual circulation, and carbon peaking by 2030, accounting for more than 100 billion USD. These have become popular themes in the Chinese M&A market and have fueled the development of semiconductor and electronics, biotech/healthcare, cleantech and automotive industries, bringing new opportunities to investors.

            The retail and business services sector were the most attractive for foreign investments, while the manufacturing and technology sectors such as IT, semiconductors and electronics are receiving increasing attention from domestic investors.

            Graph showing enterprises receiving FDI

            M&A Regulations in China

            To encourage foreign investments in China, the Chinese authorities have revised the country’s Foreign Investment Negative List. Effective from 2022, the new Foreign Investment Negative List has alleviated the restrictions on foreign entry to many industries, reducing the amount of industries that foreign companies were restricted to enter.

            To name a few, foreign automobile manufacturers shall henceforth be treated the same as domestic ones in China. Especially in the free trade zones, foreign investors of certain service industries are granted additional access to the China market, such as market research and social research.

            In August 2022, China’s new anti-monopoly law came into effect. The law significantly aggravates the penalties for companies engaging in monopolistic activities and adds a new focus to abuse of economic activities on the internet. It stipulates that operators with a dominant market position shall not use data and algorithms, technology, and platform rules to engage in abuse of a dominant market position, and requires operators not to use data and algorithms, technology, capital advantages and platform rules to engage in monopolistic practices.

            In fact, back in 2021, Alibaba, and Meituan were already punished for antitrust concerns. As antitrust regulation tightens, the threshold for large companies to merge and acquire is rising. On the other hand, regulations against monopoly also benefit small enterprises and protect market justice.

            At the same time, along with the reinforcement of information protection in China, a series of regulations including the Cyber Security Law, the Civil Code, the Data Security Law, and the Personal Information Protection Law have come into effect, which has made a profound impact on M&A and posed unprecedented compliance risks to the sellers. Therefore, M&A sellers must pay attention to the compliance requirements for information disclosure at all stages of the M&A deal to safeguard internal information security and avoid administrative penalties.

            Types of M&A Transactions

            China classifies M&A activities based on four common classification criteria used by the China Securities Regulatory Commission.

            Table of M&A transaction types

            When it comes to the M&A practices in China, acquiring domestic companies tends to be difficult for foreign companies, especially if the target companies are state-owned. As such, mergers have become a popular method for foreign investors to enter the market.

            Share acquisition agreement and tender offers are generally less common because of the high complexity and costs. Instead, buyers tend to acquire control of another company by purchasing private shares. Compared with private shares, acquisition of shares in the secondary market are riskier, which may lead to a rise in the stock price in the short term and a less preferable choice to buyers.

            In practice, foreign investors often start by setting up a legal entity in mainland China or Hong Kong, and then use the entity to carry out investment activities in the mainland. As the Chinese government has certain restrictions on which industries foreign investors can invest in, such approach can facilitate the process for foreign investors when entering certain industries.

            Outlook for M&A Activities in China

            While many institutions show a grim forecast, foreign investors still have confidence in the Chinese market, especially the high-tech industries. According to Bloomberg, foreign direct investment in China’s high-tech manufacturing sector rose by 31.1% in the first six months of 2022, with Korean investment rising 37.2% and US investment growing 26.1%.

            At the end of 2021, there were a total of 355 foreign private equity fund managing companies on the Chinese market, a year-on-year increase of 13.8%. Despite the new regulations effects on the M&A market, the gradual refinement of policies is improving the investment environment and benefits for investors in the long term.

            Fueled by the supporting policies, the industry consolidation and upgradation are also predicted to bring new opportunities to the Chinese M&A market. Thanks to the “carbon neutrality and net-zero carbon” policy, M&A activities in new energy industries, especially in wind power generation and photovoltaic power generation, are expected to rocket in China.

            At the same time, in line with the global blockchain and cryptocurrency investment boom, the data industry in China, including generation, transmission, storage, mining, and application of data, is predicted to expand rapidly in the coming years as well. China’s healthcare industry is also expecting continued growth due to the pandemic and aging of population.

            The inflow of capital into emerging industries will be accompanied by a significant increase in bankruptcies and restructuring in traditional industries. More professional M&A activities will inevitably drive the rise of emerging industries while eliminating traditional ones.


            The economic recovery of the post-pandemic era has supported the growth of China’s M&A market, but the Chinese M&A market is still relatively conservative due to changing regulations and uncertainties in China’s Covid measurements.

