Devonshire-Ellis: Growth Will Be in Asia, Not Just China

Posted by Reading Time: 13 minutes

A China slowdown, India’s tax reform, the Tibet issue, Chinese vs. Indian executives, dealing with IPR problems and emerging Asia all covered in a series of wide ranging questions.

Devonshire-Ellis: “China needs more, not less, institutional input”

Apr. 22 – Chris Devonshire-Ellis, the principal of Dezan Shira & Associates and founder of the Asia Briefing brand, has recently been lecturing in London on matters of Asian investment. In this article we summarize some of the points he’s been making from interview questions.

How do you see growth development patterns in Asia?
It’s a mixed bag, but mostly positive. China is slowing however, and possibly faster than people generally recognize. I’ve been skeptical of some of the GDP growth figures anyway, and I’m also concerned about the amount of bank debt in the system, I think China will struggle to have its fiscal stimulus incentive returned. Wage rises are having an impact, and overall the costs of business in China are currently rising faster than profit levels. Margins are shrinking, and I’m concerned about what is going on there. I see problems being shifted to the next generation of leaders due in power next year, rather than being dealt with now, and I think that means there may be problems come 2013 onwards. Otherwise, India is fine; and I think we’ll be hearing a lot more about that market when the tax reform bill gets passed. We’ll have to wait for that as it wends its way through Congress but hopefully when that gets passed, the important elements of it – tax reduction – will spur an investment bonanza. No one is going to vote against lower taxes. At the moment, they’re arguing about interstate issues such as the imposition of GST instead of VAT. Once that’s sorted out India will boom. It’s just a question of being patient, although it is time to be stealing a march on competitors and getting into that country now. We may see the tax reform bill passed early next year, so it’s time to start thinking about getting over there.

Elsewhere in Asia there are some real growth opportunities, and often in markets long considered basket cases. Mongolia, for example, is about to get into GDP growth of 30 percent on the back of its new found mineral wealth, the country will become as rich as Qatar or South Africa. In the Southeast, markets like Bangladesh are becoming more attractive, especially to Chinese and Indian garment manufacturers, and Singapore is reasserting itself more as a regional hub in a way that Hong Kong cannot.

So what’s the difference between Hong Kong and Singapore?
You need to be in Hong Kong for the Mainland China market whereas Singapore services the Southeast Asia region. Our firm (Dezan Shira & Associates) will be opening an office in Singapore later this year. For Asia regional businesses, it’s not a choice, you need to be in both. But they both provide similar services; it’s just different border demographics.

You seem to be bearish on China
I’m not really bearish, just more cautious. I’ve been in China nearly 25 years and had my own practice there since 1992, so I think I have a finger on the pulse. It is slowing down, and costs of business are increasing. There are development opportunities inland, but they also cost more in terms of logistics and increased local competition. I think China has had a good run, but there’s also been a lot of hype. For example, when I talk to Indian politicians about China, they all want to have had the opportunity to just do what they want and push through infrastructure developments regardless just as the Chinese did. In India, the democratic process slows things down. So that works to China’s advantage. But on the other hand I think they’ve also made a lot of mistakes. China hasn’t engaged with institutions, and the government runs everything, including 90 percent of its businesses. That’s not good for intuition or fresh input, and I think that China is now at a stage where it really needs that, but it hasn’t put that engagement mechanism in place, and that’s a disadvantage I believe is now coming home to the Chinese. Democracy can be tedious at times, but it does permit full debate about the way forward and institutions and the population have a say and an investment in that. I believe that India is using its democracy in a positive manner albeit sometimes painfully, but everyone has a say in the process. I think that’s healthier than closing yourself off from advice. China will be OK, but it could be doing a lot better. This slowdown need not be happening. So I’m cautious about the situation rather than running away from it. No bears.

