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Doing business in China got easier according to World Bank

Posted by: Kristina Knut
Category: Economy & Trade

China’s Ease of Doing Business rank improved from 78 in 2017 to 46 in 2018

According to the most recent World Bank report on the ease of doing business in different countries around the world, China has made big strides in cutting burdensome regulations over the past year. The report, issued on October 31st, 2018 highlighted the improvements the country has made over the past year. Areas mentioned in the report included trading across borders and simplifying the registration procedures and formalities for new companies.

Take a look at our previous post on the new IIT law: China Adopts a Revised Individual Income Tax Law

The 15th Ease of Doing Business Report

The Ease of Doing Business (EODB) is an index by World Bank, now at its 15th issue. The annual study measures aspects of business regulations and their implications for establishing firms and for their operations. Initiated back in 2003, the project now inspects 190 countries and economies, by studying following parameters:

  • Starting a business.
  • Labor market regulation.
  • Dealing with construction permits.
  • Getting electricity.
  • Registering property.
  • Getting credit.
  • Protection of minority investors.
  • Cross-border trade.
  • Paying taxes.
  • Enforcement of contracts.
  • Resolving insolvency.

A nation’s ranking on the index is based on the average of the above subindices. All of the above parameters result in the Distance to Frontier (DTF), reflected on a scale of 0 to 100. For DTF, 0 represents the lowest performance and 100 represents the frontier. The EODB measures regulations which have a direct affect on businesses and does not measure more general conditions, i.e. proximity to large markets, infrastructure, inflation, crime etc.

Major improvements for China

Out of the 190 countries, China ranked 46th this year – a huge jump from 78th position last year. This is the third-best improvement in the ranking, right after Afghanistan and Djibouti.

According to the report, the biggest improvements were made under the Starting a Business criteria. Here, China ranked at an impressive 28th position out of 190 countries this year. The report praises how China has worked on simplifying the procedures needed to start a business, which now requires only 9 days compared to previous 22.9 days. Additionally, the five-in-one business license reform, implemented in the beginning of 2018, was a much welcome advance in company incorporation.

Graph: Ease of Doing Business score for China over the past 10 years

Source: World Bank EODB Report / Tradingeconomics.com

 

The year has been especially fruitful in terms of business reforms, as the senior manager from the World Bank’s global indicators group, Rita Ramalho, had highlighted – while normally one would see 1-2 reforms annually, China presented a total of 7 areas of reform over the past year.

China also performed well in fields such as getting electricity, where the report had highlighted the utility distribution companies being speedier than ever when estalishing an electricity connection. There are now more and more opportunities to pay taxes online and to map out the whole country in order to improve the land registry.

Further progress was made in getting construction permits (a shift from 172 to 121), registering property (from 41 to 27), trading across borders (97 to 65) and in protecting minority investors (119 to 64).

What’s next?

While the improvements in Chinese business settings are certainly welcome, the EODB report does have its shortcomings. It’s important to note that the ranking for China was done by measuring the business environments in Shanghai and Beijing – both richest cities of China and vastly different from smaller provincial regions.

The ongoing trade war between the U.S. and China has also been a major issue for businesses trading in either direction.

Economists often note that the World Bank ranking is being too narrow in its scope. For example, it does not cover issues such as corruption, which makes the business environment less appealing to entrepreneurs in many countries around the world. World Bank officials have taken notice of the feedback and have been taking active measures in improving their methodology. Thus, with each year, the research design goes through amendments in order to provide more accurate comparisons across the countries.

While considering the above factors, it’s nevertheless an impressive achievement for China and the ongoing improvements in the nations business environment make it an attractive location for businesses.

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Author: Kristina Knut

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