            Looking ahead, thanks to a focus on industrial upgrading and with the support of industrial policies, the Chinese M&A market, especially in emerging sectors such as new energy, biopharmaceuticals, and high-tech manufacturing, is expected to grow rapidly, providing new business potential for investors.

            At the same time, with the strengthening of regulation in areas such as anti-monopoly and information security, China’s M&A market will become more standardized and investors will encounter less market disruptions in the investment process, facilitating investment activities in the country.

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              China’s Hydrogen Strategy: Present & Future State

              Hydrogen manufacturing plant


              As China takes faster steps to achieve green development, hydrogen plays a key role in process of transitioning the energy mix and addressing climate change.

              For a long time, China’s primary energy sources has come from coal, oil and natural gas. Over the last decade, fueled by geopolitical tension and the impact of the Covid-19 pandemic, China’s oil and gas supply has been heavily dependent on overseas markets and the volume of imported nature gas has increased steadily during 2010-2020. In addition, in 2021, 71% of China’s crude oil and 42% of its natural gas was imported from other countries. To ensure the country’s energy security, China is now stepping up its efforts to reduce its dependency on fossil fuels and to accelerate its energy transition, aiming to increase the usage of renewable energy sources such as solar, wind, nuclear and hydrogen.

              Graph showing China's natural gas dependence

              In 2021, China released an action plan detailing their aim to reach peak carbon emission by 2030, and carbon neutrality by 2060. Reforming the current energy mix with renewable energy is a key measure in reaching the target.

              Hydrogen is a clean, versatile, and efficient form of energy and is the most abundant element on earth, making it practically an inexhaustible source of energy. It is expected to be one of the key elements in the path to China’s “net-zero” ambitions.

              Strategy for hydrogen development

              In March 2022, the National Development and Reform Commission (NDRC) and National Energy Administration (NEA) jointly released the country’s first mid to long-term plan for implementing and developing hydrogen usage in China, stretching until 2035. According to the plan, the projected volume for renewable-based hydrogen is aimed to reach within the range 100,000-200,000 tons annually by 2025.

              Considering China’s large market size, production potential and the various policies supporting the hydrogen industry, the 2025 goal is quite modest and China is well on the path to reach the target.  Several green hydrogen projects have already been reached in favor of the goals. Even before the plan was released, China’s largest hydrogen producer, Sinopec, launched four green hydrogen projects. These include a solar-based hydrogen production facility with an annual production capacity of 20,000 tons in Kuqa, Xinjiang Uygur autonomous region, another wind and solar-based project in Ordos, Inner Mongolia autonomous region with an annual output of 10,000 tons, a renewables-based project in Ulaanqab, Inner Mongolia producing 100,000 tons per year, and an offshore wind-based project in Zhangzhou, Fujian province producing 10,000 tons per year.

              The central government in China is expecting that, by 2025, renewable-based hydrogen could reduce the country’s carbon emissions by one or two million tons every year, a reduction of 17-33% compared to the country’s carbon emission 2020. Moreover, China is rapidly developing its manufacturing capacity for hydrogen production. By 2030, China expects to install 100 GW capacity of electrolyzer to produce green hydrogen. China Hydrogen Alliance (CHA), a government-supported association in the hydrogen industry, is more optimistic for the hydrogen production in the future. It boldly estimated that renewable-based hydrogen production could reach 100 million tons by 2060, accounting for 20 percent of projected final energy consumption.

              Apart from hydrogen power, China is also planning on expanding its solar and wind generation capacity, aiming to double the current capacity from approximately 600 gigawatts (GW) in 2020, to 1,200 GW by 2030.

              Map showing distribution of China's hydrogen development

              In wake of the central government’s call for carbon peak and carbon neutrality, more than 20 provincial governments have released a number of follow up plans with up to 200 incentive schemes supporting domestic hydrogen development. Local policies mainly focus on supporting use of land, subsidizing hydrogen production, and construction of filling stations. Up until now, several hydrogen industrial zones have been formed, including Beijing-Tianjin-Hebei economy zone, Yangtze River Delta, and Pearl River Delta.

              There are 38 hydrogen energy industrial parks across the country which has enabled the continuous expansion of the hydrogen energy industry and the gradual improvement of the industrial chain. During 2021, despite China’s strict pandemic control policies and economic downturn, the numbers of newly registered hydrogen-related companies surged to more than 2200, an 89% increase from the previous year.

