The 10 Biggest Pitfalls Foreign Companies Face in China

After more than a decade supporting international businesses and professionals — from export sales and procurement to market entry, factory audits, and private business trips across Xi’an and China — I’ve witnessed the landscape evolve dramatically. Yet despite the wealth of opportunity, even highly capable executives continue to lose hundreds of thousands, sometimes millions, of dollars due to mistakes that were entirely avoidable.

As we approach the end of 2025, here are the 10 most costly pitfalls international companies are running into — drawn directly from real advisory cases I handled this year:

1. Treating China as “Just Another Market” (Cultural Misalignment)

Many executives assume the strategies that worked in their home markets will work in China. They don’t. In October, a client lost a USD $420,000 deal overnight because of comments that were culturally insensitive — proof that cultural fluency matters just as much as business expertise.

Solution: Work with a local partner who can translate not just the language but the cultural and business context. Avoid unnecessary conflicts by respecting local traditions and customs. Even major global brands like Arcteryx and Starbucks have adjusted their strategies in China to align more deeply with local culture.

2. Assuming Your Product Is “Great”

One client arrived convinced their product would dominate the market until his team saw that factories in Shenzhen and Yiwu already produced better-quality versions with more features.

Solution: Conduct thorough competitive analysis and demand validation before entering the market. Adjust your product positioning based on needs and standards.

3. Neglecting Regular Due Diligence on Long-Term Suppliers

Factory bankruptcies hit record highs in 2025. Several clients were caught off-guard when long-term suppliers suddenly collapsed, disrupting entire supply chains.

Solution: Run periodic surprise audits and maintain a list of backup suppliers. A well-prepared contingency plan is non-negotiable.

4. Underestimating Capital Controls and Profit Repatriation

A company with strong financial results found it nearly impossible to repatriate its profits due to strict capital controls and missing transfer pricing documentation.

Solution: From day one, ensure you have solid transfer pricing documentation and comply with Chinese regulations.

5. Thinking Government Relations Don’t Matter

Regulatory checks — environmental, safety, and more — are routine. But many foreign companies underestimate their impact.

Solution: Build solid local government relationships and work with a consultant who can manage compliance and keep operations aligned with regulatory expectations.

6. Ignoring Industrial Policies

China’s industrial policy is now more influential than ever. Sectors like semiconductors, biotech, EVs, and AI enjoy strong government support, preferential financing, and fast-track approvals.

Solution: If you operate in a strategic sector, align with leading local players and understand how policy priorities shape market dynamics and incentives.

7. Misunderstanding Work Culture: Not Everyone Embraces 996

Some foreign companies still assume Chinese employees accept extreme overtime. Younger workers increasingly do not, unless properly incentivized.

Solution: Recognize shifting work values. Offer work-life balance, clear incentives, and modern HR policies if you hope to attract and retain high-performing teams.

8. Hiring the Wrong Local Team

China’s talent war is intense. Compensation for top talent has risen 30–50% since 2021. I’ve seen companies lose entire teams to competitors offering better pay and titles.

Solution: Offer equity, structured career paths, and real decision-making authority. A China GM must be empowered — not just a messenger to headquarters.

9. Believing in the “Cheap China” Myth

Labor, rent, compliance, and tax costs have risen sharply. Many foreign companies significantly underestimate the true cost of operations.

Solution: Conduct a full cost–risk analysis. Consider IP risks, regulatory swings, geopolitical shocks, and supply chain vulnerabilities — not just surface-level expenses.

10. Operating Without Strong Local Ground Support

The biggest pitfall: trying to navigate China alone. Every severe financial loss case I’ve seen this year shared one trait — no reliable on-the-ground support.

Solution: Work with a local advisor who can respond in real time, troubleshoot issues, and connect you with the right stakeholders quickly.

Welcome to China in person

If you plan to source, invest, expand, or simply explore China in 2026, avoiding these pitfalls will save you significant time and money. The opportunities here are real — so are the complexities.

I still have a few openings for fully customized private trips to Xi’an and China’s manufacturing belt in Q1 2026. These include factory access, hands-on guidance, and zero shopping stops.

Email me at htransmission.0@gmail.com for details. Don’t end up on next year’s “pitfall list.”

(Feel free to share with anyone planning to enter China soon.)