Sourcing Investment from China

The biggest wave of opportunity facing businesses in developed countries today is the opportunity to source investment from China. This is already happening all over the world, and notably in Australia which, with investments of over US$34 billion since 2005, is leading the World as China’s top investment target for non bond investments (the USA is second with US$28 billion).

The reason for this is simple. China’s “Going Out” strategy is designed (amongst other things) to reduce the country’s significant exposure to US Treasuries by investing in a diverse range of corporate, financial and other real assets around the world. This has caused a wave of activity in many countries, with new deals announced on almost a daily basis (particularly between the BRIC countries) and regular Chinese delegations to developed countries looking for investment opportunities (Chinese Premier Wen Jiabao was in Britain this week announcing an ambitious trade target of $100 billion between Britain and China by 2015). As a result, Chinese holdings of US debt has already fallen to US$1.145 trillion which is 2.6% lower than its October 2010 peak of US$1.175 trillion. But this is just the beginning!

Whilst much of the recent and most publicised activity amongst Chinese investors has been in the resources sector, those with an eye to the future will remember that China’s long term challenge and goal is to move from a “dirty, low margin, low cost, low quality, product manufacturing economy to one which is supported by a robust service sector, by increased consumerism and by a shift to high end, high margin, clean manufacturing.” Consequently, their longer term focus is on securing access and ownership of a much broader range of capabilities, from clean technology, renewable energy, food and luxury goods to tourism, education and professional services.

As a result of the above, every entrepreneur, company or institution should be looking to position itself as an attractive target for Chinese investors to (a) access new capital to improve, expand and/or export their capabilities, products and services, and (b) secure a Chinese partner to target new customers, clients and buyers in the world’s fastest growing economy.

So, how do you go about it? The following is an over-simplification of the process but creates a framework from which to start the planning process:

Step 1 – Prepare your business or idea for a Chinese investor
Remember this is all about them, not you! You need to put yourself in the shoes of a Chinese investor and consider your proposition, offer or opportunity from their perspective. For example, are your documents written in Chinese? Are you providing sufficient detail for them to understand your offer? Are you making too many assumptions about their level of understanding? Do your projections take into account a China market entry strategy? Are your growth targets sufficient to excite them? Are they believable after being subjected to scrutiny?

Step 2 – Source Chinese investors
Research the market and identify the different investor segments that apply to you and your offer? Perhaps they are business migrants or entrepreneurs? Or Government officials from China’s new third tier cities? Or existing Chinese businesses who are trying to expand their global footprint by partnering with leading players in foreign markets? The range of possibilities is almost endless so you have to be very targeted and focused before you can seek help and reach out to suitable investors.

Step 3 – Negotiate with Chinese investors
This can be the hardest stage of the process, and is often where it can all break down. The problem is often cross-cultural and/or a lack of understanding of the different environments in which both sides operate. The process requires patience and a genuine commitment to the outcomes. Remember that, unlike in the developed world where a signature on a piece of paper is all that’s required to cement a deal, the Chinese are more interested in developing long term relationships, creating genuine value exchange and getting to know their business partners. You can’t fake this. And you can’t hurry it. If you are genuine, committed and willing to invest the time to create a win-win on both sides, and you are dealing with the person who is able and ready to make a decision, you can and will succeed where others have failed.

Step 4 – Partner with a Chinese investor
There is no end to the process of gaining the trust, friendship and support of a Chinese investor and working with him/her to align your vision and strategic goals. It goes on forever! The Chinese have a saying about “same bed, different dreams” which highlights the importance of regarding your Chinese investor as an active and committed business partner rather than just a passive investor. So how do you do this? Why not create a new advisory board and ensure that the Chinese partner’s interests are properly represented by people he/she trusts. Make a point of regularly meeting with your business partner(s) for social aswell as business occasions. Invite your Chinese business partner to trade shows, business meetings, important pitches. Work with your Chinese business partner to take your business to China.

Of all the opportunities created by the opening up and growth of China in the past decade, this new wave of Chinese investment offshore represents a once-in-a-generation opportunity for everyone to participate in the next phase of China’s development. But you can’t do this on your own. You’ll need advice, support and access to trusted networks to pull this off, and help during each and every stage of the process. There are no short cuts or quick fixes. Contact us now at support@thinkglobal.com.au to learn more about how to get started.