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Today’s craze for investing in China reminds me a lot of a pyramid-type presentation that I attended many years ago. The entire presentation was a repetition of how many people had made money in a scheme that common sense said was ridiculous. Each time a, “Yeah, but what about…” question arose, the presenters would reply, “That is an excellent point that might have been true in the past, but have I told you how much money ‘x’ has made on this?” and on we would go. It was fascinating to watch how by the end of the presentation, all common sense doubts had been erased. A true transformation, everyone’s eyes saw green and they were ready to invest – big.

China has completely and/or partially gutted, destroyed, and recreated its entire system of governance four different times over the past ninety years. Three of these “revolutions” occurred over the last sixty years alone (Communist take over, Cultural Revolution, current shift to capitalism). Three civil wars occurred in the past ninety years (based on my conclusion that the Cultural Revolution was a civil war).

China has used its governmental infrastructure to execute leaders, rewrite laws, nationalize all property, imprison millions for having different points of view, etc. China’s government has a long history of flagrant dishonestly and corruption. China openly discriminates in favor of domestic individuals and enterprises against foreign enterprises.

China is a textbook example of a horrible investment environment. So, what do our leading business minds tell us? “1,000,000,000 potential customers!” If they were dealing with a less sophisticated marketing enterprise than the nation of China, they might still have their wits about them. But they’ve taken China’s marketing motto to heart: “1,000,000,000 potential customers!”

1,000,000,000 potential customers? Doesn’t China have 100 million unemployed people wandering around the nation?

1,000,000,000 potential customers? Doesn’t the income of China’s middle class range from approximately $150 to $300 (USD) a month? How much do you think the other 80% earns?
1,000,000,000 potential customers? According to an internet report (key search words: “horror stories” and “investing in China”), Pepsi first invested in China in 1949. To date it has never shown a profit and has lost over $500,000 million.

So, are people who invest in China crazy? No. But perhaps too many ventures have allowed themselves to become confused with the slogan “A billion potential customers.” Here is my “why” and “how” to consider investing in China.

Why? Just look at the Foreign Direct Investment (FDI) flows into China.

Monster multiplier money is pouring into China. That money is being forcibly flushed through immature systems, networks, and structures.

It’s a Wild West gold rush with money gushing out of cracks everywhere (remember, many, many Chinese fortunes were made during the U.S.’s Wild West gold rush – then ask yourself in what sector they did it?).

How? By investing in yourself. Begin studying Chinese for a couple of hours each day (I began a year and a half ago at 42 and I’m already at conversation level). Work to create friendships with the right people in China (not easy). Spend time each day studying FDI and macro financial flows. Work to groom yourself into someone who can create his or her fortune from today’s Wild West Chinese markets, in the same way Chinese immigrants did during the U.S.’s.

Then define your level of investment by accepting a post in China or by going there yourself and forcing a post to be created for yourself in a Chinese corporation that needs your expertise. Invest your time recklessly, but invest your money slowly and carefully.

Remember, “a high risk business environment”, means you will – probably – lose your money in it. Don’t forget the most common fate for Wild West adventurers. Then ask yourself, if this is the kind of investment environment in which you want to work. If it is, strap on your six-shooters, insert your boot knives, bring your brass knuckles, and give it a go!

February 18, 2003
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