              In comparison, other countries in Asia are also launching initiatives to shift towards a greener energy mix. Japan announced that it aims to reach a net zero greenhouse gas emissions by 2050. To decarbonize its economy, Japan is looking at measures such as innovative technology as well as alternative fuels including hydrogen. The road map ahead is quite clear, where they plan to introduce full-scale hydrogen -generation by 2030 and realize a full-fledge domestic use of hydrogen by 2050.

              Similarly, Vietnam also aims to reach peak carbon emission by 2035 and achieve net zero emissions by 2050. The key target as of now is to lower greenhouse gas emissions by 43.5% by 2030 compared to the current state. With the Decision No. 888/QD-TTG, released July 25, 2022, Deputy Prime Minister Le Van Thanh approved the” National Climate Change Strategy to 2050”. Through this national strategy, the government plans to implement its COP26 commitments which include increasing its participation in low-carbon technology development, mobilize natural resources, and align the economy with its net-zero commitment. The goal is to develop a better response to climate change.

              Hydrogen demand & application in China

              Graph showing hydrogen demand in China

              The projected hydrogen demand in China suggests strong growth in the upcoming years. China’s Hydrogen Alliance (CHA) forecasts that China’s hydrogen demand will reach 35 million tons in 2030, making up around 5% of the projected total energy demand. By 2050, the figure will stand at 90 million tons, supporting 10% of the projected energy demand. Moreover, the projected renewable-based hydrogen production capacity of 130 million tons in 2060 would mean that hydrogen energy could account for 20% of the country’s energy mix by that time.

              Research from CHA showed that, currently, China’s hydrogen is mainly used as supply source in the industrial sector, such as the petro-chemical industry. Ammonia synthesis, methanol synthesis and refining and coal-chemicals are the three main processes that use the hydrogen, accounting for 32%, 27% and 25% of the total supply respectively. Other sectors only accounts for 16% of the total hydrogen energy. It is forecasted that in 2060, hydrogen will still primarily be used in the industrial field, using around 60% of the total hydrogen demand. Moreover, it is expected that the transportation industry will use 31% of the total hydrogen energy, and construction and power sector will only use 9%.

              Chart showing applications of hydrogen in China

              Current production & output method in China

              China is the world’s largest hydrogen producer, producing 33 million tons of hydrogen per year, a third of the world’s total output. Production is mostly from oil or coal-based plants in refineries or chemical facilities, of which production from coal remains cheaper than natural gas or water electrolysis at around RMB 0.7-1.2 (0.1-0.19 USD) per cubic meter. Thanks to favorable policies from the government, China has witnessed a rapid growth in hydrogen production, growing from 25 million tons in 2020, to 33 million tons in 2021. CHA estimates that hydrogen production will reach 120 million tons in 2060.

              Graph showing growth of hydrogen production in China

              Table showing China hydrogen cost applications

              Challenges to Hydrogen Development in China

              While hydrogen is gaining momentum in China, the development of the hydrogen industry is still far from smooth. Many challenges need to be addressed along the industrial chain.

              • The overall production cost of renewable based hydrogen is comparatively high. To address this issue, central and local governments have issued a number of policies and plans to cultivate a favorable business environment and expand the industry’s scale.
              • A lack of technological knowhow in hydrogen production, storage and transportation process, resulting in low efficiency and higher cost.
              • Under- development in Auto industry. While the government has promoted electric vehicles (EVs) more aggressively, hydrogen powered vehicles are generally buses, heavy-duty trucks, with merely 7,000 vehicles on China’s road.

              Graph showing hydrogen production costs

              Business opportunities

              According to Special Administrative Measures for the Access of Foreign Investment (2020), foreign investment is encouraged in participating renewable energy development. Foreign investors are entitled ”equal treatment” as Chinese companies, many restrictions on market entry have been abolished or revised.  However, State Owned Enterprises (SOEs) are the main players in Chinese hydrogen industry and dominating along the industrial chain. Many foreign investors should establish a joint venture to easier gain access to the Chinese hydrogen market.

              In China, government policies have a significant influence on industrial development. For the hydrogen industry, policies and plans have formed a favorable business environment to China’s hydrogen development. On the other hand, China welcome inventors with advanced technology to promote hydrogen energy development along the industrial chain, especially in the sectors of production, storage and transportation of hydrogen, FEM fuel cells and the establishment of filling stations.

