China Market Problems Mean Investors Looking To ASEAN & India For Growth

ASEAN & Indian Stock Markets & Foreign Investment Rise as China Falters

As our practice, Dezan Shira & Associates, reaches into its 24th year of operations, media commentary about the state of the China market has long gone hand in hand with some wild and unpredictable commentary. 25 years ago, the United States sent the USS Nimitz down the Taiwan Strait, in a move unthinkable today. The China RMB plunged. A few years later, amongst the heat of the Asian Financial Crisis when all regional currencies were devaluing and economies crashing, the Chinese held steady and kept the RMB deliberately high to prevent further chaos. Since then the global financial crisis has come and hung around a little, but China has remained relatively stable. 

It also means that as a practice, we’ve seen a lot of currency movements and economic issues over the years. Media, especially in our low attention span tolerance age, demands and produces quick news items – even broadsheets descend into hyperbole at times. Yet we’ve seen it all before. In terms of China, there are two issues: one is the stock market slide, and the other is the currency movements. But is there really a serious problem?

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Chinese stocks are totally isolated from the value of global stocks. Apart from concerns over productivity, which is a different issue, Chinese stocks are mostly regulated, owned, and financed by the state – the vast majority being issued by State Owned Enterprises, and primarily only permitted to be purchased by Chinese and not foreigners. This means that the Chinese value of their stocks should have no impact on the value of stocks anywhere else. They do, however, because they are seen as a symbol as how China Inc is performing. Yet Shanghai and Shenzhen perform under a completely different model compared to New York or London. Chinese stocks may slide, but there is no real correlation between their behavior and global stocks other than the hoary ‘market sentiment’. This means global stocks will recover once ‘market sentiment’ runs out of steam and analysts get a better perspective. 

As for the currency issue, the Chinese have long manipulated their currency as I understand with real first-hand knowledge. On this occasion, China appears to have devalued the Yuan to help boost exports in a sluggish domestic economy. All countries manipulate currency movements, including those owned by other nations. The United States and EU, for example, have imposed sanctions on Russia, whose Ruble has crashed as a result. The Russian ruble is now worth just twice as much as the Sri Lankan Rupee. Yet the Russian economy is 25 times larger, meaning its currency is artificially devalued. China is in the same position: it can also manipulate the Yuan. However, China has a larger problem – it wants the RMB Yuan to be accepted as a global currency. Further devaluations will give the impression it is unstable and unsuitable for such a role. This means that the RMB Yuan will probably keep its position against the US dollar and Euro – the Chinese will have to ride this one out. Having the longer term goal of the RMB as part of the exclusive club of globally traded currencies is more important to Beijing than some export pain today.

In terms of clients this year, as many readers may have known, our practice operates throughout Asia, assisting foreign investors with legal, tax and operational work such as accounting, payroll and so on throughout China, ASEAN, and India. We receive enquiries daily from companies wishing to invest in these countries. In terms of the state of foreign direct investment then, Dezan Shira & Associates are quite a good barometer. In China in fact, our revenues have grown 10 percent year on year, slower than in previous years, and with the caveat that operational expenses have risen by 14 percent. That’s okay, but it needs to be watched. However, the big winners come from clients wishing to invest in ASEAN – mainly the big six of Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam – in addition to India. Here, these markets, in terms of the growth in our clients investing in them, have grown by an astonishing 273 percent (ASEAN) and 420 percent (India). Clearly, while China remains somewhat uncertain in its outlook, foreign investors with money to invest are looking increasingly at Asia’s secondary markets, and it appears to be a trend that will continue. Foreign manufactures and buyers are increasingly looking to invest in these markets to offset the rising costs and current volatility of China. Requests by our clients to set up liaison (representative) and trading offices in both India and Singapore are now more common than requests to do so in China. 

This is also reflected in the local markets. China has garnered all the headlines, but India’s primary stock market, Sensex, has increased while China’s has fallen, and looks like being one of the year’s big winners. ASEAN too, as reflected in the gains made on Singapore’s bourse is also on an upwards trend. The message to us then is quite clear. China will go through some export pain, and then domestically, the Chinese government appears to have a political issue on their hands as to explaining to their citizens about why their Chinese stocks have fallen. However, they will keep the RMB Yuan stable. Meanwhile, investors are already looking at Asian alternatives, and the signs are there – ASEAN and India will lead the way for the rest of this year and into the next as the West’s global investment hotspots. As China struggles to obtain growth, markets elsewhere in Asia are steaming ahead.

Doing Business in ASEAN
Doing Business in ASEAN introduces the fundamentals of investing in the 10-nation ASEAN bloc, concentrating on economics, trade, corporate establishment and taxation. We also include the latest development news in our “Important Updates” section for each country, with the intent to provide an executive assessment of the varying component parts of ASEAN, assessing each member state and providing the most up-to-date economic and demographic data on each. Additional research and commentary on ASEAN’s relationships with China, India and Australia is also provided.

An Introduction to Doing Business in India 2015 (Second Edition)
Doing Business in India 2015 introduces the fundamentals of investing in India. This comprehensive guide is ideal for businesses looking to enter the Indian market, and companies who already have a presence and want to keep up-to-date with the most recent and relevant policy changes. We discuss a range of pertinent issues for foreign businesses, including India’s most recent FDI caps and restrictions, the key taxes applicable to foreign companies, how to conduct a successful audit, and the procedures for obtaining an employment visa.

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