China’s Turns its Nose Up to Common Investment

Sunday, November 12, 2006 18:52
Comments Off on China’s Turns its Nose Up to Common Investment

After the Western media beat the Anti-Western investment drum for a couple months now, the central government has finally come out and said it. Financial investments are not wanted! Technology and training are! (unless of course, you are in banking… and then the money is much appreciated).

The reports in the last week (People’s Daily & Shanghai Daily) that China is tightening the belt are neither surprising, shocking, or out of line. With nearly every economist screaming “Hit the brakes!!!”, tightening over investment in low technology sectors was sure to be the first thing to go.

It is the area that adds little in terms of knowledge base, is the cause of many environmental concerns, and is an area that China now believes is a stable enough platform to go to take to the next level.

For those who have monitored China’s macroeconomic brake tapping lately, we have seen the following:

  • Discouragement of hot money investments into various sectors
  • Encouragement of investment that will aid China in balancing the income gap (i.e. Go WEST!, environment, etc)
  • Large investments in heavy industry have been put on hold (publicly at least)
  • Large investment in high technology have been given red carpet treatment
  • VAT tax reductions in heavy industrial categories (See All Roads Post for more))
  • VAT tax INCREASES in high technology categories
  • Strengthening of the RMB… but just enough to slow down low margin manufacturing

For those still looking for investments (IBM/ Lehman, Jade Alternative Investments, Jordan , and others…), the above is not the end of the world. In fact, it for those who have looked at one of many maps you will know that many of the provinces in china are still in need of a lot of investment. So much so, that in many cities, there may be little enforcement at the local level. As an example of this, the World Bank just listed Hangzhou as the best place to invest in China in a recent study

In general, what we are seeing here is a maturity of China’s investment wish list. Rather than being open to any and all money (no strings attached), there is a recognition that there is good investment and bad. Or, investment that is needed and investment that is not. The door is not closed in China, and the Chinese are not against you. all they are asking (or rather..forcing you to accept) is that they have ideas about where the country needs to go to ensure that the 1.3 billion + people of China are taken care of when all is said and done.

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