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China Changes. Don't Over-React. Don't Under-React.

By Dan Harris and Steve Dickinson

The simple solution is usually the right solution. Companies often come to us planning to do a China joint venture until we explain they can better and more cheaply accomplish their goals by contract. Clients often come to us with big plans to form a British Virgin Island (BVI) company to own a Hong Kong company to own a Chinese WFOE until we explain they can usually meet all of their goals and save tens of thousands of dollars by simply having an American company own the Chinese WFOE directly. I am riffing on simplicity to warm everyone up for the simple, yet excellent advice, I just found on the simply named China Business Blog. In a post entitled, "Talking Economics: China Markets and Costs," Kent Kedl reveals a recent epiphany (not a simple word, I know, but this is the word he used) he had after people overreacting to China's recent one day stock market plunge. Kedl's epiphany is that people must not do the same with respect to China's market as a whole and he gives the following excellent (yet simple) advice towards that end:

1) Don?t over-react The recent changes in China are not a death knell for global business. What is happening here are just the normal growing pains of a developing economy showing signs of budding maturity and the problems that go along with it. 2) Don?t under-react China IS going to be a growing consuming market and it WILL suck up a lot of raw material and energy resources. And this WILL have an impact on other nations and economies by making these resources more expensive. It is a reality. It is happening. Sitting and complaining about it is NOT going to help. What emergency plans do you have that address potential future scenarios involving a growing China? 3) Don?t over or under-react, but DO REACT Many a fortune cookie tells us, in some form, that in the midst of great chaos one may find great opportunity. Well, now seems a time of ? if not GREAT chaos ? then of some modicum of chaos in global markets. So how can you react and take advantage of it? 4) Look at all of your options The lesson here is that companies should certainly consider their growth possibilities in China. It is (and will remain for some time) the most compelling market in the world. However, companies should not look at China at the cost of ignoring other markets. If the changes in China are motivating companies to consider all of their options, then I think this is possibly a good thing and is healthier for everyone involved.

To put it in even blunter terms, not much has changed. China is still a good place for manufacturing, but consider other countries as well. China is still a growing market for goods, but don't think that just because it has 1.3 billion people and a growing economy you will be able to just waltz right in and corner 1% of the market. Simplifying even further: Use your head.

Full post as published by China Law Blog on February 16, 2008 (boomark / email).