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                China Contract Manufacturing: A Comprehensive Guide

                Chinese factory worker


                Contract manufacturing has been a common and effective solution to relieve the shortage of production output and decrease costs. China has undoubtedly been a major market for contract manufacturing, thanks to its manufacturing capabilities and developed supplier base.

                In this article, we review contract manufacturing in China, including the benefits, risks, but also how you can find contract manufacturers.

                What are the benefits of contract manufacturing in China?

                Let’s start and review the benefits of contract manufacturing in China, some that you might be familiar with already.

                Near market

                China is estimated to be the largest consumer economy today as measured in purchasing power parity (PPP) terms. Over the next decade, it may add more consumption than any other country and is expected to generate more than 25% of all global consumption growth.  Manufacturing products in China can help companies being closer to the market and reduce transportation costs, as well as to ease import procedures.

                Cost effective

                Contract manufacturing is cost-effective and the reason why it has become particularly popular in the last two decades. Outsourcing manufacturing to China can help you save the expense of setting up factories or expanding existing manufacturing facilities. Meanwhile, even if labor costs have increased much in China in previous years, China is still considered a Low-Cost Country (LCC) for manufacturing. There’s also much development room in the China Central and Western parts as most manufacturers are concentrated along the East Coast.

                Manufacturing capabilities

                China has transitioned its market from low-cost supply to advanced manufacturing. The country has become a leader in the manufacturing of advanced products such as in automotive, telecom equipment, robotics, and consumer products. Compared to Vietnam, which is specialized in industries like textiles and electronics, China has an abundance of contract manufacturers and a larger industrial base. Many manufacturers in China are available for a large range of products.


                Companies with own manufacturing facilities and equipment will suffer financially when workers or machines are idle or perform below capacity. At the same time, rents, salaries, and overheads still need to be paid. With contract manufacturing, however, you can plan for low-demand periods, and reduce your orders accordingly. Similarly, if you need to increase orders suddenly, your Chinese supplier should be able to manage this status too.


                One of the limitations of countries like Vietnam and India, which are China’s rivals in manufacturing, is their inability to manufacture a wide range of products and in a higher scale. So, no matter how large your order is, you are more likely to find a factory that can handle your order in China than in any other developing country. That’s why you must also carefully evaluate and select suppliers, keeping future orders in mind. If your supplier’s production capacity is higher than your average order, you will be able to increase your order without any trouble once sales pick up.

                What are the risks?

                Naturally, there are also risks related to hiring contract manufacturers in China. Below you can find some of the most notable ones.

                Lack of control over timelines

                When outsourcing manufacturing, unless a factory exclusively manufactures for your company (which is highly unlikely), your products might not be given priority. The factory will be bound to commitments given to customers who put orders before you and will only start production after pending orders are completed. This isn’t the case if you own the factory. But you can offset this disadvantage by planning your orders meticulously and sending in orders on time, keeping production timelines in mind.

                IP rights

                If the IP rights of your product are vital to your business, you open for risks of compromising your IP rights by outsourcing the production to China. Thus, one of the first things you should do is to register your IP rights such as trademarks, design patents, and copyrights. China is a so-called first-to-file country which means that the first company to register a trademark or patent is the first company to be awarded it.

                It doesn’t matter if those rights are owned by you in the US or Europe. If a Chinese company has registered your trademark in China first, your products can be prevented from being exported due to Chinese laws and as you have infringed upon the IP rights of the Chinese company.

                Finding contract manufacturers in China

                This is the most interesting topic for many foreign companies, namely, how can one find contract manufacturers locally. Let’s review how a search can be conducted.

                1. Pre-study in the market

                Identify your specific sourcing strategy as well as the regulatory requirements for the targeted products. Once the preconditions are determined, careful market research should be conducted. During the research, you need insights of the overall compatibility between technology and your production requirements, price levels, competition, and industrial clusters, for example. When searching for the right contract manufacturers, the following questions can be asked:

                • Where are the business facilities located?
                • What are the business’s processing and analytical capabilities?
                • Does the manufacturer have the required certifications and registrations in place to manufacture products for your intended market?
                • What experience does the business have manufacturing your types of products?
                • Is the business’s quality system ISO certified?
                • How does the business demonstrate financial stability?
                • What are the packaging options available for clients?
                • Do the business offer warehousing, fulfillment, and logistical services?
                • What is the business’s production capacity?
                • What is the business’s track record considering on-time deliveries?
                • How does the manufacturer manage business processes?
                • What does the client onboarding process look like?
                • How will the business protect your Intellectual Property?

