What challenges do Chinese entrepreneurs face when setting up a business in the EU?

Over the past ten years, Europe has become a popular destination for Chinese investment. Beijing’s desire to diversify its assets, acquire technological expertise and strengthen its global market presence has made the European Union a logical choice. However, entering the European market is rarely straightforward. Despite its appeal as a major consumer market with a high level of legal protection, the EU presents numerous barriers to Chinese entrepreneurs, ranging from legal and financial to cultural and reputational. Below, we highlight the key pitfalls to consider when starting a business in the EU.

Regulatory complexity

One of the main challenges for Chinese businesses is the multi-layered structure of European regulation. While the EU acts as a single economic space, corporate, tax and labour legislation remains the responsibility of national governments. Consequently, Chinese investors, who are accustomed to a centralised governance system, must consider both European directives and the local regulations of each country. Company registration, obtaining licences, notarising documents, localising incorporation documents and translating corporate reports all require time and resources. Even the choice of jurisdiction becomes a strategic decision. Bank compliance remains the most sensitive aspect. European banks are extremely cautious about clients with Chinese beneficiaries, requiring detailed information on the origin of capital and ownership structure. For many entrepreneurs, opening a corporate account can take months, hindering the operational start-up of their business.

Political and economic control and investment security

Since 2019, most EU countries have implemented the Foreign Direct Investment Screening Mechanism. Initially aimed at protecting strategic industries, this practice has effectively become a tool for controlling Chinese capital. European governments analyse every deal involving Chinese investors from the perspectives of national security, cyber resilience, and technological sovereignty. Particular attention is paid to projects in telecommunications, energy, infrastructure, robotics and semiconductor manufacturing. In some cases, deals are blocked or undergo lengthy reviews. This creates uncertainty and hinders the investment strategies of Chinese companies, particularly those involving state-owned enterprises. Indeed, Chinese investment in Europe is becoming a political issue as well as a commercial one, requiring entrepreneurs to adopt a new behavioural model involving greater transparency, localisation of management centres and partnerships with local companies, in order to mitigate the perception of ‘foreign influence’.

Financial transparency and tax compliance are also crucial

The European accounting and tax system requires a high degree of transparency. Chinese companies, particularly those with holding structures and involvement in offshore jurisdictions, often struggle to transition to international reporting standards (IFRS). European tax authorities require full disclosure of related party information, transfer pricing and supply chains. The introduction of the DAC6 and BEPS directives, which are aimed at combatting aggressive tax planning, has forced Chinese corporations to restructure their internal processes. Failure to comply with these regulations can result in fines, account freezing and increased regulatory scrutiny. For small and medium-sized Chinese businesses with no experience of operating in Western jurisdictions, this creates uncertainty and an additional financial burden.

Cultural differences and management barriers

Beyond legal and tax considerations, a key challenge remains the cultural gap. The Chinese management model is based on hierarchy, personal relationships and long-term trust, whereas European corporate culture is centred around formal rules, institutional accountability and horizontal structures. This difference is evident in everything from negotiations to HR management. European employees expect transparency, clear employment contracts and a work-life balance, whereas Chinese managers often rely on strict discipline and centralised control. This unadapted management model can lead to conflict, high staff turnover, and reputational risks. Successful Chinese companies operating in Europe, such as Huawei, NIO and Hisense, are therefore creating local management teams, hiring European directors and implementing corporate standards that align with EU regulations.

Competition and labour law

The European market is highly saturated and has a complex system of labour protection. For Chinese entrepreneurs accustomed to flexible hiring and minimal labour regulations, European legal requirements can be unexpectedly stringent. Minimum wages, social security contributions, mandatory holidays, restrictions on overtime, and the involvement of trade unions in negotiations all increase the cost of doing business. Furthermore, Chinese companies must adapt their products and marketing strategies to local consumer expectations, requiring investment in branding, certification and after-sales service.

