Go ahead, take your business to China … maybe

Not all business success comes at the cost of blood, sweat, and tears — sometimes it comes with intuition about the best time to jump into a new marketplace. I am wondering about China this week, despite its obvious financial crisis, and so will quiz Dan Paulson of InVision: China, LLC when he returns from “the center of all nations” later this month.

For those of you new to the export dream, you might think I’m crazy to even raise the idea of exports now, since China lined up all the recession dominos and — whoosh — watched them tumble last week as the second-largest world economy experienced an all-too-familiar chain reaction: (1) the economy was headed south due to both internal and external pressures and (2) rising loan defaults caused too many banks (worried about risk ratios and loan portfolios) to play the “extend-and-pretend” game of not calling every note due, instead masking them in trust companies. Meanwhile, those same banks (3) pulled back on new loans.

When the cash and loan pipeline choked, business enterprise and consumers alike turned to other forms of credit. (I’m not judging: Many U.S. companies paid bills with plastic recently, and that’s why they are still around today.) However, when there was too much credit and not enough collateral, (4) The People’s Bank of China (PBOC) had to make a correction, and so it tightened liquidity, causing (5) worries over the credit crunch, which (along with falling GNP projections) pushed Goldman Sachs to downgrade Chinese stocks, leading to (6) the Shanghai Composite plummeting to its lowest level since early December of last year.

Now, I’m not an export expert (though I’m playing “college economics major” in this blog) — and, like I said, Dan isn’t available for instant sourcing — but let’s further explore the idea of exporting to China, because that’s where opportunity lies … maybe?

I think, on a surface level, the answer could be yes (a hedge answer, but hedging bets is all the rage today in world economics). Yes, lending is going to be constrained, mirroring the hell American businesspeople have faced, and yes, the stock performance and credit freeze portends layoffs and further recession. However, government-owned Chinese banks won’t be allowed to fail, and there is a huge demand for Western-made goods and services (including now, of course, crisis communication specialists to help banks with damage control messaging). If you’re looking to expand, Chinese manufacturing is at a critical low point right now, and so there exists a competitive bidding opportunity for offshore manufacturing, since demand for Chinese goods (even in China) has suffered.

But here’s my counter-pitch for keeping the jobs here in the good old U.S. of A. and, instead, exporting American-made goods: U.S. manufacturing jobs showed a decline in June, while jobless rates rose higher than expected. So here’s a patriotic stance to keep in mind if you are a nimble company with a pipeline to infiltrate the government red tape. (Another suggestion: Think Tianjin, China, which wants to be the next Beijing, and so is relatively import-friendly for U.S. companies right now. That’s why Paulson sited his branch office there.)

(Continued)

As I mentioned, at the same time that Chinese exports are down, the Chinese middle class is nonetheless maintaining an appetite for the more expensive Western goods (imports), which have become status symbols of wealth. So here’s a little snipe at California, land of “happy cow pies” — that’s double good news for Wisconsin, because the Chinese have especially learned to appreciate the finest things in life, like a little Wisconsin artisan cheese with their Wisconsin-grown ginseng.

But back to you, Wisconsin entrepreneurs: Regardless of your export potential or sights, you might want to purchase foreign exchange contracts that set a price for euros or other currencies, and keep abreast of currency exchange rates — smart business whether your host country is in financial crisis or not, I’m told. If you’re concerned about investments due to the spike in inter-bank loans, you know a heckuva lot more about Chinese finance than I do — those discussions approach “rocket science” or graduate-level analysis — and you undoubtedly have better advisors than me personally.

Likewise, the U.S. government has a stronger grasp of how to help you set up in China; check out www.export.gov for links to information and agencies. Also, check with the U.S. embassy, Merlin Mentors, Score, or trade associations. The governor recently sponsored a trade mission, so don’t overlook the expertise in the Wisconsin Economic Development Corp. financed by your tax dollars — claim a few dollars and cents worth. You paid for it.

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