Surviving in China post-Beijing Olympics

  • Business
  • Monday, 29 Oct 2007

WHILE analysts, both local and foreign, are generally optimistic that China's economic growth would remain buoyant post-Beijing Olympics, many believe the market there will be very competitive and that Malaysian companies should tread carefully. 

MIMB Investment Bank head of equity research Pong Teng Siew said although the economic outlook for China after the Beijing Olympics would remain rosy, it would be presumptuous to think that business ventures in the republic would be a sure winner. 

A general view shows the man-made lake landscape and the construction site of National Olympic Stadium,also known as the Bird's Nest, in Beijing. Some analysts say it is likely that doing business in China post-Beijing Olympics will be tougher and generally more risky for foreign as well as local companies – Reuters

Pong said Malaysian companies serious about doing business in China for the long haul must look at where they want to position themselves in their respective businesses. 

“There is no straight formula for success in China,” he said, adding that the market was huge and complex.  

“While China's market is too good and too big to ignore, Malaysian companies must fully understand the problems they would be facing such as competition, cost of doing business – including rising interest rates and inflation rate (currently slightly above 6%) – and the long gestation period to achieve success.” 

He cited Parkson Holdings Bhd's retail business in China as an example. “It was only in the past five years or so that Parkson's retail business became very profitable, although the diversified conglomerate (Lion Group, its parent company) made in-roads into China in the mid-90s,” he said, noting that some of its other ventures in the republic were not as successful.  

»There is nostraight formulafor success inChina«PONG TENG SIEW

Pong said it was likely that doing business in China post-Beijing Olympics would be tougher and generally more risky for foreign as well as local companies. 

Asked if stiffer competition and higher risks would deter foreign companies from operating or investing in China after the Olympics, he said: “Not really. China's growth might slow down a bit, especially just after the Olympics, but its growth would still be impressive.” 

Pong said China was set to become the third largest economy in the world in five to 10 years. 

“It is very likely to happen. The question is: Which are the companies that will benefit from China's explosive growth?” he said. 

Pong said China's gross domestic product growth of over 11% year-to-date was powered by several factors, including the Beijing Olympics. 

“The Olympics probably contributes about 25% of the republic's growth, which is significant, but there is also an emerging affluent market that's fuelling economic growth, coupled with strong foreign direct investments (FDI),” he said. 

Pong views the Beijing Olympics as a strong catalyst in China's destiny to be a leading economic powerhouse.  

“The explosive growth happening in China is expected to continue right up till August 2009 after the Games finishes,” he said, adding that currently, mega projects were huge and lumpy. Excess capacity is likely to build up post-Beijing Olympics. 

He said there might be some consolidation or slowdown in activities, particularly in construction and infrastructure projects, for several months until developers and construction companies were able to mop up excess capacity by securing smaller projects away from big cities. 

Asked what Malaysian companies in China could capitalise on after the Olympics, Pong said it would be difficult to say because it depended on several factors, including the companies' core competencies, network and financial strength. 

“But a strong advice to Malaysian companies is not to go into manufacturing, especially in low value-added products, as nobody does manufacturing better than the Chinese in the republic,” he said. 

A local analyst with TA Securities said it would be interesting to see what would happen in the ensuing months after the Olympics. 

He said the brokerage expected a slowdown in economic activities in China initially. “But the Chinese economy is so dynamic and huge that it could go either way in time. Don't forget that the Chinese market, with a population of 1.3 billion, is itself a massive consumer market and the people are growing more affluent each day,” he said.  

However, the analyst said, China's economy was still in its infancy, despite its GDP growing at almost double digits in the past 10 years. 

He said although China was growing at a rapid pace (but from a lower base) compared with developed nations, its overall wealth was only currently about one-fifth of the United States. “It will take over 10 years before it can catch up with the US in economic terms, provided the US stops growing,” he noted. 

As such, the analyst said, China remained “virgin territory” for many foreign companies, including Malaysians that were either operating there or planning to set their bases in the republic.  

A Singapore-based analyst said many companies believed another event, the World Expo in Shanghai in 2010, would continue to spur China's economic growth after the Olympics. 

“There seem to be a lot of events happening post-Beijing Olympics that would continue to boost the republic's economy. Most analysts are betting that China's 11% GDP growth alone should be enough to sustain its expansion plans.”  

A foreign fund manager said many institutional investors were predicting China's fast growth would offset any post-Olympic slowdown.  

“Undeniably, the current lot of investors are going to reap the benefits from infrastructure-related projects geared for the Olympics, but after the Games, the race is on for China's 1.3 billion potential customers,” he said.  

The fund manager said China attracted US$60.3bil in foreign direct investments (FDIs) in 2005, which was slightly down from the record of US$60.6bil posted in the previous year.  

“Despite a fall in FDI in 2005, China remains an ideal investment destination for overseas investors,” he said, adding that China's FDI in 2006 topped US$63bil. 

“The falling trend made an about-turn in the first half of 2006, and it's back to business as usual in China,” said the fund manager.  

On the performance of Malaysian companies in China, he said some had been successful but there were many that had failed. 

“Doing business in China requires a mix of might, funds and networking, and the business environment and competition can change at any time.  

“It's a challenging market that few players can survive at the top, unless you have a niche business that's difficult to duplicate,” he said. 

He added that the issue of copyright remained a constant battle for multinationals operating in the republic.

For Another perspective from the China Daily, a partner of Asia News Network, click here


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