Reputational risks and perceptions of Chinese capital

A separate challenge relates to the image of Chinese businesses. Following a series of high-profile debates surrounding cybersecurity, infrastructure impact and personal data protection, Chinese companies often encounter mistrust. European society tends to view Chinese projects through the lens of geopolitics and state control. To overcome this barrier, Chinese companies must implement ESG standards, publish corporate sustainability reports, and engage actively with local communities. Building trust has become as important as the financial investment itself.

Restrictions on access to subsidies and government programmes

Although the European Union actively supports innovation and entrepreneurship, foreign companies do not always have equal access to grants and incentives. Many programmes require a European legal entity, participation by EU residents, or partnerships with local companies. This forces Chinese investors to establish joint ventures and attract local partners to participate in support programmes, which in turn requires legal and corporate adaptation.

Immigration and visa barriers

Finally, the presence of company management in Europe remains a sensitive issue. Obtaining business or work visas for Chinese citizens involves lengthy checks and the requirement to provide documentary evidence of actual economic activity. Some EU countries have tightened regulations following the pandemic, limiting the mobility of Chinese businesspeople. This slows down the strategic management of European branches and makes it more difficult for them to be present on the ground.

Changing the investment model

The period of rapid acquisition of European assets by Chinese corporations is gradually coming to an end. While most transactions were mergers and acquisitions in the early 2010s, the structure has recently shifted towards direct ‘greenfield’ projects, where Chinese companies establish enterprises from scratch. This approach is less sensitive to political restrictions, but it requires significantly greater investment and time to establish. This shift reflects the new reality of Chinese business: acquiring an established European asset is becoming increasingly difficult due to growing scrutiny of foreign investment and concerns about technology transfer. Consequently, today, Chinese companies are compelled to establish production facilities, research centres, and sales structures in Europe, while taking into account local standards and regulations.

The politicisation of the investment process

The main challenge for Chinese capital is political, not economic. Almost all EU countries have implemented foreign investment screening mechanisms aimed at protecting strategic sectors such as energy, telecommunications, transport infrastructure and semiconductors. Any major transaction involving a Chinese investor undergoes a multi-layered due diligence process that can drag on for months or even years. Regulators assess not only the financial aspects of the transaction, but also the origin of the capital, the ownership structure and the possible involvement of Chinese state institutions. Amidst geopolitical tensions and sanctions pressure from the US, European governments are becoming increasingly cautious about allowing Chinese capital to acquire assets that are significant from a technological perspective.

Economic pressure and competition

Chinese companies are facing increasing competition in the European market and growing criticism of their subsidy strategies. This is particularly noticeable in the automotive and battery industries, where Chinese electric vehicle and battery manufacturers are accused of price dumping and of receiving state support. Investigations by the European Commission into anti-subsidies pose serious reputational and financial risks, reducing the attractiveness of Europe as a destination for Chinese investors. At the same time, Chinese companies are becoming aware that Europe is seeking to limit dependence on foreign supplies in strategic sectors rather than the influx of investment per se.

The problem of trust and perception

The second major barrier is reputation. Chinese companies are often associated with cybersecurity risks, industrial espionage and hidden government control in public and political perception. Consequently, even commercially successful projects encounter scepticism from governments, clients, and partners. To overcome this, Chinese companies must develop a new strategy for operating in Europe. This includes localising management, establishing local research centres, hiring European managers, implementing ESG standards and promoting corporate transparency. In other words, Chinese businesses must adapt not only technologically, but also institutionally, to European expectations.

Financial and compliance barriers

Additional challenges arise in the banking sector and in financial reporting regulations. European banks are implementing enhanced due diligence measures regarding the sources of funds and ultimate beneficiaries, particularly for Chinese clients. Companies must confirm the origin of capital, disclose their ownership structure and comply with anti-money laundering standards. Furthermore, the European tax system requires transparency and compliance with transfer pricing standards, posing a complex challenge for Chinese holding companies operating through multi-layered offshore structures. Consequently, many projects are experiencing delays in bank settlements and restructuring of financing structures.

