By David Wilkinson, Senior Director, Financial Services, Equinix APAC
The boom of the Chinese economy and its emergence as a global powerhouse is somewhat of a paradox given that China, in many ways, remains an enigmatic force with a fairly unique set of economic drivers.
Despite its economic might on the world stage, China remains a developing country where half of its population is rural and agriculture still accounts for nearly half of rural employment. And unlike other markets, where a large percentage of the investors are institutional, retail investment activity accounts for about 40% of total turnover in mainland Shanghai as compared to 30% in HK or even 20% in New York.
Evolving conditions make for a moving target
Reform in China’s financial services industry is an ever-evolving force, where the landscape is constantly shifting. Currently, financial futures, margin trading and several other products and reforms are changing the industry. From a political and regulatory standpoint, these changes are revealing unique opportunities for capital markets firms – both in terms of trading and providing services to the industry – though they may only be short lived.
Moving into China’s capital markets as an institutional or individual investor, broker, fund manager, technology provider or any company can be daunting amidst so many variables. There are numerous regulations and policies that need to be followed for any segment of the industry and often the entrenched domestic competition are hard to displace. For companies coming into the Chinese market it is a move that requires a great deal of research and insight into the machinations of the economy – how it operates – and a keen eye for the paradoxical.
According to KapronAsia’s latest report, the companies that have successfully navigated the China paradox share these key attributes:
The pursuit of Chinese traction is a long-term investment. This is not a get-rich-quick opportunity but a seasoned approach. Chinese companies and their leaders demand commitment to the market. It may take years to develop a business in China; patience is key as it takes commitment to the cause and developing relationships to make that happen.
You may have a great service or product but competition is rife. Stop thinking in terms of – ‘imagine getting just 1% of the market’. The market is flooding with domestic and international competition and new firms is unlikely to gain a significant amount of market share easily.
A pragmatic approach is essential. Drop the idea that what was tried and true in the western markets will translate effectively in the China market. A thorough understanding of the market is required first, followed by the development of a very clear and cohesive strategy to entry.
Aligning with local companies is critical. Entry to China is a collaborative endeavour. From practical and administrative matters to gaining valuable insights, partnering is essential. Working with partners to truly understand the market can help you avoid the same mistakes others have made in the past.
Download a copy of KapronAsia’s Trading in China report.