Banker: No short-cuts to doing business in China
By PAULINE S.C. NG
WANTING to do business in China? Forget shortcuts because there aren't any, counsels Hang Seng Bank Ltd vice-chairman and chief executive Vincent H.C. Cheng.
Cheng was in Kuala Lumpur last week to talk about the risks and opportunities of doing business in China.
His message to China-aspiring businessmen was simple: China is a huge market and if you get it right, you'll be smiling all the way to the bank. But get it wrong, and the reverse is true.
In an interview, Cheng stressed that there were no shortcuts to success and that businessmen should build their networks and know the market.
“You also need a good bank – and I'm not trying to do a commercial here – but you need good advice because things are constantly changing in China,” said the banker.
Vincent H.C. Cheng
Owing to the great regional diversity in living standards, tastes and culture, Cheng said what flew off the shelves in coastal China may not necessarily do so in inland China, and that it was better to think of China as many fragmented markets instead of one single market.
But establishing a meaningful presence in China would require huge resources and plenty of market research – and managing it well should the venture take off.
Cheng said many investments in China - particularly those that manufacture for exports – had provided good returns; a report by the Beijing-based American Chamber of Commerce late last year showed nearly two-thirds of American companies in China surveyed were generating profits.
Given an estimated 100 million Chinese enjoyed a middle-class income, investors who succeeded in making their mark in China could be extremely profitable, he said, citing Yum Brands which owns KFC and Pizza Hut as one such example.
Yum currently derives about one-third of its global profits from its 1,000 restaurants in China, and are toying with the idea of adding another 200 annually.
Having a good partner can help greatly as it can be a good navigator when dealing with labour issues and establishing valuable “guanxi” with administrative entities, Cheng said, suggesting investors use Hong Kong as a starting point.
He said the signing of the Mainland/Hong Kong closer economic partnership agreement or CEPA, had acted as a catalyst for the dramatic turn in sentiment in Hong Kong, turning the previously pessimistic island to one filled with optimism now.
“From a SARS-depressed state in the spring, malls and restaurants are now full with foreign visitors and local patrons. Buyers are crowding sales offices to snap up residential apartments they wanted to unload several months ago,” he commented.
From a banking perspective, Cheng said Hang Seng Bank, which has five branches in China – Guangzhou, Shenzhen, Nanjing, Shanghai and Fuzhou – has learnt to be more prudent with its customers.
“Basically, we choose our customers more carefully rather than rely on government or state guarantees. We look at their financials more carefully,” he said.
A subsidiary of the HSBC group, Hang Seng Bank has lent mainly to manufacturing projects, but also to finance hotels, infrastructure projects such as bridges and power plants. It has China-related loans outstanding of US$9.4bil.
Cheng said Hang Seng Bank was looking forward to 2006 and the further liberalising of the banking sector under the World Trade Organisation when foreign banks would be allowed to deal in renminbi.
“The renminbi business is a huge market,” he declared, illustrating the point that like any other investor, Hang Seng Bank was also hoping to capture a large chunk of the very lucrative Chinese market.
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