Some Tips for Doing Business in China

The global financial crisis renders many traditionally reliable investment options risky.  Because of that, some of my friends in the corporate sector, including several hard core sceptics of China’s so-called economic miracle, have openly expressed their interest in finding out more about the “China option”.

Not being an investment consultant myself, I am not in a position to tell people what to do with their money.  One thing I can say for sure, however, is that China is not going to be immune from the consequences of a global recession.  We cannot possibly count on the Chinese government’s widely publicised stimulus package to substantially transform domestic consumption in China.  The chance for this to happen is rather slim, as I have analysed before in this blog.  The extent to which the Chinese economy will contract is hard to determine, due to a lack of transparency in the way official statistics are compiled.

In spite of these inherit pitfalls, I doubt very much if investors in China will fare any worse than those who invest in other parts of the world, particularly in this bleak economic climate.  In fact some could even argue that China will continue to offer a more favourable environment for investors than most Southeast Asian countries, including India.

If you are planning your venture in the next 12 months, the main factor to watch out for is how the economic downturn in China will affect social and political stability.  Due to strict media control, however, information of this kind is even more difficult to obtain than China’s real unemployment figures, or to accurately predict than China’s 2009 GDP.   The only certainty is that the Chinese Communist Party’s propaganda machine has been running in overdrive to convince the world that China is on top of the situation and will be the first to recover from the global economic crisis.  Pardon me for not embracing the spin talk with open arms when at the same time news about dissident arrests and website shutdowns are becoming more frequent and intense.  The fact that mainstream state-owned media are openly endorsing the use of sophisticated Internet intelligence technology for guiding public opinion is hardly the kind of news that will inspire confidence.

If you are thinking of using an investment consultant, make sure that you are choosing one who really understands the risks of doing business in China.  In that way, you can rest assured that he will help you draw up a realistic exit strategy, just in case if things go wrong.  Try not to rely on advice from those who go out of their way to paint a positive picture about business prospects in China.  So if a consultant told you six months ago: “China will not catch the global economic cold”, and then six months later continued to chant the riddle and said: “China is still the place for growth”, you know that he knows practically nothing about doing business in China.  You would also be wise to be sceptical about journalists who keep bragging about how “China’s brand of command capitalism works” and how “savvy management of public opinion may prove crucial as economic conditions head south”.  The likelihood is that he is saying what he is told.

Here is an example of an insightful piece of advice from our friend Tom.  He knows what he is talking about.  Take it or leave it?  It’s up to you:

If talk could spin a way out of economic distress, then perhaps Wen Jiabao might be right in stating that China can be the first to “recover” from the global economic crisis. But talk is cheap and when you’re an authoritarian junta that uses the force of the state to suppress dissent, arrest opposition, and ensure that the economy is dominated by State owned and Party-owned corporations, you’re pretty much free to say whatever bullshit that you like without repercussions.

[ … ]

So if you invest your money based upon the happy talk coming out of Zhongnanhai for the last two weeks and then lose your shirt because it was all hot air, don’t complain to Zhongnanhai and don’t expect that the CCP will suddenly find a need for holding themselves accountable for screwing up the Chinese economy.  Instead you’ll find more squashing of dissent, arrests of opposition, more jingoist propaganda to distract from the economic hardships, more spinning from the panda huggers in the greater China blogosphere, and some of the most artful gymnastics to avoid accountability seen in the mainland since the Olympics packed up and the TV cameras went away.

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