Direct investment in China by foreign sources rose by a third in March of this year. Asia is leading the way out of the worst recession in eighty years and direct investment in China appears to be a major reason. Money follows opportunity and China’s economy is the fasting growing of all major economies in the world. Inflation is a concern for China’s economy and banks have raised reserve requirement for lenders as a precautionary measure. Although in the USA one may engage in what we have referred to as deficit investing, China has a different situation. According to recent speech by a central bank official China now has $3 Trillion in foreign currency reserves. That is the recent news. Now the question for individual investors is if direct investment in China is a good idea. If so how does one go about investing in China?
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If you are Wal-Mart you will go ahead with plans to buy more property for stores in what is turning into the world’s largest market for groceries. If you are Starbucks you will increase your presence as an increasingly affluent Chinese populace develops a taste for gourmet beverages. Investment in China can most easily take the shape of finding what stocks to invest in that have a presence in China. The Proctor and Gambles and 3Ms of the world have been in China from the beginning of its conversion to a quasi capitalistic economy. Others like Wal-Mart have a strong presence. In the beginning many companies developed relationships and invested in China in order to produce products cheaply to sell back in their home markets. Now China itself is becoming a major market and many factories that used to produce for overseas consumers are producing for domestic consumption. With the Yuan rising in value against other currencies selling in China becomes increasingly profitable.
Large scale direct investment in China requires a presence in the country, a facility with the language, and familiarity with the business culture. These things take time, patience, and skill. There are companies that can ease the way with introductions and advice. For the late comer to this scene partnering with a local business may be the best choice as it fast tracks access the China’s markets and its labor pool. The problem for many with technical expertise entering China is to retain the keys to high technology while taking advantage of what China has to offer. Too many have set up shop in China only to see their products and their technical secrets copied in a market that does not provide the protections seen in Europe and North America. What makes you a successful investor anywhere can be applied to direct investment in China. The investor will need a clear idea of what he intends to accomplish. If he is investing by way of buying stocks in Wal-Mart, 3M, or Proctor and Gamble he will want to have a clear idea of their game plans. No matter what the route into direct investment in China there appears to be the potential for long term profits as well as risks for the unwary.