Last year Andrew Hupert from Diligence China was kind enough to invite me over to the Itv-Asia office and pepper me with questions about china’s 2nd tier. For a number of reasons, I have just now figured out how to embed (i.e. shamelessly promote) this video.

A few things have changed factually since the video, but I still believe in the fundamental issues that I run through, highlight, and stutter over.

If you have trouble viewing through this post, click over to ITV’s site, but for those in China I should just warn you ahead of time that it is slow no matter how you cut it.

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A few months back I met with Dan Inman to discuss what I had been seeing in my time in China, related to China’s 2nd and 3rd tier growth, and this week his article was released on CNBC’s European Edition.

Trading Places take a mixed approach of looking at the macro picture and then bringing in the thoughts of people on the ground, and I would suggest readers who are interested in China’s 2nd and 3rd tier to take 5 minutes to read through it.

Besides myself, the perspectives from a number of others have been included to give the article a nice flavor of the opportunities and challenges that face foreign investors when looking at this environment.

In addition to this article, CNBC also highlights a few others that they have written
How Agile Is China?; Chinese Cities Beyond Beijing. Welcome to the 10 Chinese cities that are now coming of age; Chinese Brands The Chinese companies not to be missed in 2008; China Opener - Introducing the world’s next superpower

For those interested in my writing on China’s 2nd tier, you can see the profiles I have written here

There has been a lot of talk lately about China’s inability to maintain its role as the world’s factory floor. Costs across the board are higher according to some, and it is just too much for them to handle… they are now looking at Cambodia, Laos, and Vietnam.

CNN in fact just profiled one such factory owner.

Based in Dongguan, a bicycle helmet manufacturer who supplies Wal-Mart and others is feeling the pinch. the recent labor laws have increased his costs, and he is now considering moving half of the lines from his 17 factories around China to Cambodia, Laos, and Vietnam.

What I found most interesting about the report is that it showed the factory owner as a bit of a victim. That because of the new laws, inflation, and a couple of other things that “all came together” he was no longer able to make a profit from China anymore…

For me, this is simply another case of how this situation needs to be reframed, and what I found interesting about this report was that they were more concerned with the conditions of the owner than the workers that the law was supposed to protect.

Now, why is all this relevant?

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With so much going on in China, and only a limited amount of bandwidth, I have created this weekly post to highlight articles that I feel are (1) important, (2) relevant, and (3) interesting.

This week there are 3 articles that I have chosen to highlight as each are quite interesting, they are all relevant, and there are issues within each that I think you the reader should be aware of.

If you have an article that you feel needs to be mentioned, please do so in the comments section. We all have different areas of interest and bandwidth, so I hope you will take some time and post those articles!

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Bill Dodson from This is China writes a piece in Euro Biz this month entitled Parts missing that looks at some of the difficulties a few friend are facing when entering China’s interior market of Chongqing.

It is one of those pieces that will surely get a lot of reads, because he is right. Chongqing is missing some hardware, a lot of software, and for many firms it has yet to develop the local market necessary to warrant real interest from a lot of firms.

why this article is interesting is that Bill’s writing reminds me of conversations I had 5 years ago with investors about Nanjing and Chengdu. they were in Shanghai, they were in Beijing, but when I mentioned Nanjing or Chengdu… the response was “where?”

In one case, I was working on a 10 million USD investment for 6 buildings. the development firms had gone bankrupt, creditors were knocking LOUDLY, and we had exclusive right to it. We spent two days going over the sites, mapping the locations, and building the models based on current market conditions and a general understanding that Nanjing was about to see a huge economic jump over the next 5-8 years that would make these properties really really sexy.

The result of our analysis was that without doing anything, investors would make 200% within 6 months (the lock out period) by simply flipping the properties.

200% sounds attractive right?

well… after meeting with 10 investment groups based in Shanghai, and more based internationally, we came to a single conclusion that 15% in Shanghai was better than 200% in Nanjing because investors really did not understand the fundamentals of China. It wasn’t that there weren’t opportunities. It was that these opportunities required some background, a little imagination, and patience.

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As an undergrad at Missouri, I was introduced to one of the tenants of international trade economic theory, the Heckscher-Ohlin Theory.

Its premise is simple:

By specializing in production, and by trading with other countries, it is possible for countries to increase their incomes. Even though countries as a whole benefit from specialization and international trade, all groups in society, workers and capitalists, do not gain according to the Heckscher-Ohlin theory.

to be honest, the more I time I spend in the real world, I am not sure how closely the tenants hold as there are a number of factors that go simply beyond the constraints that they were working with in the 1940’s.

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Over the last couple of months, the economic news has been pretty bleak in the U.S. Talk of a recession, dropping consumer confidence, daily analysis on statistics showing the looming slowdown that is upon the U.S.

Going into Christmas, the news was particularly bad as you had a focus on product safety as well, and as a result a lot of retailers felt the pinch.

What is interesting is that if you just look at Wal-Mart, this was a good news bad news scenario, and depending on how you look at things… Walmart’s good news cycle will probably last longer than others, and defiantely longer than the bad news cycle.

Let me explain….

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