I talked to Brendan Smith through MSN messenger regarding some of the questions I received from the “China Note” e-mail I sent out a couple of days ago. At the age of 29, Brendan has lived in China for 4 years and currently resides in Beijing where he serves as the head of LSE China.
Here is a short biography of Brendan:
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Dr. Brendan Smith (司马文主页)earned his PhD in the department of international relations at the London School of Economics in 1999. Graduating at the age of 23 he was one of the youngest PhD graduates in the history of the London School of Economics. Dr. Smith completed his post-doctorate studies at Harvard University in September 2000. He has taught in the Government Department at Harvard. From 2000-2002, Dr. Smith has been a professor of international relations at the Chinese Foreign Ministry’s Foreign Affairs College.
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YT ：
Is it just too early for “pure westerners” to be successful in China? What would be the best approach?
Brendan ：
No, I don’t think it is too early for "pure westerners" to be successful in China, there are already examples of westerners with their OWN companies in China, that they set up HERE in China that are successful ...
Brendan ：
However, usually these people have worked for years in China as part of large multi-nationals, but this is not always necessary
YT ：
What do you see as the "required" elements of their success?
Brendan ：
1) VERY VERY careful as to where they invest - what sector in China, there is a huge amount of over-investment, and the real effects of this we still have not seen yet, there needs to be a significant adjustment to weed out the investors that have made pure decisions in China
Brendan ：
2) They need to invest in a project with a SHORT TO MEDIUM term return ... NOT long term, and certainly not any infrastructural investment (unless they are a major manufacturer)
Brendan ：
3) they need to make sure that they have a TRUSTWORTHY Chinese partner, and this is easier to say than to find, and they need to be very clear as to where any future company will be registered, and WHO will manage the company, and particularly the FINANCE ... many companies get burnt here when they try to take profits out ... up to 40% tax on these profits!!!!!!
Brendan ：
so they should register abroad the holding company or in HK, but they need to be extra careful with everything in China
Brendan ：
the key is to find a good solid project with a clear timeline on expected returns of revenue
YT ：
Here is an e-mail I recently received from my classmate:
YT ：
China is a wealth of opportunity but the problem is that the average American business student would surely fail at business there simply because the environment for business is so different.
YT ：
Bribery and corruption, though present in America, is commonplace and expected in China. What is the best way to get into the China market while avoiding the distasteful aspects of doing business there.?
Brendan ：
in the REAL world whether business, politics etc. .... work and business will ALWAYS have distasteful aspects, you cannot avoid them
YT ：
I told him just to get used to the “corruption”. I guess that’s what you meantJ
Brendan ：
why invest in China .... simple answer ..... because "Do I think I can make money in the short to medium term and add to my over-all global revenue?" .... if the answer to this question is "yes" then one should start planning
Brendan ：
something like www.ctrip.com is a good example of a good model, but not just because it is a .Com company .... the real issue for foreigners is to get a good project with professional partners that really know business, and also know how the foreigner operate .... believe me this is NOT so simple,
Brendan ：
just on Friday at an embassy function I hear more horror stories for foreign operates and these are BIG BIG operators like Ericsson Mobile .... they get cheated so often by their own partners!
Brendan ：
they tell me that some of their partners cannot even give them a clear business plan, with clear market information and sources
YT ：
very interesting..
Brendan ：
yes, so actually I recommend small and medium sized projects, with fairly low risk capital to start with
YT ：
exactly... they need their local "agent"
Brendan ：
NOT AN AGENT!!!!!!!!!!!
YT ：
Partner!
Brendan ：
this is the problem ... AGENT is a dirty word here, they need a real "PARTNER"
Brendan ：
well educated, but with experience with success of projects, and who also make investment of time and revenue, who share in the risk, who have a clear strategy, who have contingency plans to deal with the inevitable problems
YT ：
Do you believe in China’s future? Could China be just another Japan? or Russia?
Brendan ：
no-one can answer this question .... hence I say short to medium term return of revenue!
YT ：
(Smile face)
Brendan ：
it is currently in a much better position that either of the above countries, there is a greater optimism, but there are underlying problems, but these exist everywhere
YT ：
right!
Brendan ：
1) the big questions will be how China will respond to an economic downturn - are state institutions tough enough to deal with crises, 2) will the government use huge foreign reserves wisely to deal with economic fall out and social unrest ....
Brendan ：
no-one can answer these questions with 100% certainty!
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You may also find very useful information on China’s economic situation from the Blog web site above.