The Nuts and Bolts of Doing Business in China for Investors from Latin America

China’s share of the global economy is increasing at a rapid pace and this would open opportunities for investors from places like Latin America, representatives of the Cheung Kong Graduate School of Business (CKGSB) said at a major business conference in Mexico.

“China could enjoy another 40 years of relatively fast growth,” Economics Professor Xu Chenggang said in a keynote speech at the Latin American Business Council (CEAL) meeting in Los Cabos.

The share of China in the global economy could eventually hit 40 percent, he said.

“The impact of China on the world economy will be extremely large,” Professor Xu pointed out during the 28th plenary assembly of the Council.

His speech followed that of Mexico’s Foreign Minister, Claudia Ruiz Massieu, and the Minister of the Economy, Ildefonso Guajardo. A former president of Mexico also spoke at the conference.

CEAL is a leading business organization in Latin America composed of about 500 senior executives from more than 20 countries such as Mexico, Brazil, Argentina and the United States among others. It was founded 28 years ago.

The mission of the Council is to stimulate participation of its members in cooperative exchanges to bolster reciprocal ties between nations.

“Regional integration is more likely to succeed when employers are actively involved. Thus, the institutional purpose of this organization is to stimulate private enterprise presence as an agent of change,” a report said.

“The assembly aims to discuss and address issues of great relevance to the Latin American region, as well as strengthen ties between business leaders in the region, government officials and representatives of international organizations.”

One of the issues the Asian country must tackle in the years ahead would be uncertainty whether China “is able to reform its own institutions and the prospect of slower economic growth which may drag the country into ‘the middle income trap,’” Professor Xu said.

That sustainability of economic growth is of course tied to the key issue of unemployment. “We do worry, we do worry” about unemployment, Professor Xu said, adding this would be linked to possible increases in the money supply as a measure to mitigate any increases in the number of people without jobs.

During the question-and-answer session, Professor Xu was asked what troubles him most about China’s economy.

He then recalled the sub-prime mortgage crisis in the United States which was a major cause of the global financial crisis in 2008.

In China, a similar problem would be found in local governments who are barred from issuing bonds to raise funds and are forced to borrow from banks to finance their operations, Professor Xu explained.

“This is a huge potential problem,” he said.

Delegates from the Council raised questions about doing business in China.

Professor Xu said going into business with a Chinese company would depend on the industry and the company involved. He conceded that there remains a “large number of firms who have mediocre quality.”

Another issue in the legal structure of China is the level of “judicial independence” which becomes relevant when one gets into a dispute with a government body or a state-owned enterprise. If the state is not involved, the foreign company stands a better chance of getting a fair deal from Chinese courts, he said.

One of the most important areas of cooperation between China and, say, Mexico would be in technology.

Professor Xu said China may not be the leading innovator in technology, but Chinese companies have been incredibly adept in adopting cutting edge developments in technology to business.

One area that can be seen is a company like Alibaba, which has used its e-commerce platform to explosively grow in the past few years and eventually list in the New York Stock Exchange.

Professor Xu said China’s technological adroitness can be an inspiration for cooperation between the Asian giant and countries across Latin America.

“I believe that is the future” for China and Latin America, he said.

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