                2. Implementation

                After the pre-study, it’s time to continue with the implementation if feasible. Below you can find some of the major steps.

                Contact a service provider with expertise in contract manufacturing

                Establishing relationships with high-quality suppliers and compliant factories is often the biggest challenge businesses face when starting to manufacture products in China. Asia Perspective is specialized in searching for suppliers, manage suppliers, and can help you create longstanding relationships with compliant factories. We connect you with businesses and factory facilities in China or even other supply chain locations across Asia.

                Preparations during pre-production

                Once a business has established a working relationship, it’s time to conduct pre-production inspections. From factory audits that account for production capacities, equipment condition and the quality of management practices to other inspections of processes, these preliminary measures are crucial for maintaining the highest standards.

                Following the approval of suppliers and factories, a business should arrange for in-process services. These inspections and quality control measures are essential when considering how to manufacture a product in China. The first article quality control, defect sorting services and pre-shipment checks are all helpful measures for getting the highest returns on investment.

                Protecting your IP

                According to the Patent Law of the People’s Republic of China, Article 19, foreigners, foreign enterprises, or other foreign organizations having no habitual residence or business office in China should entrust lawfully established patent agencies to apply for patents or settle other patent issues in China. In this context, we can help you identify the premium agencies and improve your communication with them to promote IP issues settlement quickly.

                CSR Audits

                In the subsequent management, you need to stay updated of the production status. On-site visits and audits are essential under such circumstances. However, due to the differences in culture and high costs, it can be wise to involve an experienced and objective third-party, to conduct CSR audits.

                To learn more about the topic, you can also read our separate article about CSR audits in China.

                Contract Manufacturers in China

                These days, under the background of rice in the manufacturing industry of Southeast Asia, Vietnam, Thailand, Malaysia, and Indonesia have emerged a lot of good potential contract manufacturers. However, China is still a stable country to produce relatively complex products due to its numerous efforts in manufacturing capabilities, especially when time-to-market is critical and when assembly requires a lot of labor.


                China is notably big for contract manufacturing of electronic products, below are a couple of examples of large contract manufacturers being present.


                Foxconn is well-known as the top electronic contract manufacturing company in China. It is an internationally renowned electronic foundry company and the world’s largest electronics industry technology manufacturing service provider. It specializes in the R&D and manufacturing of 3C products such as computers, communications, and consumer electronics. It has a wide range of digital content, A high-tech enterprise in the development and application of automotive components, channels, cloud computing services, and new energy & new materials.

                BYD Electronics

                BYD Electronics was established in Shenzhen China in 1995 and listed in Hong Kong in 2007. It is the world’s leading platform-based high-end contract manufacturing company in China. Focus on business areas such as smartphones and laptops, new smart products, automotive smart systems, and medical health.

                Medical device

                China also has a large contract manufacturer base for medical device, where the two listed companies below are examples that operate in the industry.


                Located in Guangdong province, Seaskymedical is one of China’s leading medical equipment manufacturers. In the medical sector, where hygiene is of the utmost importance, Seasky ensures that the items created exceed health standards. With the help of a medical device clean room, equipment is designed with utmost sanitization. Seaskymedical has a strict quality check procedure. All their products are ISO 13485:2016 certified.


                Shinva is located in Shandong province and specializes in medical instruments and equipment, pharmaceutical equipment, and medical medicine services. It offers CSSD, pharmaceutical equipment, radiotherapy solutions, digital operating rooms, dental equipment, and vitro diagnostic reagents and instruments to customers, gaining a reputation in China’s high-end market.


                China plays an important role in the semiconductor supply chain while many contract manufacturers are located here.


                SMICS is one of the leading foundries in the world and is the front runner in manufacturing capability, manufacturing scale, and comprehensive service in the Chinese Mainland. SMIC Group provides semiconductor foundry and technology services to global customers on 0.35 micron to FinFET process node technologies. Headquartered in Shanghai, China, SMIC Group has an international manufacturing and service base, with three 8-inch wafer fabrication facilities (fabs) and three 12-inch fabs in Shanghai, Beijing, Tianjin and Shenzhen, and four 12-inch fabs under construction in Shanghai, Beijing, Shenzhen and Tianjin.