Has socialism with Chinese characteristics run its course?
No, because that too is evolving, it’s a moving target. However, in some cases, there appears to have been little reform in China. The government today has merely replaced the Imperial Civil Service of a century ago. They’re not answerable, and politicians in China regard themselves as Mandarins. They won’t talk to journalists or tolerate any public debate. There’s a real danger that they are being seen as increasingly aloof. Yet when I go to democratic countries, the politicians are more open. In both India and even Mongolia, you can have public debates with the prime minister. In China, if you were impertinent enough to do that, you’d get into trouble, or even locked up if you criticized him in public. Socialism in China needs more reformists like Wen Jiabao. But currently it seems as if the hard liners are in control, and it doesn’t feel comfortable. That’s maybe to do with the fact a new leadership is coming into place, but we’ll have to see whether the new generation of leaders are tougher or prepared to be more relaxed than the last. That’s the problem with China right there, it’s politically uncertain in the longer term. But reform is inevitable.

You’re heavily in China. How will this affect you?
I changed my business focus a few years ago, when we were just a China business. The firm was only a China-based firm, and our publishing house only produced China material. Now we’re in India, Vietnam and Russia. It’s taken a few years to get India where we want it to be, but that investment is now self-sustaining and it gives me cash flow back from the main China operations to fund investment elsewhere. As I mentioned, we’re opening up in Singapore, and we’ll probably do something in Mongolia this year. The rest of Asia is what I term “one city countries” and we’ll be rolling out offices in Thailand, Malaysia, and Indonesia, as well as giving serious consideration to countries like Bangladesh, Cambodia, the Philippines and elsewhere. It’s not just a China play anymore, it’s an Asian one, and we’ve already done the hard work in China and India. We will look at other China investments, probably in the central regions and in the west, but the real growth push will be Asia. In fact we’ll be redeploying staff from China to other areas in Asia. China is a solid platform for us, but we are now in a position to use it as a springboard to other markets. And we’re well positioned to do so. So we’ve diversified out of China, and that’s a more healthy position to be in.

What about Russia?
That’s an interesting market, but we already have a partner firm in Moscow, who are also in Central Asia, so there’s no point in us taking them on at the same time as we’re in Southeast Asia. So we’ll leave Russia to our partner firm and continue to cooperate with them. Asia Briefing does produce a Russian title, which is doing well and is now produced and printed in Russia, and that’s an important title for us. So publishing yes, but professional services no, it’s not our thing, we already have an excellent partner there, and I want to concentrate on Asia. There’s good people already there and I’ll leave that market up to them to develop. The Russian market is booming actually, a lot of money washing around there. There’s plenty of opportunities to sell to the Russians.

How about other areas such as Brazil, another BRIC economy?
Actually we own “Latin America Briefing” so it’s a possibility for the publishing business. For the firm, it would be nice to add the B in BRIC, it’d complete the set for us. But realistically, it’s a long way away and it would be hard to manage it. It would have to be stand alone, which means if we did anything there, it’d probably be easiest to buy a local firm. Usually we go through all the development investment ourselves, but I’m not sure we’d want to do that from such a distance from our main operations. Also, those economies, their currencies are still low. US$20 goes a long way in Latin America, in China now it’ll only buy you one glass of medium quality imported wine. So the domestic currency values to add to our global bottom lines aren’t really there yet, I’m not sure how much global profitability they would add. But it’ll be interesting to see how they do with the Olympics and World Cup Soccer finals. Hanging out in Rio would be cool.

Otherwise, we’ve taken a preliminary look at East Africa, and Kenya and Tanzania especially. Nairobi is only a five hour flight from Mumbai, leave evening, arrive morning, no jet lag, it’s all good. That is less flying time from India to Africa than some domestic China flights. We also own “Africa Briefing” and I also believe there is potential for the development of professional service firms like ours there too. Also, one of our equity partners is interested in Dubai. Again, we own the “Middle-East Briefing” title there and as a regional financial hub for the Middle East, that would make sense. It’s like the Hong Kong or Singapore of the Middle East, so we could put in a similar operation there. Mumbai looks out onto the Arabian Sea, and we can use our presence there to gain exposure to future potential in Africa and Arabia. So for us, the firm and the publishing house are looking west. So East Africa and Dubai are more likely for us than Brazil, although you never know. However we need to bite off and chew the rest of Asia before we tread further afield, which will take at least another five years. As for choices for where to go – the world really has become a global stage for development. A lack of choices is bad. Having too many choices is indicative of a healthy global market. But one step at a time. When I began the firm 20 years ago, China was all I could imagine or concentrate on. Anything beyond that is all bonus, and we’re fortunate to be in that position.

