The retail industry in China presents a dynamic landscape with a blend of offline and online sales channels. Official data from the National Bureau of Statistics of China offers valuable insights into the country's economic trends.
Economic Trends in China
Starting with the Consumer Price Index (CPI), we observe that monthly price levels have been modestly fluctuating within a reasonable range. In 2023, the CPI increased by 0.2% year-on-year, indicating a mild rise that is conducive to stimulating consumption.
The Consumer Confidence Index chart reflects a significant decline in consumer confidence due to the impact of the pandemic. However, there are signs of a gradual recovery in consumer sentiment, pointing toward a positive outlook.
The chart illustrating China's total retail sales of consumer goods shows a recovery in recent years. Despite downturns in 2020 and 2022 caused by COVID-19, retail sales rebounded in 2023, surpassing pre-pandemic levels. This uptrend indicates a resurgence in consumer spending and confidence.
As overall demand continues to recover and market confidence gradually strengthens, China's economy is on a path toward positive growth. The improving economic indicators, coupled with the rebound in consumer spending and confidence, signal a favourable outlook for China's economic performance in the coming period.
Online VS Offline Businesses
In China, while offline retail sales still hold a significant advantage, the proportion of online retail sales of physical goods compared to total retail sales has been steadily climbing, increasing from 10% in 2015 to 27% in 2023.
In 2023, online retail sales of physical goods such as food, clothing, and utility goods increased by 11.2%, 10.8%, and 7.1% respectively. Given the complexity of China’s retail ecosystem, deciding whether to open an online store or a physical store poses a critical question for businesses. Let's briefly compare the costs associated with establishing a physical store versus an online store.
| Platform Usage Cost: | RMB 5,000/month |
| TP Partner Cost: | RMB 50,000/month |
| Platform Marketing Cost: | RMB 10,000/month |
| Platform Commission Cost: | 3%-5% of revenue |
- Physical stores in Shanghai:
| Rental (40 m²): | RNB 60,000/month |
| Labour Cost (3 staffs) | RMB 35,000/month |
| Marketing Cost: | RMB 30,000/month |
| Staff Commission Cost: | 2%-3% of revenue |
Entering the Chinese market requires careful consideration of various factors to ensure compliance and cultural understanding. Key areas to evaluate include:
- Population: Understanding demographic trends and consumer behaviour.
- Mature Industrial Chain: Access to well-developed supply chains and manufacturing capabilities.
- Specific Eco-system/Supplier and Customer relationships: Building strong connections within the local business environment.
- Human Resources: Availability of skilled labour and management.
- Government Support: Navigating regulations and leveraging governmental incentives.
When venturing into China's retail sector, consider the following:
- China's Diverse Retail Markets: Are you familiar with the varying consumer preferences and trends across different regions?
- Key Procedures and Expenses for Launching a Retail Business in China: Do you understand the legal, financial, and logistical steps involved in establishing a business?
- Critical Success Factors for Expanding in the Chinese Market: Have you identified the key elements that drive success in China's competitive retail landscape?
Challenges Faced by Companies Expanding into China
Transitioning from the startup phase to expansion in the retail sector presents unique challenges. At SBA Stone Forest, we understand these challenges and provide customised solutions to ensure a seamless and successful journey.
Start Up to Build-Up Phase
- Complexities in designing equity structures
- Location suggestions and store selection challenges
- Adherence to local compliance policies (accounting, tax, payroll and legal regulations)
- Intellectual Property (IP) protection concerns
Build-Up to Scale-Up Phase
- Overall control over opening or closing procedures for multi-location stores
- Ensuring compliance across multiple locations, maintaining consistent compliance with accounting, tax, payroll and legal practices
- Managing contacts for various locations
- Handling complex reconciliation procedures; managing financial reconciliations with multiple platforms and settlements
- Navigating diverse HR regulations across different locations
How We Can Help
SBA Stone Forest has over a decade of active engagement in the retail industry, with deep insights into the market, emerging retail trends, and socio-economic dynamics.
