There’s scarcely a business in the world that isn’t excited about China right now. Its economy is growing like gangbusters, as its gigantic population continues to join the world’s middle class.
In the long term, it’s going to be a huge opportunity for a lot of players.
But if you’re eager to take your business into China, it’s worth being aware of a few of the big risks in the medium term. The point isn’t that you shouldn’t go into China, but there’s no reason not to be cognisant of a few issues.
The first is that China is arguably getting overheated and into bubble territory. That’s why the People’s Bank of China just increased reserve requirements for its lend-happy banks.
Here’s the problem though: a soft-landing in the general economy could produce a hard landing in some other areas. For example, it’s believed that the country has over-bought commodities, and even a slight hiccup in demand could crush commodity exporters.
The country also has a huge real estate bubble. Just like in the US a few years ago, buying homes has become a national obsession. Middle-class workers are buying second homes for speculation. And, given how many more women there are than men, there’s a widespread belief among males that finding a wife is impossible if you don’t own a home.
On the commercial real estate side, there are similar horrors. Vacancy rates are sky-high, production quality is shoddy, and developers are resorting to classic tactics like holding back units for later sale on anticipation of higher prices.
There are other issues, too. Executives at Australian iron ore miner Rio Tinto were arrested on charges of “spying,” but some believe the action is retaliation for too-high prices. Geopolitically, the relationship between China and the US is increasingly tense, as evidenced by complaints over Taiwan and the Dalai Lama.
And the country also has more than its fair share of social issues, and the government is freaked out over the possibility of civil unrest.
Again, none of these are dealbreakers — the opportunity in China is still huge. But there’s no doubt that there are some serious medium-term risks you should be aware of if you’re going to attempt to ride along in the country’s ride to prosperity.
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