Canadian Companies Beware of China

We all know that everyone wants to get in on the China gravy train. But, Canadians, for some reason, are having a terrible time doing so. Perhaps part of the problem lies in perceptions of abstract terms demonstrated through language use. For example, words such as “honest man” in Chinese have derogatory connotations attached to them, along the lines of “gullible” or a “blind follower.”

Gosh, what happens to Canadians going into China? Generally speaking, we are not exactly best suited for global trade, considering that most of our experience and expertise in that department comes from trading with our friends south of the border. Then there is the issue of our trusting nature, by default and almost to a fault, which means that it does not take a rocket scientist to pull a fast one over us.

Now, I’m not trying to get cute with stereotypes. But, apparently, because of the culling that our firms go through in China, many trade and business experts in both countries wonder if Canadians are ever going to be cut out for China’s acutely different business culture and fast-changing regulatory environment.

The list of Canadian companies burned by Chinese ventures is long, and it contains quite a few familiar names. This trail of carnage explains why Canada, so far, has invested only a measly CDN$1.0 billion in China, while the rest of the world has funneled more than US$356.0 billion into its red-hot economy in the past five years.

There are also the bone-chilling words of Gervais Lavois, director for the Beijing chapter of the Canada-China Business Counsel, to consider: “I tell them [Canadian businessmen] flat out not to come. I tell them China is going to eat you raw, because you are so green they won’t have time to cook you. Canadians come to get screwed and the Chinese go, ‘okay, we’ll give you a run for your money.'” (Quoted from MacLean’s, January 29, 2007 issue)

What does this mean to Canadian investors? And isn’t everyone urging investors to go for everything “China?” Yes, investing in China can be extremely profitable. But, all I’m trying to say is to follow the trail inbound, not outbound. Don’t go for our biotechs, financial institutions, or mining companies venturing into China. Rather, look for quality Chinese companies trying to gain access to North American public markets.

Of course, here I must offer the last caveat emptor. Before meddling with Chinese stocks, make sure that you have done thorough research or that you agree with research analysis offered from a source you trust. This is neither the time nor the place to suspend good judgment.