Our one-stop solutions involve partnering with you throughout your entire business life cycle, providing services for company set-up, accounting, HR advisory & payroll, audit, tax, business advisory and global expansion advisory.
With our comprehensive support, we help you navigate the challenges of expanding into China, ensuring a smooth and successful entry into this dynamic market.
CHINA UPDATES
Accounting and Taxation
STA Announcement on "Reverse Invoicing" for Resource Recovery Enterprises
Effective from 29 April 2024, resource recovery enterprises in China can issue invoices on behalf of natural persons (sellers) who sell scrapped products, known as "reverse invoicing."
Key points include:
- If a natural person’s cumulative sales via "reverse invoicing" exceed 5 million yuan within 12 consecutive months, the resource recovery enterprise shall stop issuing invoices on their behalf. Resource recovery enterprises shall guide the natural persons continuously engaging in the sale of scrapped products to complete business entity registration and issue invoices on their own as required.
- Resource recovery enterprise shall submit an Application Form for "Reverse Invoicing" along with their operating permit for hazardous wastes or other relevant qualifications to the competent tax authorities. This includes the qualification certificate for recovery and disassembly of scrapped motor vehicles or the filing and registration certificate for renewable resources recovery operators issued by commerce authorities.
State Administration of Taxation (“SAT”) and Ministry of Finance (“MOF”) Announcement on Individual Income Tax Policies for Share Incentives
Effective from 1 January 2024 to 31 December 2027, the new policy supports the innovation and development of enterprises through favorable tax treatment for share incentives:
- Individuals granted stock options, restricted shares, or equity awards by domestic listed companies must pay individual income tax within 36 months from the date of exercising these options.
- Taxpayers resigning within this period must pay all taxes before leaving the office.
- Domestic listed companies are those listed on the Shanghai Stock Exchange, Shenzhen Stock Exchange, or Beijing Stock Exchange.
- Taxpayers can follow this announcement for options exercised after 1 January 2023 if they have not yet paid the full tax amount, with the installment period calculated from the date of exercising the option.
Human Resources
Notice on Adjusting Housing Loan Interest Rates and Down Payment Ratios
Issued on 17 May 2024, the People's Bank of China adjusted the interest rate policies for individual housing loans:
- The Interest Rate Policy of Commercial Individual Housing Loans, the Notice on Reducing the Interest Rate of Individual Housing Provident Fund Loans, and the Notice on Adjusting the Minimum Down Payment Ratio Policy of Individual Housing Loans.
- The three documents clearly indicate the cancellation of the national level of the first housing and second housing commercial personal housing loan interest rate policy floor.
- Effective from 18 May 2024, the interest rate of individual housing provident fund loans will be lowered by 0.25 percentage points. The interest rates for individual housing provident fund loans with less than 5 years (including 5 years) and the first set of personal housing provident fund loans with more than 5 years will be adjusted to 2.35% and 2.85%, respectively. The interest rate of the second set of individual housing provident fund loans for less than 5 years (including 5 years) and more than 5 years shall be adjusted to not less than 2.775% and 3.325% respectively.
- For residential families who buy commercial housing with loans, the minimum down payment ratio for commercial personal housing loans for the first home is adjusted to not less than 15%, and the minimum down payment ratio for commercial personal housing loans for second homes is adjusted to not less than 25%.
Corporate Governance
Notice on Strengthening Regional Cooperation for Centralised Pharmaceutical Procurement
Promulgated on 20 May 2024 by the National Healthcare Security Administration, this notice aims to improve the quality and expansion of centralised pharmaceutical procurement:
- The National Union of Centralised Pharmaceutical Procurement shall treat all types of business entities impartially and fairly, without discriminatory rules or unreasonable prerequisites based on enterprise ownership, registration places, scales, or investment sources.
Contact Us
Yeo Lee Soon
China Business Advisory, Singapore