China Now A Multilateral Play
Op/Ed Commentary: By Chris Devonshire-Ellis
Jul. 9 – When I first came to China some 20 plus years ago, and subsequently established Dezan Shira & Associates 18 years back, it seemed at the time as if China would be the only market possible to concentrate on. Huge, diverse, and going through immense social, economic and political changes, I never considered the possibility that its progress would be so dynamic that it would carry not just its own reform, but that of the entire region with it. Yet that is what has happened, and far more beyond the borders of Asia.
The China boom, remarkable as it has been, has not just been down to China in the ascendancy. China has also been fortunate enough to have been developing just at the same time as global technology has transformed our lives. Without it, China today would not be anywhere near as successful as it has been, and the early days of China investment were nowhere like today’s frenetic scrambling. For a start, the technology that allows you to read your writer’s articles did not exist. There was no Internet and even a fax machine was a luxury. China’s success then has been as much built on the speed of global communications as it has its own hard work and pace of reforms. Back in the early 90s, secure in employment with Asia Law & Practice in Hong Kong, I recall their then co-founder telling me “China is dirty and horrible, don’t go” – a mantra oft repeated in the days prior to Hong Kong’s handover in 1997. Fortunately I didn’t listen, and neither did I believe that one could “manage” China from Hong Kong; a different mindset and rather too many ferry journeys from Shekou (Shenzhen) to the Shun Tak Center (Hong Kong) taught me that Mainland China, even just across the border, was a completely different animal. Some consultants and writers of course will have you believe differently, that you can write or proselytize about China from London, New York, Washington or Seattle, and that of course suits them fine. China without getting your hands dirty. But for real China, you have to live it.
For so long then, living China was about being caught in the middle of a huge kaleidoscope, one looked at China from each different city, and it changed patterns. It took a long time to make sense of that, and to begin to understand what China sometimes is – a collection of different areas, each unique. Not for nothing does China have seven different languages on its banknotes. We got lucky in some respects; a German client had us establish seventeen different representative offices in 17 different China cities early on in the firm’s life, and that experience, unlikely ever to be repeated today, broke the firm into “national” mode as we saw what was going in cities as diverse as Kunming, Urumqi, Lanzhou and Baotao as much as we did Hangzhou, Chongqing and Xiamen. But another decade plus, and even those cities are not enough to contain China business.
As China has grown and developed, so has its influence on its neighbor countries. Like a pebble dropped into a pond, those ripples of economic development and GDP growth have spread out far beyond even China’s now fashionable second- and third-tier cities. China Briefing Magazine used to introduce, even years ago the exotic investment destinations in China’s Western regions. Now we produce material on India, Vietnam, Russia and Emerging Asia. China in the past two decades has grown from being what for many was a two city country, (Beijing and Shanghai) to three (Guangzhou) and is now way beyond that.
Understanding China and the opportunities it represents has spilled over the borders, and those ripples spread far and wide. China’s economic development is now affecting in a major way the economies of Vietnam, Russia, and Kazakhstan. It solely supports North Korea as a state – and as a direct consequence even foreign investment in the country, for example Nick Bonner’s now famous Koryo Tours as well as a handful of quietly operating private bankers and investment firms. Our 2point6billion.com site even features a monthly DPRK update. China is now a major inter-continental investor – consultants from Africa and Latin America are thriving on their expertise.
China then, in appreciating and being able to react to what is going on, and where the business and investment opportunities lie, has gone from being a unilateral play, with perhaps just one initial foreign invested location on the radar in-country, to a multilateral play. It is important that foreign investors looking at the country realize this – increasing costs and competition alter the perceived dynamics of trade. What was a good bet 10 years ago as an investment may now be superseded. A decade ago, Pou Chen, the huge Taiwanese group, built a footwear business park just outside Guangzhou. Pou Chen encouraged a number of foreign partners to establish operations there, everyone from tanneries to rubber sole manufacturers to lace eye metal producers. It was a tremendous success – but now the cost benefits for the shoe industry are increasingly shifting to Vietnam.
India too, is generating some heat for Chinese manufacturers, even on their own soil. Indian MNC’s, especially in the auto sector, are casting eyes at servicing China’s domestic markets. Other industries will follow, and this will also change the dynamics of competition and space for China. It means that the China expertise can no longer be viewed from the perspective of Beijing or Shanghai. It requires a multilateral approach, because as huge as China is, those multilateral plays will be affecting what goes on internally in China, just as much as China affects them. ASEAN alone, with its population of 580 million is beginning to have an impact on the opportunities in China as well as the markets beyond it. This trend, accelerated by the pure speed of global communications, where it is possible to obtain quotes from suppliers in Wuxi as easily as it is from Chennai or Ho Chi Minh City means the smart money is on Emerging Asia. China may be its hub, but it’s the multilateral dimension that counts when making informed decisions. Understanding China properly means viewing the country as a multinational play.
Chris Devonshire-Ellis is the principal and founder of Dezan Shira & Associates, a foreign direct investment practice specializing in the Emerging Asia region. The firm maintains offices throughout China, Hong Kong, India and Vietnam. Contact: email@example.com.
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