China: Going for the Gold

As China welcomes the world and 10,000 athletes to the XXIX Olympic Summer Games in Beijing, millions of spectators worldwide will get a closer look at a nation epitomizing untapped potential and rapid growth. The world will get to see China, the "player," in action.

In terms of sheer size, China wins at 1.3 billion people, almost 20% of the world's 6.6 billion population. It is therefore no surprise that China represents a major market as well as a production engine. Michael Moe cites several attention-getting statistics in his August 2nd issue of ThinkThoughts including some of the following.

China is the world's number one market for mobile phones (592 million users), number one steel maker, number one coal producer and number one producer of engineering graduates in the world. Moreover, China is fast gaining on the US as a consumer of a broad array of products including PCs (#2 in the world), automobiles and TVs. China has the largest number of cities with 1 million people or more (China at 100 cities vs. US at 9 such cities) and construction runs apace. Nearly tied at the Olympics for number of gold medals in 2004 (US at 36 and China at 32), China has a high likelihood breaking US dominance for the first time by taking home the most gold in the next few weeks.

China's expected annual GDP growth of 8% over the next decade will be driven by several related factors including the vast influx of low-cost labor, accelerating urbanization and the growing middle class. And while China ranks at #4 in terms of GDP today, it is on a growth trajectory to become the largest economy in a matter of several decades. None of this is information is news, but the numbers are staggering and the implications are even broader than imagined for the opportunities available and challenges to be faced by China internally and for the world.

The growing pains associated with such rapid growth will be widespread and in our interconnected society, increasingly visible to the global view. An aging population will strain healthcare and social programs. Continued demands for natural resources and energy will pressure infrastructure development and the environment. And a neo-capitalist economy will certainly have implications for a centrally controlled and managed political system. There are many moving parts and the stress of growth will carry far-reaching consequences, some of which will fall into the ‘black swan' (hard to anticipate) category, but the fact that there will be broad global implications is hard to dispute.

As an investor in global growth companies, we were early to see the opportunities in China nearly a decade ago. First, as a result of assisting our companies in entering the Asian markets, then in recognizing the opportunities to fund China based companies with global aspirations (e.g. Lenovo and WuXi Pharmatech), we are now investing in Chinese companies focused both on global and national markets. Our team of local professionals in Hong Kong and Beijing continue to identify investment opportunities and provide them with capital and expertise for continued growth. Our model of working in partnership with management with a long-term view resonates well in China. Moreover, the contacts and introductions we can provide will continue to assist our companies based in other parts of the world that want to access and grow in China.

Anyone who has traveled to a major city in China has been duly impressed by the omnipresence of construction cranes, the profusion of skyscrapers and the sprawl of the urban complex. The opportunities in China will only continue. Those who understand the business landscape, culture and people will be able to navigate the challenges, tap the potential and prosper. The gold is there - let the Games begin.