Why We Started a Company in Guangzhou: And Why You Should Too
Where should you launch your startup business? The environment you choose to start your business has an enormous effect on the evolution of your entrepreneurial endeavours, so you should choose wisely. I had never really thought much about starting a business in China — in fact I had never really much interest in entrepreneurship until very recently. So why did I, a fresh graduate without any business training, end up choosing to start a company in Guangzhou, China? Read on.
One day while surfing the web for tips on online business, I stumbled upon a podcast called Tropical MBA. Tropical MBA is all about starting location-independent businesses, making money, and travelling the world.
In particular, one TMBA podcast episode caught my eye:
“What are Your Chances of Having $1,000,000 in 5 Years? Hint: They Might Be Higher if You Move to China”
I had never really considered China before as a base to launch a company. But the more and more I thought about it, the more it made sense. That TMBA podcast eventually became an idea catalyst, a virtual atom bomb of opportunity pathways that exploded in my head. But suddenly everything made sense: China is the place to go if you want to start a business. Here’s why:
- China? Here’s 5 Reasons Why
China? Here’s 5 Reasons Why
1. China is the Fastest Growing Consumer Market in the World.
The market size of China is mind-boggling– 1.3 BILLION people live in China, that’s 20% of the entire world population. But what’s really important is the size of the middle class — i.e the consumers. The middle class in China is expanding rapidly, bolstered by a combination of government reforms (standardized minimum wage, appreciation of the Chinese currency, anti-corruption crack downs etc) and general influx of money into China from foreign investments. The International Money Fund estimates that China will surpass the USA in purchasing power parity in 2015. According to Forbes, four of the top ten fastest growing cities in the world are in China: Shenzhen, Guangzhou, Shanghai and Beijing.
Domestic e-commerce is taking off in a big way in China, with sites like Aliexpress.com and Taobao.com exploding onto the scene. Even Amazon wants to get a slice of the Chinese domestic market with the recent launch of Amazon.cn. Good luck Jeff!
2. China is THE Place to Do Manufacturing.
More specifically, go to Guangzhou (and the surrounding areas, Shenzhen). Located in Guandong province, Guangzhou is the manufacturing hub in China.
There is an infinite amount of opportunity in exporting goods. ANYTHING and EVERYTHING is manufactured in China. I know quite a few people make a killing online doing drop shipping– sourcing their products direct from the manufacturer in China, and only having to maintain an e-commerce website to sell to customers (no warehouse, no retail location, no lease, no required capital investment). While you can find some of these manufacturers on alibaba.com, they only represent a fraction of the manufacturing epicentre of China. There’s a huge opportunity in drop shipping existing products from China OR designing your own product to be manufactured. Look at the successful campaigns on Kickstarter.com. Nearly all of the successful campaigns will send their mass manufacturing to China. Working with Chinese factories to bring a product to market through Kickstarter is an extremely attractive, low-capital venture that I am highly interested in currently.
3. Low Cost of Living in China
The cost of living in China is low compared to that in West. Even living in a top-tier metropolitan city in China is totally doable for less than 1000$ a month. And this is for a very good standard of living with all the Western comforts you would be used to back at home. Check out these cost of living stats for Guangzhou (population 12 million, 3rd largest city in China) on Numbeo.
Some important stats:
- The median salary in Guangzhou is 3000 RMB ~ $500 USD a month (after tax)
- The median rental rate for a 1 bedroom apartment in Guangzhou in the city centre is 3000 RMB ~ $500 USD / month.
- A cheap meal can be had for 8 RMB ~ $1.30 USD
- A monthly Metro pass costs 70 RMB ~ 12$
Obviously, these costs of living are really low. And remember: Guangzhou is no tiny town or suburb. It is a fully-fledged metropolitan equipped with nightlife, awesome transportation, a massive international airport, world-class dining, and a beautiful steel and glass skyline.
Low cost of living is a really important factor for those looking to buy more time to work on their business projects while living off of savings. One can also easily find a part-time job teaching English in China, and can be paid enough to pay for your living expenses by only working maybe only 15 hours per week. This means more time to devote to growing and developing your business.
4. The Emerging Tech Scene in China.
“China’s tech sector completely redefines the scale.” — Hugo Barra, former head of Android at Google
The tech scene in China is on steroids. Some facts to blow your mind:
- There are over 500 million smartphone users in China– nearly TWICE the POPULATION of the USA.
- Taobao.com is twice the size of Amazon.com + eBay.com COMBINED.
- Xiaomi — the extremely popular emerging “Apple” of China, doubled their sales in 2013, selling 18.7 million smartphones, with revenues of 5.2 billion USD. Xiaomi has now surpassed Apple’s market share in China.
- 91, an Android app store in China, was bought for 1 billion USD in 2013. This is one of 100 Android app stores in China.
If you want to get into the giant Chinese tech market, you should look into Shenzhen. Shenzhen is a rapidly growing city right across the border from Hong Kong. Designated as a Special Economic Zone (SEZ), this area is a hub for manufacturers of electronics. Most notably, Foxconn, the manufacturer for Apple products has factories in this area.
5. China is a Gateway to the International Market
Everyone wants to do business with China. Because of this, China is quickly becoming a hub for international business as companies from all over the world converge on the middle kingdom.
One thing to remember is that China is also very close, geographically, to many other major developing economies. These include: Thailand, India, Indonesia, Vietnam… etc.
Most of these countries are a quick 3 hour plane ride away from the major business centres of China (i.e the south).
SO What Are the CONS of CHINA?
As with any proposition, there are going to be some cons. Some things to consider before making the leap and living / starting a business in China include:
- Completely different business culture and customs. Chinese business, generally speaking, is conducted based on relationships. Look up Guanxi, and you will know what I mean.
- Government restrictions. Bureaucratic hoops abound and there’s really nothing you can do about it in China, except persevere — or bribe someone (disclaimer: I do not recommend doing this).
- Pollution and air quality. Pollution is already a huge problem in China. The environment has really suffered in the name of progress, and this can have a very direct consequence on your health should you choose to live in China for an extended period of time. Some cities are more polluted than others, but either way you will need to weigh the risks for yourself.
- Annoying visa issues. You’ll probably need to leave the country every 2-3 months, or go through the intensive paperwork of getting a business visa or work visa.
- Language barriers. If you want to conduct business in China, you will probably need to learn some amount of Chinese. Mandarin is the official dialect, however in the south of China, Cantonese is more common.
- Censored Internet: If you want to use Google, Facebook, or Youtube in China you will need a VPN (our review here). It costs about 60$, so not a huge thing, but still an annoyance because it will slow down your internet speed a bit.
How to Start a Company in China (WFOE)?
If you are interested in setting up a legal business entity in China you are going to need some help. There’s a lot of bureaucratic red tape and procedures that must be handled properly. Consider enlisting the help of a professional China business consulting firm to help you navigate the process. One consulting firm we can recommend is FDI China. They are a non-state owned firm that offer assistance in WFOE (Wholly Foreign Owned Enterprise) formation, taxes, accounting, and office setup.
China represents a fast moving environment filled with opportunity. There’s plenty of business possibilities that tap into the massive emerging domestic market, utilize the vast manufacturing sector, or run with the incredible growth in the tech industry. Low cost of living is extremely beneficial for those who want to devote more of their time growing their business. Lastly, China is a gateway to doing business on an international scale.
So what do you think? Is China right for you?