Until
recently, investors
seeking to profit
from China’s breakneck
economic growth rate—at 9.1
percent in 2004, it was among
the
world’s fastest—via direct foreign
investments were required to plumb
the
depths of local business
culture: live in-country or visit
frequently, learn the
language and
play golf with government
officials. To be the
TOP VIEW
Even the most seasoned investors
in China admit that sometimes a tale of
financial adventure is their
primary return. By working with private equity
funds run by managers
who have taken their lumps and cracked the guanxi network,
select
investors have enjoyed double and triple returns in recent years. But
other avenues—such
as stocks in Chinese companies and real
estate—remain
risky propositions. In all sectors, local insight is
imperative. | first to hear of a
prime
business or land sale and successfully bid for it required investors to
have a presence on the ground. But today, those who have been burned in
the
past, or who have no interest or skills to invest
in-country, are
taking a more
conventional route. Instead of
committing vast amounts of
time and capital (and
their
reputations), they are outsourcing these
risks—with fingers crossed—to
investment firms run by experts like Hsu
who know the terrain
and have strong
guanxi, which translates roughly
as
connections, though the word implies tight
personal relationships
and a large collection of owed favors on which to
draw.
Seasoned Hands
Despite his extensive experience, Hsu
admits he has lost his
and his investors’ money on some deals,
“but,”
he adds, “not our shirts.” He
barely recovered $10
million of his own
money invested in real estate in Dalian
and
Shengyang that he sold in
2000 after a four-year slump in the market.
However, last year, he
tripled a $20 million investment he
made in 2000 when he
took a
Hambrecht & Quist–backed
Chinese microprocessing chip maker,
Semiconductor
International Manufacturing, public on the New York Stock
Exchange.
Dan Carroll is another accomplished Sinophile
who
knows how to
navigate the vagaries of the Chinese market
and has the
ability to turn
near-defeats into successes. A
managing partner at
Newbridge Capital and its
China fund,
Newbridge Asia III, Carroll, a
protégé of Hsu, negotiated a deal
three years ago to pay $120 million
for an 18 percent,
controlling stake in a
state-owned financial
institution,
Shenzhen Development Bank. Several months
later, the
Chinese
government reneged on the deal, and then a second bidder
emerged. It took a year of negotiations before San
Francisco–based
Newbridge was
able to prevail over the other
party and become the first
foreign owner of a
stake in a
Chinese bank.
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