                Huahong Group

                Huahong Group is an advanced manufacturer in 8+12-inch chip production. The Group’s business includes integrated circuit research, development, and manufacturing. Its factories are in Pudong Jinqiao, Zhangjiang, Kangqiao and Wuxi. Currently, it has three 8-inch wafer fabrication facilities (fabs) and three 12-inch fabs.


                China has maintained its position as the world’s manufacturing hub for decades, allowing the country to build tight supply relationships with other countries. Companies can reduce production costs, gain high manufacturing capacities, and attain access to the potential China market through contract manufacturing here.  Regarding the corresponding risks in finding CMs in China, effective management can spread the risks.

                Read more about our market entry & expansion experience or other consulting capabilities.


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                  Solar energy batteries are booming in China

                  Solar farm in China


                  The solar energy battery market has got much attention in China in recent years, being a fast-growing industry in renewable energy. In short, a solar energy battery is a semiconductor sheet that uses sunlight to instantly generate electricity, it is sometimes also referred to as “solar chip” or “photovoltaic cells”. The batteries can instantly generate electricity when illuminated under certain conditions.

                  Following the focus on environmental protection and execution of the dual carbon goals policies, China’s State Council, the National Development and Reform Commission, Energy Bureau, and other related departments have issued policies to support the development of the solar energy battery industry.

                  In this article, we go into greater detail and review why the solar energy battery market is exploding in China, and what opportunities this brings.

                  Increasing Demand for Solar Energy Batteries in Europe

                  Europe has grappled with energy problems and is eager to expand its solar energy capacity. This was particularly noticed during the energy crisis in 2022. Renewable energy sources such as nuclear and hydropower accounted for over 40% of Europe’s total energy supply in 2021. Yet deterioration of wind conditions coupled with weather anomalies such as drought all drove the demand for traditional energy sources like natural gas and coal.

                  With the termination of Russia’s natural gas supply and the gradual implementation of various environmental policies, Europe is in dire search of a sustainable energy solution.

                  Higher electricity costs

                  Since Russia’s natural gas supply was cut to Europe, electricity prices have broken new records as days go by. European governments began taking drastic measures to limit energy consumption, such as Germany’s efforts to ban outdoor lighting in buildings and reduce indoor heating temperatures, and the UK regulators raised the energy price cap by 80% in early October.

                  Soaring energy prices have also resulted in surging food prices, supply bottlenecks, and post-pandemic recovery efforts, which all led to expanded price pressures and inflation in recent months.

                  Below you can find a graph that shows the electricity price increase in Europe until September 2022.

                  Graph showing European wholesale electricity prices

                  Increased demand for renewable products in factories

                  Despite tax rates and additional costs arising from overseas sales channels, demands for renewable energy products such as photovoltaic products have remained hot in Europe. Solar Energy reported that more than 3,000 households had rooftop photovoltaic installed each week by the end of August 2022, three-folding what was three years ago.

                  Chinese photovoltaic exports have reached new heights, where the country’s exports for the first eight months of 2022 already exceeded the previous year’s volume of 35.77 billion USD. It is estimated that Europe will take up to 50% of China’s total photovoltaic exports in 2022, a percentage previously dominated by Asia & Pacific countries.

                  “It is currently the “cheapest way to generate electricity”, said Mr. Zhang, a director of a leading photovoltaic firm in China, “as the European market has become increasingly sensitive to price changes”.

                  Price fluctuations

                  Graph showing weekday hourly electricity prices

                  As Europe is coping with electricity price fluctuations, differences in electricity prices at various hours of the day also took a toll on many households. Mornings and evenings of the weekdays, between the hours 7:00 – 9:00 and 17:00 – 20:00, are among the periods with the most energy consumption, where electricity rates during those hours would record an increase of 100% compared to hours with minimum energy consumption.

                  Strong Chinese Supply Chain Eco-System

                  China’s photovoltaic industry started around 2005, driven by European market demand. The industry has developed rapidly, where explosive industry growth has been demonstrated since 2013 following the rigorous introduction of national and regional to boost the photovoltaic industry.

                  China’s photovoltaic industry has already surpassed the growth stage – subsidy policies have exited, and industrial growths have matured from a policy-driven to a market-driven stage. China’s photovoltaic production accounted for over 3/4 of the global photovoltaic module output in 2022’s first half.

