Insights from HSBC on successfully investing in China

Relying on both its global connectivity and local know-how, HSBC is better placed than most banks to guide companies investing in China as foreign-investment enterprises (FIEs).

Despite growing doubts over China's economic prospects, the international bank is confident that there are still plenty of opportunities for foreign companies in the local market.

HSBC's inbound investment team of 56 professionals in Shanghai, including banking relationship managers (RMs) and advisors manning country desks for North America, South America, Europe and Asia - as well as and RMs based across China - are ideally placed to advise and counsel FIEs in the China market.

"Foreign investors have been working in China for decades and with huge success," said Paul Allen, senior vice-president and head of Europe desk corporate banking at HSBC China.

Allen said the bank has a team of eight RMs looking after companies that have subsidiaries in China.

He came from HSBC's London office where he had been in charge of six international corporate RMs.

He said cheap labor in China is now a thing of the past, and the country's investment landscape has changed fundamentally.

"What I've seen was that the first wave of investment into China from Western economies went into outsourced manufacturing and industrialization, which in particular benefited German companies because they were so strong in industrial machinery, tooling and equipment.

"That was followed by an investment into China's infrastructure, which is continuing today, and involves companies from around the world.

"Then it was the turn of the high-end consumer, and in came the French with all of their luxury brands.

"And what's happening now is investment focused on the rapid growth of middle-class consumers," he added.

As the emerging economy creates new consumers in China, FIEs are quickly adapting, as Constantin Graf Droste zu Vishering, head of the German Country Desk at HSBC China noted.

"Twenty years ago setting up a factory in China meant benefiting from very cheap labor costs and exporting production abroad," said Droste.

"What we are experiencing now is those Chinese factories are producing for the Chinese market."

He said that China is no longer a cheap manufacturing base, but instead a huge market to sell products.

Moreover, a growing consumer base isn't the only relevant change to FIEs as the maturing Chinese economy is also bringing in high technology and green industries.

"Over the past three decades, China has taken on a huge environmental mortgage as they have borrowed heavily from the health of the environment," said Droste. "Now there is huge potential for European companies to help the nation with sustainable growth and an environmental-friendly economy."

"For example, insulation, up-to-date heating solutions and solar energy are all growing sectors," he added.

The stronger focus on the environment is in some cases making foreign companies more competitive, Allen said. "We are seeing some of the government's environmental regulation beginning to kick in," he noted.

"We've got one mining company based in the western region of China and the process is potentially polluting.

"But they use strict European pollution standards to ensure everything is under control.

"The problem that they have had is that the European standards increase their costs.

According to Allen, some other companies do not have the same controls and are producing more cheaply.

"They are telling us that the authorities will close down a number of these polluting competitors over the next 12 months and that will change the market rapidly. If that happens, there will be a huge change."