As the global financial crisis negatively impacts growth worldwide, new opportunities are emerging for companies that position themselves to seize the long-term potential upside of the Chinese market. And there is reason for optimism since the current Chinese government has the financial ability and political means to manage a soft economic landing.

More Flexible Positions

The Chinese government is clearly concerned about slower economic growth and the ability to attract sought after investment. On the other hand, early signs are positive that the $582 billion Chinese domestic stimulus package will start to have an effect beginning in the second or third quarter of 2009. Nevertheless, the uncertain future is impacting Chinese economic realities, policies and negotiating positions.

We already are seeing a relaxation of many Chinese rules designed to control inflation and balance the realities of the government’s shift from export oriented growth to more sustainable growth based on domestic needs. In spite of the structural challenges which continue to exist, more favorable investment conditions are likely to evolve in the near future.

For example, land unattainable in certain locations is once again available. And suddenly, local governments and development zone administrators are more willing to discuss land pricing and other incentives. There also are clear signs of faster investment approvals and a more relaxed regulatory environment.

New Assumptions

Changes brought on by shifting global trends are altering assumptions. For example, the sudden decline in raw material costs worldwide will lead to lower plant construction costs. There also are signs that the government appears to be less ‘protectionist’ in terms of its domestic industries. And Chinese companies realizing that investment dollars are now limited, have become more willing to consider lower corporate valuations as well as cooperation with foreign partners in a range of industries.

Sectors Presenting Opportunities

Although one needs to prepare for volatility, we expect to see continued growth, albeit at a slower pace, with large differences across sectors. Based on Chinese policy directives, the domestic stimulus package—most of which already was planned for implementation prior to the global financial crisis—and our firm’s 15-year understanding of the market, we believe there will be sound opportunities in the Healthcare, Aeronautics and Railway Equipment, Infrastructure (airport, rail and rural utility development) and Food Segments. In addition, the Retail, Franchising, Machinery and Services sectors likely will be attractive areas for investment.

Reassess Your China Strategy

Given the current changes, the time to review your company’s China strategy is now. Identifying the appropriate strategies for market entry, including potential acquisitions, expansion, and distribution options, will enable your company to be strategically positioned ahead of your competitors when the global economy rebounds. This also will place your company in a strong position to benefit from Chinese growth that is almost certain to occur in the long-term.

his article appeared in Impact Analysis, January-February 2009.

David Hofmann
About The Author David Hofmann [Full Bio]
David J. Hofmann is Senior Advisor at InterChina Consulting North America LLC. Based in Washington D.C., David provides insights on the Chinese market, and leads business development efforts and deal origination on behalf of North American clients.

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