You Should Have Been There for a Chinese Puzzle Solver
by “Should Have Been There” guest blogger, Larry Blumsack, President, Zoka Institute
Learning to speak, read and write Mandarin Chinese is reported to be one of the most difficult languages to master in the world by Anglos. It takes lots of patience, and long time and great dedication with great teachers to become fluent in the language. Last week at Thursday’s Dealmakers Breakfast we learned that to do business, and specifically M&A business, in China and realize a benefit also requires lots of patience, a long time and great dedication working with seasoned China advisers.
The Dealmakers speakers were Philip Keevil, a Senior Partner at Compass Advisers, an investment banking firm that has a number of investments in China, and William McGrath, a partner in the law firm McDermott Will & Emery who resides in Shanghai and coordinates the Chinese law office with the firm’s global offices. Both spoke on the potential as well as very high risk of investing in China.
Keevil pointed out the downward economic instability of China in spite of their 500 billion dollar investment in infrastructure. He added that there is much unrest in China due to the lack of jobs and forced relocation. Protecting one’s IP is a big problem. The Chinese don’t see taking IP as stealing.
Both agreed that the overriding issue for anyone investing in China is the extreme difficulty in getting one’s money out. As McGrath put it, “good luck in getting your money out of China.”
According to McGrath, US thinking and China thinking are completely different. The US thinks linear and China thinks concentric – like a pebble in very murky water. Although regulations like Chinese tax laws are very simple; the application of these laws are very grey and differ depending on the person you deal with. Their government will tell you what their policy is. They want Chinese brands to become global. They don’t want their brands to be absorbed and lost in out-of-country mergers, yet Westerners don’t get.
So, if you wish to invest in China here is their suggested industry wish list – real estate, auto, white goods, leisure clothing, infrastructure and manufacturing. If you do invest, you will be in a minority position with a Chinese partner. Keevil also pointed out that the Chinese Army owns lots of the businesses.
Keevil and McGrath repeatedly recommended that to succeed in China an investor needs a trusted Chinese partner, a top legal adviser and a qualified local investment banker.
