Executives upbeat on China prospects

Multinational executives remain upbeat about China's business environment and are not allowing concerns over an economic slowdown to dampen their enthusiasm for investing in the country.

John Rice, vice-chairman of GE and president of Global Growth and Operations, told China Daily that he is very bullish about China's long-term prospects and GE's business in the country, because infrastructure projects remain a top priority, although the GDP growth rate will be lower than forecast last year.

"Although in any quarter you could see a challenge in the business, in the long run we believe China will be the world's largest economy, making it a place where companies have to take a long-term view."

Rice predicted GE's China business will grow by more than 15 percent this year, with each segment expanding at two to three times the GDP growth rate.

GE's revenue in China last year was $5.7 billion. Industrial segments contributed $4.9 billion, accounting for 9 percent of GE's global industrial revenue.

"The Chinese market is one of the most important markets that we have in the world. It's important because of the size of the market, but also because of the thought leadership that takes place here," he said.

Rice's remarks came after inbound investment to China dropped in March for the fifth consecutive month

Foreign direct investment fell 6.1 percent year-on-year to $11.76 billion in March, marking the longest decline since the onset of the global financial crisis.

China's GDP growth rate has fallen for five consecutive quarters, and registered 8.1 percent in the first quarter, 0.8 percentage point lower than the fourth quarter of last year.

However, Deloitte & Touche Financial Advisory Services Ltd found that almost all of the foreign companies it surveyed last month were more interested in trade and investment in China than three years ago.

The respondents include 30 top executives in charge of the Asia-Pacific and China operations of multinational corporations.

Kenneth DeWoskin, director of Deloitte's China Research and Insight Center, said most of the executives believed the business environment in China would stay basically the same and "very few" thought it would get worse.

"Generally speaking, foreign companies are optimistic about China. They think there won't be big economic problems in the future. They believe that domestic consumption will continue to grow at a steady rate, and the currency will remain stable despite appreciating more slowly."

As for the investment model, most executives said they prefer to grow organically, while creating cooperative or strategic alliances such as joint ventures with Chinese companies ranked the second-most popular option, according to the survey.

And conducting mergers and acquisitions in China was the least popular choice, which DeWoskin said "surprised" him.

He said that many foreign companies would like to play a bigger role in the service sector, on which China has placed greater emphasis in the 12th Five-Year Plan (2011-15), including media, entertainment, and financial services. "Each kind has sort of sensitivities," he said.

But companies are concerned about many changes that are taking place right now in government policy and the financial services sector, he added.

DeWoskin said that many foreign companies find it "difficult to compete with their domestic counterparts, either State-owned or large private companies, and sometimes regulations are very difficult for them to deal with".

"The government in Beijing has begun to make very important adjustments. The changes are actually coming quite fast. And large companies are accustomed to fast changes in smaller economies, not fast changes in big economies."

Sometimes doing business in China is like crossing river by feeling the stones, said Rice from GE. "But I feel it in other countries too. Sometimes the decisions that the government makes aren't always clear to people like myself.

"We have to be agile and flexible in our business model in terms of how we participate into the Chinese economy," he said.

And concerns over the country's rising labor costs and inflation are increasing, said Rice.

"I think it's important for us to focus on the creation and competence abilities in the work we do in China, which would ensure that we could offset inflation and the cost of higher wages with productivity and other advantages."

He said that GE is conducting research on how to cut costs and improve productivity.

The company in November 2010 unveiled a three-year investment package worth $2 billion for China, and opened an innovation center in Chengdu, Sichuan province, in March, while a further one will open in July in Xi'an, Shaanxi province.

Both of the cities are regarded as economic and business pivots for western China.

Rice said GE and many other foreign companies recognize the importance of central and western China,.

"You have to be there, to be an investor and know the local government, the mayors, and the provincial government. That's what is going to determine our success in China over the next 50 years."

He said he also sees more opportunities for foreign players to take part in the energy and railway sectors as the government encourages private companies to play a bigger role in those fields.