Paul Denlinger over at China Vortex has a good post up on where to invest in China going forward. The post is entitled, “The New Investment Rules For China,” and it sets out the following seven rules for China investing:
1. “Avoid Shanghai and Beijing.” They both have plenty of smart people, but staff turnover and costs are just too high.
2. Look at the “20 major city markets in China” like “Dalian, Hangzhou, Ningbo, Xiamen, Guangzhou, Wuhan, Nanchang, Chongqing, Chengdu, Fuzhou, Kunming, Nanning, Nanjing, etc.” And Qingdao.
3. Because Guangdong and Zhejiang are the two largest manufacturing provinces in China, these they “are going to be hit hard because of their dependency on the US market.”
4. If you are a private equity or hedge fund investor, you need to think about investment horizons. If you can offer investments which create jobs and upgrade the skill force, you are in a good position.
5. “China’s hardware development and infrastructure are very impressive and are the most modern in the world, as the Beijing Olympics showed. The hardest part to modernize is peoples’ mentality as the tainted milk scandal has shown. China’s aging demographics do not give it enough time to cross the chasm, so Chinese will get old before they get modern. When that happens, China will look like a bigger version of Japan, and will have all the problems Japan has today. Just hope that China has a national healthcare system in place by then”
6. The wealth gap will become wider over the next 10 years between the cities and the countryside, then stabilize for five years, then shrink as the city worker bees retire in 15 years.
7. The dumb money has already been made in China. It’s time to rebalance your portfolio to make smart money.
I agree with all except numbers 5 and 6, which are, like all long term predictions based on the assumption there will be no big changes.
The key business point to take from Paul’s post is that it is too late for companies to make easy money by just going blindly into Shenzhen or Beijing. They should consider second tier cities and they should consider demographics. Paul is right to tout China’s hardware (infrastructure) and bemoan its software (service sector), but I see this as THE opportunity for Western companies. China’s service sector is growing and it is in precisely that sector where the Chinese are looking for help and where Western companies are so well equipped to give it. And it is indeed the second tier cities that are, as of now, relatively undeserved.
In its post, “Franchising and Education Market — Lucrative Business in Asia,” Trendsniff contends that “education, healthcare and retail” seem relatively immune from the economic slowdown in Asia. Though I have to believe almost nothing is completely immune from a major economic slowdown, I do see the service sector in China continuing to thrive, particularly for foreign companies. The number of Chinese with sufficient disposable incomes to contract out for services is rising and these are the exact people who both understand the benefits of paying for name brand services and can afford to do so.

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Dan Harris

I am a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

I mostly represent companies doing business in emerging market countries. It has taken me many years to build my network and it takes constant communication and travel to maintain it. My work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

I was named as one of only three Washington State Amazing Lawyers in International Law, I am AV rated by Martindale-Hubbell Law Directory (its highest rating), I am rated 10.0 by AVVO.com (its highest rating), and I am a SuperLawyer.

I am a frequent writer and public speaker on doing business in Asia and I constantly travel between the United States and Asia. I most commonly speak on China law issues and I am the lead writer of the award winning China Law Blog (www.chinalawblog.com). Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed me regarding various aspects of my international law practice.

I am licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at my firm, I focus on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.