How do you feel about potential flash points between China and India?
The Indian media always talk that up. And China does antagonize somewhat. My view is that the issue is political, not trade or border dispute based. The Tibetan Government in exile is based in Dharamsala and the Chinese view that as a subversive regime. So they rattle India’s cages on a regular basis to let them know their views. Other than that I think its fine really, and bilateral trade is sky-rocketing. But the political issue is going to be interesting. I suspect that the Dalai Lama may not be reincarnated in India, I think he already views the Indians as having been good hosts and may wish to get out of their hair. There will probably be two Dalai Lamas as China will appoint one. But the prospect of a Dalai Lama being born outside of China is real, and it has happened once before – the fourth Dalai Lama was born in Mongolia. I don’t see that as a problem between China and India, but it will remain a volatile issue for China to deal with and I don’t think Tibet will be easy to visit anytime soon while the Chinese try and keep a lid on it. But once the Dalai Lama moves on, India’s relationship with China should improve.

What are the main business differences between the two countries?
In China, 90 percent of the nation’s biggest companies are wholly or partly owned by the government. In India, the reverse is true and 90 percent of India’s biggest companies are privately owned. So in China, business executives have to learn how to manage domestic political relationships to succeed, while in India, success is more entrepreneurial based. The government won’t lend a hand if you mess up. So I think that in China, corporate executives tend to hit a glass ceiling when it comes to international business practices, there’s always a political interest. At its worst, we’ve seen that China will use trade as a political weapon. So there is political risk in China, and generally speaking, its higher level executives are influenced by how the political system works and less by any entrepreneurial meritocracy. In my opinion, Indian executives fit better into the global workforce than Chinese ones. As an example, our country manager in India is Indian, and he calls the shots there. But in China we run the business as an international board, with some Chinese directors but not exclusively. We need a greater spread of executive knowledge to make decisions there. China also suffers overseas because its executives are not as entrepreneurially minded as Indians. That also shows in the greater penetration of Indian MNCs globally. There’s more Indian MNCs than Chinese ones.

How is the IPR problem in China?
It’s still there. There’s only so much you can do. If you have something of perceived value, even if you trademark or patent it, chances are someone will have a go. It’s still a problem, partly a lack of ethics, partly an ineffective judiciary and a lot to do with a lack of enforcement capabilities. The Chinese will only seriously start to deal with strong IPR legislation and enforcement when it is Chinese brands and inventions that start to get ripped off elsewhere. Then they’ll deal with it, but there’s little motivation when they’re the current beneficiaries. At present you need to build IPR losses into your China business plan, and if they look too dangerous, it’s best to stay away.

Where do you see growth in China?
The growth patterns will be different, as has always been the case. Cities like Beijing, Shanghai and Guangzhou will become more like Western cities in terms of purchasing choices and facilities. But they will also be more expensive, and that will slow growth to more mature, yet sustainable levels. The smaller cities who are now buying only local products, that will change and they will begin to consume better quality and more foreign brands. Growth there will be higher. But you have to consider different marketing strategies for these cities. Dialects and habits are different in many second and third-tier cities than in the main regional hubs like Shanghai, and these need to be studied. There’s also greater competition, not less, and more monopolistic practices once you start to move inland. That’ll ease up over time, but it’ll be harder going to begin with. It should be a boom time for market research firms, getting out and about and really starting to earn their money. You can’t cover China from one office in Beijing or Shanghai. Just look at a Chinese yuan banknote, it has seven languages on it. That’s the diversity, and that’s the challenge. The greater the challenge, the larger the growth potential.

Any specifics?
I could name 20 cities in China right now I’d like to have a presence in, but we can’t afford to be so bullish. Chengdu, Wuhan and Nanjing. Maybe Xi’an and Xiamen. Those would top my list.

What about India?
We’re in five cities there, of which Delhi, Mumbai and Bangalore are all doing well. Chennai as well, but business in Kolkata is slow at the moment. That’s a reasonable spread for now, but otherwise Hyderabad and Ahmadabad would be good choices, and I’m sure we’ll be there in due course.

