The notion of China as the new engine of global growth is looking like its coming true – with caveats.

• US economy is probably stable. Crappy, but stable. Demand ain’t coming back to where it was in 2007. Ever. The US consumer hasn’t been sidelined – he’s been sent home to heal. Even western companies that are surviving or flourishing for the moment are facing a long term growth constraint at home.

• China isn’t growing demand all that much. They’ve been going flat out for the last 30 years. They’ve been growing demand all along – and the crash is hitting that too. The stimulus is great, but the most we can hope for is a few more farmers with washing machines and cheap cars. Exporting and the external economy used to make up around 40% of China income. That’s mostly gone now.

So settle in - the new economy is here. The G20 was the last big dance of the season. Unless something big comes out of left field (it probably will, but we’ll deal with that later), then we know the new lay of the land. There are only three directions: 1) Better. 2) Same. 3) Worse. Based on the general calm and optimism, we’ve got a pretty good shot at #2 with a definite possibility of #1 some day soon. We’ll improve slowly, but we will improve. As long as we stay away from choice 3 (protectionism, trade war, inflation, stagflation, credit crisis, etc.) then at least we know where we stand. That’s when investment & spending decisions get made.

Expats in China who want to stay in China have to start preparing for a couple of big trends. One is for the REAL Chinese middle class (rmb 10-25 k / month) to start becoming much more visible. The other is that LOTS more westerners are going to look at China as their only viable growth option for the next 5 years.

Only one of these trends can help you.

And the answer is: Foreign money and overseas investors.

Ok, here’s a game. There are 10 expat businessmen in a closed room in Shanghai. There are an unknown number of foreign investors outside. To engage with the investors, you have to leave the room. Once you leave the room, you can’t come back in. A certain number of investors are really broke, a few aren’t serious, but around 50% are for real.

Question. When do you leave the room and engage? (Yes – you would have normal access to information about how previous expats had done and can engage with potential counter-parties.)

1) Early. Early is best. First shot at the field. Downside – No information. Also, if you hang around too long without making a deal, your value may slide.

2) Late. Last out has the most power. He negotiates from strength, knowing that there are no other options. He gets first shot at the new investors – and a second shot with the ones that choose early and now regret it. Weakness – By the time you bust your move, the market may be correcting – or worse, your competitive advantages have already been neutralized.

3) Middle. You have price information, you have market momentum and you know that supply is limited. You’re looking to ride the trend. Potential hiccup: You’ll be riding the trend along with everyone else. That’s why they call it the trend. You limiting your downside risk, but you are also limiting your upside potential.

Answers? Me neither. But it’s time to start thinking about it. Because China is looking good to a new breed of westerners – the guys who never really wanted to be here before. They’ve got money to spend (well – some have money. It’s been tough back home. Remember that.)

That’s were the game theory question comes into play. Because right now these newcomers are both potential partner and potential competitors.

Interesting, huh?

I’m going to try something different. I’m going to start a board that’s open to companies in Shanghai (yes, the rest of China too) and the West. Western companies that are looking to enter China, and China-based entrepreneurs and owners who would be willing to discuss investment with the right potential partner. Sort of like speed-dating for the international business type. It’ll be on linked in at first: SME Speed-date and I’ll move it as need be. Let me know your thoughts.

If you want to discuss, ChinaSolved is now on twitter – chinasolved .

Thanks.

Oh – the linkedin group is ChinaSolved

http://www.linkedin.com/groups?home=&gid=1392417&trk=anet_ug_hm&goback=%2Eanh_1392417

This entry was posted on Friday, April 10th, 2009 at 5:41 pm and is filed under Expatreprenuership. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.