SMART MONEY DOES not generally travel in company. Large amounts of capital chasing after the same thing - be it Dutch tulips, Internet plays or Enron stock - is usually the surest sign that the lemmings are nearing the cliff-edge. What then to make of China? Over the past 20-odd years foreign investors have poured about US$390 billion into more than 360,000 foreign-funded projects on the mainland. Moreover, more than 75 per cent of this staggering stockpile was invested just during the 1990s. Appropriately enough, at the tail end of that decade more than 300 executives from the world's 500 largest companies congregated in Shanghai for the Fortune Global Forum, which was hosted on the eve of the 50th anniversary of the establishment of the People's Republic of China. Common sense would suggest that if so many chief executives are in pursuit of riches in China then they are probably chasing a mirage rather than a sure thing. Indeed, such suspicions have fuelled a recent contrarian reaction about China and its prospects, even in the aftermath of its entry to the World Trade Organisation. It is certainly true that some high-profile foreign executives have said plenty of stupid things about the size and potential of China's domestic market, and the country's landscape is littered with the carcasses of some of their even stupider ventures after they put their money where their mouths were. However, while it pains to doubt the doubters, the majority of foreign investment in China has probably been much smarter than is generally realised. It is tempting to assume that the tens of billions of dollars pumped into China year after year in the form of foreign direct investment (FDI) is pursuing the same elusive Chinese shirt-tails that 19th-century English textile mills once dreamed of adding just an inch to. However, this has not been the case. For a start, about 50 per cent of China's accumulated FDI stock has been Hong Kong in origin. Most of this money has been invested in Pearl River Delta export processing operations that see China as a means to an end rather than an end in itself. Hong Kong-funded export processors, followed by their Taiwanese and Japanese counterparts, have traditionally viewed China not as a lucrative market in its own right but instead as a source of cheap labour and - in the case of the Pearl River Delta - good infrastructure. The process has not been pretty. The environmental consequences in the delta have been devastating. And while factory owners comfort themselves with the thought that the wages they pay their migrant workers are fair by the standards of rural Sichuan, no capitalist would ever want to see his children saddled with such an existence. Yet, it is precisely this type of foreign investment that has fuelled one of China's greatest economic success stories of the past 20 years: its emergence as one of the world's great trading nations. Over the past 10 years China's exports have expanded from just US$92 billion in 1992 to US$266 billion last year. With foreign-invested enterprises accounting for more than half of China's exports, this expansion arguably ranks as one of the greatest foreign-investor success stories in history. In other words, for every one Western chief executive fat-cat who has said something risible about the China market and its supposedly vast potential, dozens of small-potato entrepreneurs have done very well exploiting cheap Chinese labour to manufacture widgets of every description for rich Western consumers. The success of such widgeteers, if you will, over the past 20 years should give even the most hardened cynic pause before dismissing the mainland as a graveyard for foreign investors. Then there are companies that followed their clients to the mainland, or bided their time until the market was ready for their products and services. One such firm is Rockwell Automation of the United States, a US$4.3 billion-a-year company that designs and sells control systems to clients ranging from underground transportation to steel plants. Last week senior Rockwell executives were in Shenzhen, where they are hoping to win a contract to supply the special economic zone's first underground line. 'We don't have a 50-year plan [for China],' said Keith Nosbusch, president of Rockwell's control systems business. 'We supply manufacturers. And while [China] does not represent a large market [for the company] currently it is where the new investments are being made.' As the world's manufacturing base has shifted to China and cities like Shenzhen have begun to roll out modern transportation systems, so Rockwell's mainland control systems business has expanded. Nothing could be simpler, or more natural. It is a useful reminder that plenty of foreign investor interest in China is predicated on real opportunities rather than wishful thinking. No capitalist would ever want to see his children saddled with such an existence
