For those who are new to investing in, or with, China, there are many factors to consider.
“The Chinese economy is like a beautiful woman with flaws. The flaws are secondary.”
For the past 20 years, the pace of China’s economic and structural development has exceeded that of any other country. China’s opacity has lifted. Investment is broadening from traditional manufacturing, export and infrastructure, to embrace international and domestic consumer goods and services. These new opportunities are estimated to be in excess of US $1 trillion over the next several years.
Many foreign investors partner quickly, rather than strategically. Assess the unique value your company offers and target potential business partners who may benefit the most. Example considerations include:
– What are China’s priorities for your industry? Significant opportunities often follow policy directions.
– Is your product or service in a ‘hot’ business sector, such as entertainment, technology, e-commerce, or food and health imports?
– Do you have strong brand recognition or a trusted corporate history?
– How quickly can your product or service scale up? Speed to scale counts in China, as competition follows quickly.
– Does your company need to lead its China strategy, or can you structure the right relationship so that you can rely on a Chinese partner? Leverage is key.
The opportunities are many, and large. Competition can be intense. Advance market analysis and strategic partnering is often rewarded.
“Chinese outbound investment will soon exceed US outbound investment.”
China’s outbound investment continues to soar, and the international business world is positioning to capture it. China-sourced investment carries with it cultural considerations and restrictions. There are, for example, legal requirements for moving larger sums of money out of China. Some money that has been moved “into the gray” will face increasing regulatory scrutiny. You need to know if the Chinese investor you are dealing with can execute on your transaction, and what the motives are.
Chinese private investors tend to be motivated by one of two objectives – finding a safe, stable long term investment (return on investment may be secondary), or; investing for return with a clear exit opportunity within a few years. Because future growth for some industries in China is unpredictable, Chinese investors often apply the same timing considerations when investing internationally.
Chinese companies, or ultra-high net worth individuals, may prefer to invest in large real estate projects, industries that they have made money in and are therefore comfortable with, and/or “hot trend industries”, where acquiring foreign goods or technology can create fast growth opportunities for the China market (not necessarily the foreign market).
There are approximately 150,000 State-Owned Enterprises in China, but relatively few will execute international deals. Those that do tend to be major corporations with extensive access to capital. For some, profit can be achieved over a longer term. For others, profit may be only one consideration, particularly those who may be supporting economic development initiatives.
Understand the needs of a potential Chinese investor and their ability to execute. Enthusiasm and capital do not equate to the ability to close a deal.