By China Economic Review

It was interesting to see even the Chinese Academy of Social Sciences predicting in mid-October that the GDP growth rate for 2004 would probably end up at 9.4%.

They would have loved to give a lower number if it was at all possible, for sure. But it wasn’t possible because quite clearly, in spite of the government’s best efforts to cool down the pace of growth, China is continuing to boom.

There is always a credibity gap between Chinese economic numbers and economic reality, so anecdotal evidence is worth considering as we try to figure out what is going on here. The problem is that the plural of “anecdote” is not “statistic” (a very wise comment contributed to this column by Mr Gareth Powell). The anecdotal evidence, anyway, does not suggest that growth is being reined in by very much.

I have in front of me, at random, a copy of the Lanzhou Evening News, a lively tabloid packed with property ads. Sunnyhome, Three Easys Gardens, Benevolent Eternity International Gardens, Strong Modern Town, Bright Benevolence Gardens, Riverview Towers … all over Lanzhou, an out-of-the-way city in northwest China, the high-rise apartment block developments are going up with all the vigorous abandon of property development of Shanghai and Beijing two years ago.

Extrapolate that out over the rest of China, and you have a trend that is pretty hard to stop, and a big market for toilet seats. There are more than 150 cities in China with more than one million residents, and every person in China seems to have suddenly decided they want to own their own home.

For China Eye, living in the middle of it, there is so far no sense of vertigo in all this mad development. It feels at this point sustainable, like the growth is largely based on solid and real factors – such as middle class home-owning lust, and China becoming the Factory to the World.

Nevertheless, there are people out there who are feeling nervous. It is understandable, and there is no doubt that there IS a risk of a downturn or slowdown next year in China, just as there is for the United States (a far more worrying prospect than a “hard landing” for China).

But when one American resident of Shanghai asked what it was like to experience a recession in China such as the one we are about to experience, the reply had to be: WHAT recession??!!

Another person said he had heard that the “hard landing” would hit by around February of 2005, with tough credit controls being continued for another two years. China Eye’s response? China is full of loopholes, and if there is a real and basic economic demand for certain developments, then they will occur somehow, regardless of the control efforts that are made. That applies to power stations and automobile factories as much as to apartment blocks. Credit controls can slow things down, and even raise prices, but they cannot block fundamental growth imperatives for very long.

The “Factory to the World” phenomenon generates constant problems for China’s trade relations. Jobs are disappearing from towns all over the world into China, but the reasons for this are so fundamental that there’s nothing that the president of the United States, let alone the owner of a Spanish shoe factory, can do about it.

So the question is, what should manufacturers in other parts of the world DO in the face of this job-eating Chinese juggernaut? China Eye’s answer: buy a Chinese competitor, or a share of a competitor, and shift your production over here. It’s coming anyway, you might as well take a share of the profits. The alternative for companies, in the end, is to cease manufacturing altogether and just become a marketing and distribution network.

But then, what of all these horror stories of foreign companies buying into Chinese firms and being screwed in the process? Absolutely, China operates to a modified set of business rules, and playing the M&A game in this market involves higher risks than in many other markets. BUT. Is there is a choice? A strategy that has some hope of success, at least, is to come to China, find the best advice and help you can, learn the market, make your mistakes, and then grow on this side of the fence, rather than shrink on that side.

How melodramatic! you say. Maybe. And this is a highly generalized comment. Every industry and company situation is unique. But it is China Eye’s prediction that there is a lot of money to be made in coming years for people who can operate effectively as go-betweens in China’s M&A marketplace.