In 1978, China opened up its doors to the outside world. Since then, a generation of well-trained managers and entrepreneurs have grown up with the Chinese version of the free market economy. They are increasingly assuming control at middle-management level from the old-style managers who were recruited from officialdom.
In addition, the rule that in the past meant that foreigners could only carry on a business through a joint venture with a local enterprise has been relaxed; foreign businesses can now operate in the market on their own.
Government policy is entirely focused on becoming one of the world’s top three economies. Currently, the growing prosperity of this vast country is primarily concentrated in the Pearl River Delta, the area in the hinterland of Hong Kong. This accounts for almost one third of Chinese GNP, although the size of the region and the population are hardly any greater than those of the Benelux. In the Pearl River Delta, workers earn three times the average annual income in the interior of one thousand dollars. Using incentives and large-scale investment, China is now trying to spread this prosperity to the provinces surrounding the Pearl River Delta, as a first step towards truly nationwide prosperity.
China has an enormous requirement for raw materials for building and improving its infrastructure and demand for energy is high and continuing to grow. Since 2000, China has been responsible for 40% of the growth in world demand for oil. After Japan, it is the largest oil importer.
Commodity trading in China is heavily regulated by the government, which lays down import and export quotas or duties for each commodity and permits selected companies to import these commodities. These companies are not the end-users, however. Initially, China traded through offshore companies in Hong Kong and Singapore that had to source or market commodities in the international markets for China, but in the wake of the opening up of the market, an increasing volume is now being traded with end-users.
Networks are indispensable if you want to do business in China
‘Guanxi’ is the key word for doing business in China; it can be translated as "networking and relationships"; everything revolves around personal contacts. This is why Fortis works with local people who have extensive networks, for instance, of CEOs and CFOs in companies, or of officials in political or regulatory bodies.
You will get nowhere in China if you just have a short-term view. What’s more, you won’t get far with European directness. If you come straight to the point when you meet someone you will be out of the door in two minutes.
So how is business conducted in China? The procedure is that you call someone who is known to have a contact in the company that you wish to approach. This person establishes the contact and you then meet your counterpart in the company. During a long meeting you win this person’s confidence and become friends. You show respect and talk politely about all manner of things – apart from business. It’s only at the last moment that you explain your real reason for being there. Then, within two days, without further ado, you will have secured your deal. A great deal of patience therefore leads to valuable relationships, which in turn result in profitable transactions. Once you have "won over" your Chinese business partners, they will be very loyal.
Trust services and commodities
Apart from its traditional trust services, one of Fortis’ main activities is support and advice to companies that are seeking to enter the Chinese market. We help them to obtain the necessary documentation and take over tasks such as payrolling and certain back-office functions. These types of services are becoming increasingly popular with the medium-sized companies that are now following in the footsteps of the multinationals and moving into the Chinese market.
Fortis is also active in the financing of imports of iron ore and alumina, and also of exports of the steel and aluminium products that are produced from these commodities. We also finance exports of coking coal - fuel for the steel industry - from China to companies such as Hoogovens.
Investing in Asia? Fortis will help you
Fortis has a presence in a number of the major financial centres in Asia, particularly for Asian clients, but increasingly also for investors from other parts of the world who wish to be active in Asia and for the rapidly growing group of Western expats.
Although we pursue a coherent investment strategy world-wide, there are differences between local investors and their counterparts in Europe and the US. Dutch investors, for example, will want to have some familiar names in their portfolios.
A key difference is the attitude of active investors. Asian investors are a little more driven by the short term, actively looking for good deals and short-term investments. This results in volatility being somewhat higher, which they are also willing to accept. Take real estate speculation, for example. In Hong Kong, the price fluctuations of real estate match the speed with which properties change ownership, even before all the documentation of the previous purchase has been completed.
A survey of the private banks’ asset mix in the US, Europe, and Asia a few years ago showed that fixed deposits accounted for 4%, 17%, and 55% of total investements, respectively.
The particular features of private banking make Asia fertile ground for product innovation. A product that initially only seems to be suitable for institutional investors in Europe will frequently catch on immediately with private investors in the Asian region. A good example is the premium deposit, which is a combination of a time deposit and a currency option. This product not only offers deposit interest, but also an opportunity to earn higher returns by trading a currency option in anticipation of the market trend and meeting foreign currency requirements at the same time.
