New opportunities for Middle East investors in China

Despite a booming economy in the Dragon of the East, Middle East companies need to be aware of the pitfalls as well as the opportunities in doing business in China. The language, law and culture are often opaque and a rapidly-paced entrepreneurial streak has left little room for the faint hearted.

Cross the border from Hong Kong to Shenzhen, the richest city in China, and you immediately feel the impact. Touts swoop and refuse to leave you alone. There is an overwhelming profusion of commercial opportunities - from buying DVDs to tailoring - but who to trust and how to ensure good quality?

This shoppers' dilemma is the same for would-be investors in the mainland. Everyone is only too keen to take your money but the lack of transparency and sheer commercial energy can be daunting.

'This is why so many foreign companies choose to do business in Hong Kong as an entry point to mainland China,' says Crown Worldwide Group Chairman James E. Thompson who founded his $230 million logistics company in 1964 with $500 and moved it from Japan to Hong Kong in 1970.

'Hong Kong's approach to taxes, the ease of operation here and lack of red tape is still exceptional,' he adds. 'There is no tax on dividends in Hong Kong, and no tax on offshore income, so you retain capital to develop your business. China, on the other hand, is much more difficult.'

'Hong Kong is also a very honest society. The Chinese know they have corruption issues - and they are addressing them. But Hong Kong is streets ahead - we have so many watchdogs.'

'There is also the legal system inherited from the British. In Chinese legal disputes you can face judges with little legal training. Even mainland companies now come to Hong Kong for arbitration.'

From the perspective of logistics, Mr. Thompson notes that Hong Kong is a deep water port and that for other ports on the Pearl River Delta handling the world's growing bigger container ships is a challenge.

That alone guarantees Hong Kong's position as an entrepôt, and partly explains the decision by Dubai Ports International to invest in the territory's ports through its $1.6 billion acquisition of CSX for which the emirate outbid Singapore.

'I don't think such investment opportunities come up very often, and they decided to go for it,' says Mr. Thompson. 'But I believe the ports here have a great future as China is still on a 20-year growth cycle.'