                  Graph showing China solar cell production

                  Rapid Development of Solar Energy Battery Supply Chains

                  A series of supportive policies launched by the Chinese government has made the solar energy battery industry a fast-growing industry in the new energy sector. In 2009, China implemented investment subsidies to conduct bidding for large-scale photovoltaic power plants. In 2016, the central government issued the “Thirteenth Five-Year Plan for the Development of Solar Power Generation”, setting a target that the installed capacity of solar power generation to reach more than 110 million kilowatts in 2020. To add further catalyst to the industry, the government has actively encouraged rooftop photovoltaic products for self-generation, self-use, and large-scale power stations.

                  As the world’s largest solar power industry chain cluster and product exporter, China has a rich application market, a good investment environment, and the most photovoltaic patents. China’s photovoltaic industry has a complete industrial chain from upstream crystalline silicon production to midstream high-efficiency solar cell production to downstream solar photovoltaic power station construction and application.

                  The market concentration of industry suppliers for the photovoltaic industry is high in China, where dozens of large-scale photovoltaic industrial parks are mostly found in Jiangsu, Hebei, Shandong, Zhejiang, and Anhui provinces. Listed companies include Tongwei, LONGi, Zhongli Group, and JA Technology are among the top photovoltaic producers in China.


                  With the gradual advancement of China’s “carbon neutral” and “carbon peak” plans, China’s solar energy battery industry will experience rapid development in 2022. Chinese suppliers must continue to reduce costs and increase efficiency and optimize their profit structure further. It is necessary to increase investment in technological innovation and enhance core competitiveness to ensure the supply of domestic and international markets.

                  Many opportunities are also presented in China’s solar energy battery industry. With promising factors such as positive policy programs, strong market response, and an increase in demand for solar energy batteries from the European market, there is a foreseeable trend that solar energy battery technologies will gradually replace shares of energy production from traditional power generation methods.

                  Read more about our energy & environmental technology experience or other consulting capabilities.


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                    by Asia Perspective Asia Perspective No Comments

                    China’s Semiconductor Industry: Current Development and Complications

                    Circuit board with semiconductor


                    In 2022, the global semiconductor industry suffered greatly, following shortages in 2021. While the technology sector stocks lost over 30% year-to-year, semiconductor stocks have seen a decline of more than 40%. At the same time, leading chip manufacturers such as Intel, SK, and Samsung, announced production reduction plans for the products.

                    The global semiconductor industry is indeed an interesting topic and where China plays an important role. In this article, we take a greater look at the Chinese semiconductor market and what we can expect.

                    The Segments of the Semiconductor Supply Chain

                    The semiconductor supply chain includes the supply of upstream semiconductor raw materials and equipment, the manufacturing of midstream semiconductor products, and downstream applications.

                    A wide range of materials included in the manufacturing process can be divided into front-end manufacturing and back-end packaging materials. In thousands of chip processing procedures, the main types of equipment used are lithography machines, etching machines, film deposition equipment, ion implantation machines, testing machines, sorting machines, and probe stations. Downstream applications of the semiconductor industry include network communications, computers, consumer electronics, industrial control, automotive electronics, and so on.

                    The below chart gives a better overview of the semiconductor supply chain.

                    Chart showing semiconductor supply chain structure

                    The Competitive Landscape in the Global Semiconductor Industry

                    Thanks to strong research and innovation capabilities, the US maintains a strong competitive advantage in the semiconductor industry globally, especially in electronics automation design, core intellectual property, logic devices, and manufacturing equipment. Noticeably, however, its absolute competitiveness has weakened while other countries’ semiconductor industries are experiencing continuous upgrades. From 2013 to 2021, local US companies’ market shares fell from 56.7% to 43.2%, as exports from other countries squeezed sales.

                    It’s worth noting that the entire East Asian region accounts for 73% of the world’s semiconductor capacity, corresponding to 83.85% of the global chipmaking semiconductor equipment demand. China mainland’s comparative strengths are in packaging testing, wafer manufacturing, and raw materials. South Korea, Japan, and Taiwan region are dominant in raw materials, memory chips, and wafer manufacturing. Currently, China mainland and Taiwan together account for 37 % of global chip production capacity while South Korea 21 %, and Japan 18% respectively.

                    In each segmented semiconductor area, the core technology is often mastered by enterprises with oligopolies. In the silicon wafer and electronic technology market, the former is mainly occupied by Shin Etsu Chemical (Japan), Global Wafer (Taiwan), Stiebel Eltron (Germany), and SK (Korea), while the latter is led by the APD (US), Air Liquide (France), Dayolic (Japan), and Linde (Germany). Among semiconductor photoresist suppliers, Japanese companies dominate with 72% of the global market share. The same goes for the lithography equipment supply status where ASML, the Dutch giant, has a market monopoly with 83.3% of the high-end global lithography equipment market.

