Chinese Investment: Lottery Ticket or Savings Account?

There are a lot of American companies jumping on the Chinese investment bandwagon right now. They'd do well to do their homework first:

JT: You mentioned as the second thing foreigners didn't understand, how "lousy" -- your word -- the economic and social structure was. I gather one should write into any contract an arbitration clause providing that disputes should be settled in Singapore, for instance. On the other hand, there is a problem of getting this clause enforced! So, the choice of any Chinese partner, if that is contemplated, must be extremely careful.

RC: Yes. The courts don't deliver justice.

Also, the enormous oversupply of bureaucrats is essentially parasitic. Only the strong and extremely skillful can flourish here. But given these qualities one can indeed succeed.

Americans tend to look at the Chinese population and presume a vast new market for consumer goods. Unfortunately, as explosive as China's economic growth has been, we must keep in mind that the Chinese economy started from where America was pre-Industrial Revolution.

I started my corporate career sourcing parts in Mexican border towns. As Mexico's industrial capabilities improved, they naturally became less attractive pricewise as labor costs rose. The same is happening in China. Moreover, the Chinese will likely not be as open to American consumer goods as the Mexicans have been. I expect Chinese economic growth to slow as costs rise and this vast emerging market everyone anticipates turns out to be a smaller opportunity than expected. Poland and Ukraine might prove a better bet for investment near- to mid-term.