China’s economy is growing rapidly. More and more investors are turning to China to take advantage of the opportunities awaiting them in the ‘World’s Factory’ (surplus labour) and the ‘World’s Market’.

China is the fastest growing country in East Asia – approximately 9% per annum since the beginning of economic reform. The graph opposite shows the remarkable increase in GDP in China up to 2005.

China attracted more foreign direct investment (FDI) than any other country in 2004 with a total of US$ 60.6 billion. This represents about 10% of annual aggregate gross domestic investment in China. FDI is important because of the technology, know-how, business methods, management techniques and markets that it brings to China. It has also brought increased imports and exports. None of this would have taken place without FDI. Today, most of the FDI is oriented towards the domestic market instead of the export market, and towards heavy and high-tech industries instead of light industry.

US$ 562 billion in FDI entered China between 1979 and 2004 and according to the Economist Intelligence Unit, the Chinese economy could overtake the United States by 2020 (see chart below).
This would make China the largest economy in the world.

A promising target for merger and acquisition activities is the foreign invested enterprises, either joint ventures or wholly owned. Many of the initial shareholders in these enterprises are ready to take their profits.

However, investing in China is still complex and difficult without the knowledge of its culture, values, and consequently its hidden risks. Labour retention, disclosure and transparency, warranties and representations, as well as indemnification remain important issues.

Shanghai, China