The transition from expansion to localisation

Overall, Chinese companies recognise that capital alone is insufficient for long-term success in Europe. A transformation in their approach is necessary — from ‘external investor’ to ‘local market participant’. This strategy involves setting up production facilities in Europe, establishing R&D centres, obtaining tax residency and joining local business associations. This transition takes time, but it enables Chinese corporations to mitigate political risks and become part of the European innovation ecosystem. Companies that have chosen the path of European integration, with a local management structure and adherence to transparency standards, have the greatest chance of gaining a foothold in the EU market.

Results

Modern Europe remains an open yet challenging environment for Chinese businesses. On the one hand, the EU market offers a stable legal system, high levels of consumption and a developed technological infrastructure. However, increasing political scrutiny, growing transparency requirements and wariness of Chinese capital significantly complicate the work of Chinese investors. Today, the key to success for Chinese companies lies not in the scale of investments, but in their quality — the ability to integrate into the European economic environment, maintain compliance, build trust and demonstrate a strategy focused on sustainable partnerships rather than short-term gains. In other words, the era of unconditional acceptance of Chinese capital in Europe is over. A new stage is dawning — one of mutual adaptation, where success will be defined not by the amount invested, but by the ability to think and act in a European way.

European policy towards Chinese investment

Chinese businesses in Europe are undergoing a complex transformation. On the one hand, Europe remains the largest and most stable market, offering high levels of consumption, a developed legal system and technological capabilities. However, increased political scrutiny, reputational risks and bureaucratic barriers are making operations increasingly challenging for Chinese companies. This interaction can be described as an ‘awkward dance’, where both sides are interested in cooperation, but are acting with caution. European policy towards Chinese investment is characterised by ambivalence. Officially, the EU welcomes foreign investment, particularly in sectors that generate employment and promote innovation. In practice, however, many countries have tightened controls on foreign investment, particularly in strategically sensitive sectors such as energy, telecommunications, transport, battery production, and microelectronics. Every deal involving Chinese participation is now subject to rigorous security, infrastructure, and data access scrutiny. Consequently, Chinese investors are receiving mixed signals: while Europe needs capital, it also fears losing technological independence.

Geopolitical factors are increasing pressure. Worsening relations between China, the US and the EU are impacting the investment climate. European authorities are beginning to view Chinese projects through the lens of both economics and politics. The higher the sensitivity of the sector, the greater the risk of a deal being blocked. In the automotive and electronics industries, for example, Chinese companies are subject to anti-dumping investigations, increased tariffs and checks on the origin of capital. This complicates strategic planning and increases the time and cost of investments. Against this backdrop, the model for Chinese businesses entering the European market is changing. While the focus was previously on acquiring existing enterprises, most new investments today are aimed at creating production facilities and research centres from scratch. This approach reduces political dependence, but it requires more time, capital and management training. It also necessitates deep integration into the local economic and legal environment, which not all companies are capable of achieving.

One of the main challenges for Chinese enterprises remains the issue of trust. European societies and authorities view projects involving the Chinese state or military with suspicion. Even commercially successful companies are forced to prove the transparency of their operations, publish ESG reports and disclose their ownership structure. In order to gain trust, Chinese corporations are actively localising production, hiring European top managers and establishing research and development centres in Europe. Differences in corporate culture and management approaches pose an additional obstacle. The Chinese business model traditionally focuses on hierarchy and personal connections, whereas the European economy is based on institutional procedures and clear legal norms. This can lead to conflicts within management, difficulties in adapting labour standards and the need to restructure internal control systems. Successful examples demonstrate that companies which implement European principles of corporate governance and transparency are more likely to achieve sustainable growth and establish a long-term presence.

