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Caution advised

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Why you can trust SCMP
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CHINA'S decision to close over 80 per cent of the special zones set aside for investment and development is the kind of arbitrary intervention that could begin to make investment on the mainland a dangerous lottery in the coming months as the central authorities try to cool the economy. It is also a salutory reminder to less scrupulous Hong Kong and Taiwanese investors in particular that getting involved in some of the more dubious projects set up by dynamic and freewheeling municipalities can result in badly burned fingers.

But legitimate investors will also suffer as Beijing attempts to put the lid back on the Pandora's Box of speculation, scams and get-rich-quick schemes opened up by the drive for economic growth. Despite assurances that foreign investments will be largely protected, some losses are inevitable and investors' confidence is bound to be undermined.

In the longer run, however, that may be no bad thing. Too many foreign businessmen, and a fair few foreign governments, look at China and see only dollar signs. Instead of making simplistic calculations about cheap labour, abundant land and a potential market of 1.2 billion people, investors need to take a long cool look at the pitfalls of dealing with an economy still feeling its way into capitalism.

China has immense potential for growth. But the economy will not make it into the stratosphere without stalling a few times on the way. A more cautious approach all round would avoid much heartache and huge losses.

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