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The risks and rewards for foreign investment firms in China

On Behalf of | Apr 12, 2018 | Uncategorized

With a population of more than a billion people, China always presents a wide variety of opportunities for American businesses. Yet doing business in China can prove risky.

A number of large lenders including Citigroup and Goldman Sachs have also been trying to take advantage of the Chinese market. They hope to be at the forefront of lending money to Chinese companies. Yet in doing so, they will have to deal extensively with Chinese regulations. These banks and lending institutions will also be dealing with businesses already substantially in debt.

The opening of the financial marketplace in China

President Xi Jinping continues promising to roll back on regulations that prevent access to China’s banking and investment market. Its central bank has a timeline in place that would allow for foreign financial institutions to compete with Chinese firms.

This timeline is aggressive and would purportedly result in the removal of investment limits on foreign banks by the end of June 2018. It would also remove ownership limits for foreign companies after three years.

The concern so far has been foreign companies do not have equal footing with domestic Chinese firms. Talks concerning this have been ongoing. Negotiators hope to demonstrate to Chinese officials that American ownership of businesses in China would be beneficial for everyone. This would include promoting growth in the Chinese economy.

Dealing with corporate debt in China

Chinese debt greatly exceeded its economic output at the end of the year. This debt burden is almost double of that in the U.S. This leads some commentators to suggest that the Chinese government built their economy upon debt. While there continues to be a crackdown on high-risk investment products in China, companies investing in China need to be aware of the risks.

It is beneficial to have the services of investment attorneys who understand the issues banks and investment firms face when doing business in China. Without a working knowledge of the business culture and Chinese regulations, the risks of doing business there could exceed the benefits.