Greater China's Investment Opportunities and Risks
Recent key economic indicators such as GDP, PPI & CPI show signs that the Chinese economy is slowing down. IMF further confirmed that, in light of the Central Government policies that aim to sustain stable economic growth, China may be "heading for a soft landing". However, amid this growing concern, the computer giant leader Michael Dell remains upbeat of China as its decelerating economic growth still outpaces that of most countries. In fact, it is that entrepreneurial belief that kept the global investment capital flowing into China over the last decade. As this huge influx of money indicated that China is a place for foreign investment, it is interesting to understand more about its environment, especially the opportunities and risks behind it.
The rise of China's middle class
Author of The Chinese Dream, Helen Wang, claimed that Chinese middle class may grow to 700 to 800 million, which is 50% to 60% of China's entire population. This expanding group of middle class strives for a better standard of living. The desire for a better standard of living leads to greater demand for consumer products. This is good news to the retail industries such as apparel or F&B businesses. This explosive consumption power has already had influence on the international brand fashion store Chanel which opened a branch in Xintiandi, Chaoyang region of the Beijing city. In there, a large amount of luxurious hand bags priced more than a thousand US dollar each can be sold without any price discount or any help from sales assistant skills. In fact, sales in Xintiandi have already reached CNY 4.6 billion a year. On the other hand, the sight of Chinese buying luxurious products irrationally in Europe has drawn global attention. Though these kinds of extreme situation might only reflect a very small group of rich people behavior, it also sent a message that the Chinese citizens, especially those with rising income level, are looking for better lifestyle.
In dire need of quality necessities products
The desire to have better lifestyle, in fact, is not only reflected in the luxurious products industry, but also in the necessities fields. Unfortunately in China, there is always news of Chinese next generation being harmed by defective, tainted or substandard products. The shortage of quality consumer goods and trusted brands is indeed serious problem in this developing country. As we can see in HK, the necessities such as milk powder, medicines are always the favorite products that the mainland tourists would buy when they visit the city. And, sales of these products are always strong in particular in the area where it is close to the border. This phenomenon not only created business opportunities for cross-border parallel traders but also supports the argument that the Chinese people are in dire need of good quality necessities. As such, to those strong companies with trusted brand name, this is a once in a life time business opportunities.
Frequent law and regulatory reforms in China
Despite the potential these opportunities present to investors and businesses these opportunities do not come without any threats. Notwithstanding its rapid economic growth, China is still a developing country in which the laws and regulations are not yet fully developed. The policy framework has implemented striking changes in the recent years. Such striking reforms in the Chinese laws and regulations created an unstable business environment for foreign investors or entrepreneurs. Without professional assistance it is easy for foreign businesses and investors to violate Chinese laws and regulations. Good examples are the Rio Tinto bribe case and the Google anti-censorship issue. This poses risk of financial loss and reputational damage to good companies, resulting in higher cost of compliance. Companies therefore need to tread carefully and make extra effort to ensure that they are compliant with Chinese law to successfully enter and thrive in the Chinese market.
Regardless of the investors' insight into China prospects, this large yet intricate, delicate and strange consumer market has already drawn global attention and no single answer without yielding to over-simplification can direct anyone to successful entry of this Chinese market. I believe that above-mentioned factors are only some that explained external investment environment in China, while internal factors such as firm strategies regarding mode of entry or firm size also play an equally important role in making investment decision in China as well. So, investors should take a holistic approach to evaluate the risk & return of any projects that target the China market.
Reference:
Barboza. D. (2007). China reveals deep consumer product quality problems. Retrieved from http://www.nytimes.com/2007/07/04/business/worldbusiness/04iht-food.5.6497264.html
Gupta. P. (2012). INTERVIEW-UPDATE 2-Dell CEO upbeat on China despite slowdown. Retrieved from http://www.reuters.com/article/2012/07/18/dell-china-idUSL2E8IH9BI20120718
Kurtenbach. E. (2012), IMF says China's economy reached 'soft landing'. Retrieved from http://finance.yahoo.com/news/imf-says-chinas-economy-reached-031831675.html
Luhby. T. (2012). THE RISE OF CHINA: China's growing middle class Retrieved from http://money.cnn.com/2012/04/25/news/economy/china-middle-class/index.htm
王海倫. (2011). 中國夢：世界上最大的中產階級的崛起及其影響. 文匯出版社.
李雪莉. (2011). 暴富黃金十年：搶攻新中國6大消費族群. 天下雜誌472期.