                    Export Restrictions and the Impact on China’s Semiconductor Market

                    On October 7th, 2022, the Department of Commerce Bureau of Industry and Security (BIS) released the Imposition of New Export Controls on Advanced Computing and Semiconductor Manufacturing Items Exported to China, significantly escalating US sanctions on China’s semiconductor industry since 2018. In the new export control rules, BIS added restrictions on the export of chips and related production tools to China for national security issues:

                    1.  Restrict Chinese companies’ access to high-performance chips and advanced computers.
                    2.  Restrict U.S. support for specific semiconductor activities that involve China.
                    3.  Restrict China’s access to advanced semiconductor manufacturing items and equipment.
                    4.  31 more Chinese entities and research institutions were added to the UVL list.

                    Challenges for China’s Semiconductor Industry

                    The restriction of US high-performance chip exports may directly hinder the development of AI technology and the IT industry in China. Chip designers and fabs that design supercomputing chips in mainland China, as well as overseas fabs that use US technology to make chips for Chinese supercomputing chip designers, will all be subject to US export controls.

                    In addition, the US has extended restrictions on 28 entities and artificial intelligence technologies related to high-performance computing, including Haiguang, Jingjiawei, and Chinese supercomputing centers. As a result, the manufacturing of high-performance CPUs, GPUs, and AI chip in China will be blocked. Meanwhile, many foundries such as TSMC, Samsung, Intel, UMC, and Global Foundries will no longer be able to contract manufacture chips for such Chinese chip designers.

                    The ban also included certain semiconductor manufacturing equipment and related items, which can be used in advanced chip manufacturing, into the Commercial Control List (CCL). All mainland Chinese chipmakers are subject to the restrictions, which have gone straight from “focused crackdown” to “full crackdown”. The scope of the restrictions has been expanded from 10nm to 16nm chips, targeting China’s domestic memory chip manufacturing industry. Export bans on 18 nm chips, used for the smaller DRAM memory chips, and on more than 128 layer NAND flash memory chips, used for semiconductor manufacturing equipment and storage, will significantly impact mainland China’s manufacturing industry and impede subsequent technology development.

                    A new license is now required for exports of assembly components of semiconductor equipment by the Chinese mainland. That is to say, semiconductor equipment manufacturers in mainland China will be greatly hampered in making their own equipment.

                    Europe’s Response to US Restrictions

                    China’s market is especially important for the development of the global semiconductor industry. In recent years, China has increased investment in the semiconductor industry, especially in the rapid development of the semiconductor manufacturing industry, and has purchased a large amount of high-tech equipment. As a result, the revenue of foreign semiconductor factories from China continued to increase, climbing up to around 30% of their total revenue.

                    In 2021, according to its financial reports, Pan Lin Group’s revenue from the Chinese mainland reached 33% of its total revenue, while Kolei generated 27%. European firms such as STMicroelectronics, Infineon, and NXP also rely heavily on Chinese buyers.

                    Many companies have stated that they do not want to give up sales in China for political reasons. The Dutch government has, of the date we are writing this article, not agreed to impose any additional restrictions on ASML’s DUV equipment, essential production equipment in chips, exports to China, arguing that the measures could damage its normal trade relationship with China.

                    Making China’s Semiconductor Industry Less Reliant on the US

                    Among four major aspects of semiconductor manufacturing, including design, manufacturing, packaging, and testing, manufacturing is the bottleneck of China’s semiconductor industry. China also experiences a large technology gap in equipment production.

                    Although China’s R&D is continuously developing, there is no doubt that a great mass of time and capital investments will be needed for development in the semiconductor industry. China may proactively seek cooperation with Dutch, Japanese, Korean, and other manufacturers to secure the Chinese semiconductor supply chain.


                    The semiconductor industry is of strategic importance to China, especially in the context of the international competitive environment. At present, the development of the global semiconductor industry depends on efforts and resources from all over the world. Due to the high technical entry barriers and uneven patent distribution around the world, a stable supply chain requires sound business relationships among all countries.

                    China now has faced unprecedented challenges in its semiconductor market growth as US restrictions on China’s semiconductor industry have deepened into an all-around block. According to China officials, China will continue expanding its industry.

                    Read more about our market entry & expansion experience or other consulting capabilities.


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