Europe’s financial and regulatory environment demands a high degree of transparency from Chinese companies. Bank compliance checks, source-of-funds audits and tax authorities’ supply chain disclosure requirements all add to the bureaucratic burden. However, abandoning transparency is becoming increasingly unacceptable; under strict regulation, any non-compliance with standards can result in an account being blocked or a licence being revoked. Despite these challenges, Europe remains an attractive destination for Chinese businesses. Consumer markets, technology hubs and a skilled workforce are concentrated here. Companies that have restructured their strategy by moving from an export-based model to a local one, establishing partnerships with European institutions and operating within local regulations are strengthening their position. They are no longer perceived as foreign players, but as integrated participants in the European economy.

Therefore, the success of Chinese companies in Europe today depends on their ability to adapt, rather than the scale of investment. Europe demands transparency, predictability and respect for its institutions. In turn, Chinese businesses seek stability, technology, and access to a solvent market. Balancing these interests requires trust and a mutual willingness to cooperate. It is this trust, rather than capital or political agreements, that is becoming the primary factor in determining the future of Sino-European economic cooperation.

How can Regulated United Europe help Chinese entrepreneurs start a business in the EU?

Regulated United Europe provides Chinese entrepreneurs with comprehensive legal and corporate support to help them launch a business and enter the European market. The company’s team of lawyers, tax consultants and corporate specialists offers support at every stage, from selecting the right jurisdiction to obtaining the necessary permits and licences. The first step is a strategic consultation, during which the investor’s goals, planned industry, business scale, tax priorities and residency requirements are analysed. Based on this analysis, the optimal country for company registration is selected — for example, Estonia, Lithuania, the Czech Republic, Malta or Cyprus. Each of these countries has its own advantages: Estonia is renowned for its digital solutions and remote management capabilities, Lithuania for its favourable environment for fintech and crypto businesses, the Czech Republic for its robust industrial infrastructure and stable banking system, while Malta and Cyprus offer flexible regulations for investments and international entities.

Regulated United Europe handles all organisational and legal procedures, including preparing incorporation documents, registering the company with the commercial register, obtaining a tax identification number (VAT, EORI), opening a corporate bank or payment account, and assisting with the appointment of directors and shareholders. A significant advantage for Chinese clients is the option to register a business remotely by proxy, eliminating the need for a personal visit to the country. In addition to corporate support, RUE provides tax and accounting consultancy services. The company’s specialists help to optimise company structures in compliance with international double taxation agreements, develop financial accounting systems and establish reporting in accordance with EU standards. This is particularly important for entrepreneurs working in trade, logistics, e-services or cryptocurrencies.

Regulated United Europe assists Chinese companies entering the European market in the technology, financial or innovation sectors with licensing. RUE has extensive experience of working with MiCA (crypto asset regulation), EMI (electronic money), PSP (payment services) and CASP (crypto-asset service provider), and can ensure full compliance with regulatory requirements. RUE‘s lawyers also help business owners and their family members obtain residence permits, allowing them to live and manage their companies freely in Europe. Depending on the chosen country, the company offers solutions through investment programmes, business residency or entrepreneur visas. Post-registration support is an important part of our work. The Regulated United Europe team provides accounting and financial reporting services, as well as support with corporate licence renewals and legal matters relating to interactions with banks, tax authorities, and government agencies. If necessary, our specialists can assist with office selection, lease agreements and hiring in the country of incorporation.

For Chinese entrepreneurs who are new to the EU market, Regulated United Europe is not just a legal advisor, but a strategic partner. Thanks to its knowledge of European legal systems, languages and intercultural communication, the company can help to adapt business models to the requirements of the European market, minimise risks and build a sustainable corporate structure. Thus, cooperation with Regulated United Europe enables Chinese investors to establish businesses in Europe with minimal administrative barriers and maximum legal security, providing them with access to the single European market, banking infrastructure, and opportunities to scale up their business internationally.