It's time once again to present the best ideas money need not buy for how to make it big in China. Each year I teach a class with the boring title, "China's Political Economy." Surprise of surprises, rather than a pedestrian stroll around the various aspects of China's economy, the policy process, WTO, IPR, etc., the students have one task: give me a proposal on how to invest a billion bucks in China. That is $1,000,000,000.00. For folks like Bill Gates and Warren Buffett -- and perhaps some of you readers out there -- this is pocket change. But for students -- and professors -- at Indiana University, this is a lot of dough. And, in fact, a billion dollars can go a long way in investing in China. Whether motivated by the idea of a big bank account, the shear thrill of the challenge, or figuring out how to go from the abstract to the practical (“let’s build a guanxi wang”), my students produced some fantastic proposals which the world deserves to see.
Before unveiling this year’s best of the best (here is last year’s), let me explain how the class was structured. The students examined, in order, the economic, policy, and political risks associated with doing business in and with China. They first did research on a wide number of industries, from tea to telephones, from waste water management to airlines. They then analyzed all the various types of policies the Chinese central and local governments could throw up in their way to complicate things, including Indigenous Innovation incentives and obstacles, M&A reviews, antidumping and safeguard duties, RMB manipulation, etc. And then they considered the business ramifications of China's political environment -- corruption, inter-provincial protectionism, limited policy transparency, labor unrest, etc.
The class syllabus (Download SYLL CPE F10) is full of terrific case studies and broad analyses written by journalists, lawyers, academics, and investors. Students particularly enjoyed Tim Clissold’s story of eating deer whip in Liaoning. Another highlight was the utterly hilarious and insightful documentary China or Bust! (2008), which tells the story of three British businessmen who go to China in pursuit of fortune. The three were each terrific characters, and the outcomes of their efforts were highly unexpected.
My students’ investment proposals mirror the path of the class and culminate with an Action Plan of how to invest their billion and a discussion of the steps they’ll take to address the various risks they are most likely to face. And the winners are . . .
- Matt Laury, a senior in the IU’s Kelley School of Business, suggests in his proposal ( Download Laury Proposal) taking advantage of China’s growing consumer power by investing in Univer’s Lipton brand and the Yum! Corporation’s chain of restaurants. He is most concerned about risks related to China’s financial system, protection of trademarks, health regulations, and labor unrest in their operations. He has reasonable suggestions for how to deal with each of these risks.
- Nick Leish, also an IU Kelley School student, takes a very different tact ( Download Leish Proposal). Whereas many are decrying the heavy hand of the Chinese state and calling for greater liberalization – just see Treasury Secretary Geithner’s speech at Johns Hopkins-SAIS yesterday – Nick suggests taking advantage of extensive government intervention by investing in the stocks of several leading Chinese companies (I hate the term “national champions”): GCL Poly, Sun Tech, China Mobile, and China Unicom. His strategy is consistent with the age-old motto: If you can’t beat ‘em, join ‘em. And isn't that why these and other Chinese companies list outside China?
- And Jim Nagler, a Master’s student in East Asian studies, suggests yet another avenue ( Download Nagler Proposal) by proposing that investors fund a start-up human genome R&D facility. He identified several leading Chinese genome research outfits, including the Beijing Genome Institute (BGI), and believes that if the start-up does well enough it could eventually merge with BGI or form some sort of strategic partnership. He suggests it be located in the Suzhou Industrial Park to take advantage of the large talent pool of university graduates and researchers in Jiangsu, Shanghai, and Zhejiang.
When you read these, please remember that the proposals are for a political economy course, not a class in business management, entrepreneurship, or accounting. The overriding purpose is to use the investment proposal as a vehicle to better understand the interaction of economic, political, and international factors in China. Don’t be disappointed for the lack of indepth marketing research or detailed budgeting. Instead, enjoy the boldness of the ideas, the dreaming, and how they are justified in light of China’s broader social and political milieu.
And if you really like these ideas, please let us know. And if you want to use any of them, feel free. We’re happy to take any credit (and a fee – ha, ha) if things turn out well but none of the responsibility if things go poorly.