And the rest of Asia?
Thailand seems to be picking itself up and I have high hopes for that country as long as there are no problems with the monarchy succession. Thaksin turned out to be bad news. We have clients moving there, and that’s also well on our radar. Plus I need a great excuse to get to Phuket! Malaysia never gets much press attention, and that’s because it’s merrily doing well, no upsets or problems, and that’s got to be good for long-term sustainability. Jakarta as well. Of the emerging markets, I mentioned Bangladesh, and Cambodia is interesting. We’re already in Vietnam, and people there are now looking at reducing costs even further! So we’ll be doing something in Phnom Penh I’m sure. And Sri Lanka has potential now that the war is over. The Chinese are in there big time. Mongolia I also mentioned. Such a diversity of opportunities. Where to start? Some great choices there.

Do you have any comments for first time investors?
You know, when I came to China 25 years ago, people thought I was nuts. “It’s communist, dirty, they’ll rip you off!” I got told that a lot. And it was like that. But not enough to prevent me from investing and making a success of it. Then, I never thought that in one executive career there would be a chance to expand into a market of both China and India, and no one could imagine that would happen. But it has, and that’s a once in a lifetime opportunity. Plus now, it’s not just China and India, it’s the rest of Asia as well. If executives want to lead their businesses out of their regular, established markets and look at new pastures, then they need to come to Asia. It really is a once in a career opportunity to expand and prosper. No one wants to be the guy that got left behind. So come out here and get busy. Asia, including China and India – is more than ready and able to purchase foreign products and services. Not to come would deny yourself an incredible opportunity.

Chris Devonshire-Ellis is the principal and founding partner of Dezan Shira & Associates and the founder and publisher of Asia Briefing. He also sits as Vice Chair of the Regional UNDP business advisory council. He can be contacted at

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9 thoughts on “Devonshire-Ellis: Growth Will Be in Asia, Not Just China

    Marcel Wiedenbrugge says:

    A very interesting article and thank you for sharing your vision and experience. Although I do agree with a lot of things you say, I missed your interpretation of the current 5 year plan of China. IPR is indeed still troublesome, but the Chinese (government) understands that if it wants to grow and strengthen its position in Asia (and the world) it should move away from being the manufacturer of the world towards being the innovator of the world. What I currently see is a very strong focus on education and related to it research and development. With it come other issues like the legal system and fighting the mentality of copying / infringement of copyrights. As you correctly stated, once the Chinese have good valuable brands, a better perception of quality and products or technologies of their own, alongside this comes the need to (legally) protect that, which obviously requires sound and reliable legal systems.

    In terms of infrastructure I just like to mention the high speed railway project, which is a massive project that will enhance the interconnections inside China and between China and Hong Kong (Pearl River Delta). If I compare that with Europe I think it is unprecedented in scale and time to market. However, it fits in the big picture of innovation.

    The move towards a business model focused on innovation and with it the focus on intellectual property rights will in my opinion help China to become the really dominant player in this market (while other countries will benefit from it as well). This will of course not happen overnight, but I think it will determine how China will develop and position itself over the coming decade. I would be interested to hear your opinion on that.

    Thank you.

    Marcel Wiedenbrugge – The Netherlands

    Chris Devonshire-Ellis says:

    @Marcel – I appreciate your comments. Concerning the 5 year plan, I think thats actually been pushed to one side for the moment in terms of implementation, even though they just approved it. They’re concentrating instead on internal succession issues, and the 5 Year Plan implementation has been sidelined while this takes precedence. Plus as I stated, I don’t think the current Government have adequately dealt with financial problems within the 5 year plan as well as they should. Parts of it I suspect are already a lame duck, and we’ll have to see what the new Government does in terms of implementing a plan actually rubberstamped by the previous regime. They may not agree with parts of it when they take over key positions. So this 5 year plan may be compromised.
    Otherwise, longer term I agree with you, China wants to move upstream and into more added value, and get more into research and technological inventions. People expect things to move fast in China now and to continue to pull rabbits of of hats. But it’s unrealistic to change a low yield manufacturing based economy into a high yield added value economy in just five years, it’s not going to happen like that, it’ll take a decade to reposition the economy and only from the second decade will China start to see the benefits of that. The rail infrastructure you mention will undoubtably help, and that will impact on other regions of Asia too, especially the proposed links through Central and South-East Asia.
    But overall I think a more pragmatic and patient view is needed as concerns China economic reform, and I expect at least one serious bump along the way.
    I believe we need to view China as having moved beyond those 10% growth rates, and its real reform to a mature market economy is now only just taking place. The next decade for China will not be as spectacular in deliverables as the previous ones, and the government still has a lot of baggage it needs to get out of its economic structure. Cautious is the word I used, and China recognises it requires sustainable development. It’s still uncertain how they’re going to accomplish a shift to that in my view, and I don’t think the 5 year plan delivered any solution to this.
    Its relatively easy to kick start an economy, but dragging it into global trade cycles and influences is still taking China some time to come to terms with. Repositioning a supertanker takes time. Meanwhile, India is set to play catch up. Exciting and challenging times lie ahead. Thanks – Chris

