China after the downturn

David Mahon and Andrew Browne were in New Zealand in October 2008 to talk with Kiwi companies about their abilities to trade with China.

Board chair Mahon says China is a ‘reservoir of solvency and stability’ in a very turbulent world.

Unlike those bought in other parts in the world, Chinese assets will hold their value.

China has US$400 billion of Treasury Bonds, US$1.8 trillion of foreign exchange reserves, and a highly flexible and mobile workforce.

Earlier in 2008, the Chinese government stopped its economy overheating by dampening inflation and controlling growth.

China’s economy is now predicted to slow from 12 percent growth to about 10 percent in 2008.

Even for China, 12 percent was considered too high.

Experts say the economy is now in great shape. China can boost its domestic growth and demand at any time without igniting inflation.

Mahon says the emerging internal market remains tough and contains many distortions and contradictions.

Mahon is chair of the China Advisory Board. It is one of eight boards around the world providing mentoring, monitoring and feedback to Kiwi companies as part of the Beachheads Programme.

The companies are selected for their ability to make a difference to New Zealand’s overseas trading results.

Mahon, who has worked in Beijing for 25 years, heads private equity firm Mahon China Investment Management Ltd. At the peak of funds under management he was in charge of 19 other firms.

Andrew Browne is a partner in corporate communications advisory company, Beijing Brunswick Consultancy. He advises on business development, acquisition and listing strategies.

He grew up in Hong Kong, worked for Reuters for 20 years and in 2007 won a Pulitzer Prize.

China to turn investor 

Both board members predict China will emerge as a strong, careful investor.

Browne says China needs brand, technology, marketing and sales channels. He expects to see China launch a ‘very serious shopping expedition’ to buy them.

The credit crisis gives China a breathing space to rebalance its economy for its own consumers.

“The economy has been far too focused on exports and heavy industry.

“The low-end sweat-shops along the coast have resulted in excessive use of raw material and energy.

“The old model has run its course and was looking unsustainable before the credit crisis hit.”

Mahon says the China New Zealand Free Trade Agreement (FTA), which came into effect in October 2008, lifts expectations in New Zealand that trade and investment with China will flow.

Both men advise caution. They say Kiwi companies must research carefully, and get to understand the language and culture before entering the market.

“It’s a truism that China is a complicated country,” says Browne. “We each have a vision which is only a tiny slice of the whole.”

He suggests New Zealand business people meet as many people as they can, get as broad a view as possible and ask the right questions.

Mahon advises people to be open and objective.