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How should foreign investors manage risks of policy changes in China?
www.chinanews.cn 2005-02-16 13:35:10
Chinanews, Feb. 15 - China's macro economic controls in 2004 alarmed some
people and industries. However, foreign funded enterprises persisted in
following their own judgement and principles of operations, and seized
opportunities presented by the macro control policies, thereby obtaining
excellent development prospects. There was even optimism that the
existing situation of competition among foreign funded enterprises and
Chinese funded enterprises could be changed.
According to Sun Hongwei, president of Rong International's China office,
the scientific development view will dominate the Chinese economy. Guided
by this view, the Chinese government will gradually add to its
understanding of market behavior, reduce use of administrative measures,
and find an effective way of implementing economic policies suitable in
the Chinese context and also in line with international standards.
Foreign investors should try to understand trends in the Chinese market
against this backdrop.
As to how foreign investors should manage risks of policy changes in
China at a time of economic changes, Sun made several suggestions as
follows:
Firstly, a number of major foreign investors have their own professional
research teams and theories directed at the Chinese market. However, most
foreign investors do not have such proprietary resources. Therefore, it
would make all the difference for them to have effective and professional
advice from an independent consulting firm. They can get advice from
independent foreign-funded research institutes, local consulting groups,
the investors themselves, and government publications.
Secondly, when confronting the policy adjustment and trend of changes,
foreign-funded enterprises should gradually develop their ability of
forming independent opinions, have a clear understanding of the essence
of China's economic policies and rely on their own judgment in handling
their own investment portfolios.
Thirdly, foreign-funded enterprises should gradually retreat from
speculative activities. In the near future, speculative behavior of
foreign-funded enterprises would be directly hit by macro-controls and
various related macro economic policies. Some privately-run enterprises
have already been clamped down by such policies. This is a reminder for
foreign-funded enterprises to minimize speculation and reduce capital
risk.
Moreover, they should also strive to seek the best investment vehicle.
Recently, China's reforms of state-owned enterprises constantly involved
offering an olive branch to foreign investors. According to Sun Hongwei,
the Chinese government is currently willing to sacrifice part of its
benefits in exchange for internationally advanced management experience
and operations. For foreign investors, this is the best way to enter the
Chinese market.
He felt that the best choice for foreign investments to enter the Chinese
market is to actively participate in the government-mandated industrial
integration, as long as they do not violate China's economic principles.
E-mail: zhangqinghua@chinanews.com.cn Tel: 8610-88387443 Fax:
8610-68327649
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