    George ILIEV says:

    Chris, your forecasts for a slowdown in China in 2013 are roughly in line with an interesting study quoted in The Economist last week:

    “…Growth slowdowns occur when per-head GDP reaches around $16,740 at PPP [purchasing power parity]. … China’s torrid growth puts it on course to hit the $16,740 GDP-per-head threshold by 2015.”

    (BRIC wall: Growth tends to slow when GDP per head reaches a certain threshold. China is getting close.

    Chris Devonshire-Ellis says:

    @George – I appreciate that additional Economist info, more interesting stats suggesting a China downturn may occur. As a way out, I think that Asia offers the key to diversity away from China. That has to be a better strategy than putting all your eggs in one basket. I got burned during the Asian Financial Crisis in 1997 in China when all our business income dried up for nearly an entire year, and I think a lot of people have forgotten that experience or weren’t around at the time. People are used to high growth every year the past 14 years, and thats an exception rather than normal. China can experience some nasty problems, and I’m leery of one developing right now. I’ve diversified specifically because I thought too much China was a risk and because the alternative Asia opportunity was also too attractive to ignore. Win-Win right there. Thanks – Chris

    Karthik Mahadevan says:

    For India to really utilize its potential, I believe the middle class has to start participating in politics/elections. This will help unlock the potential of the country. We are seeing a few signs of that with the recent anti-corruption protests.

    Your observation about HK-Singapore is interesting, and I have heard similar outlook from other experts also. I am curious if 20 years down the line Hong Kong would be relegated to just another Chinese city, losing its premier position to Shanghai and Singapore.
    Your insights and comments were very enlightening. Thanks.

    Thanks for the interesting article. In my opinion, we have to be careful before extrapolating the results to China. In the words of the authors,”It is hazardous to extend any analysis to a country as unique as China.”

    Chinese Communist Party is very serious about not failing, and I feel that they will adjust the economy as and when new challenges present. In a slow and steady manner as they always have done.

    Chris Devonshire-Ellis says:

    @Karthink – I don’t think Hong Kong will lose its position as an international gateway for China to Shanghai. The deliniation between the two cities is already quite clear, Hong Kong as a vehicle to tap into overseas funds and investment, Shanghai for raising domestic funds. For Shanghai to compete with Hong Kong would require a complete overhaul of the domestic banking system and full convertibility of the RMB. That would loosen Government control over the domestic economy and see it at the mercy of international market forces, not all of them benign. I can’t see that happening any time soon. Thanks for your comments – Chris

    Great interview and insights, was reassuring that you confirmed some of my beliefs around the future possibilities of executive development in China. And I am also looking to springboard out of China to at least one Asian market this year.

    Refreshing to read and good luck with your future plans.

    All the best,

    Brad says:


    excellent info. and insight as well as all of your company’s other material, which i really enjoy. What do you make of the recent inflationary pressures we keep reading about in the media ? some are seeing similar situation that occurred leading up to Tianamen in 1989. what is the likelyhood that we would ever see this kind of scenario in your opinion ?

    ps – it would be nice if you could offer a special price on your book store material whenever there is an update for those that just a month before bought the previous version. thanks

    Chris Devonshire-Ellis says:

    @Warwick, Brad – I appreciate your comments. It would be nice to offer a discount on our books – however at USD40 anyway there’s only so much we can do. It’d actually cost us a lot to add the infrastructure to discount 10% and you’d only get between USD4 off anyway. But we do make up for that by offering existing readers free reports when they become available, so I don’t think you’re too hard done by! Thanks – Chris

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