China (PRC)
Evan Jowers and Alexis Lamb of Kinney Recruiting present an optimistic viewThere is no question that Asia has suffered a major economic blow as a result of the current financial crisis. Asia’s export dependence renders it particularly vulnerable to the deteriorations of Western economies. However, while hurting, Asia is comparatively in the best position to be the first economic region to recover from the sickness currently plaguing the world’s markets. GDP growth for Asia is predicted to be higher than any other region in the world in 2009. In early February 2009, the IMF predicted a GDP growth of 6.7 percent, 2.7 percent, 5.5 percent and 0.5 percent for China, Asia, Asia’s developing countries and the entire world, respectively, and has described China’s 8 percent GDP growth target as challenging, but possible. Moreover, IMF managing director Dominique Strauss-Kahn stated earlier this month, regarding China, “Once the economy regains its footing a rapid recovery is possible.”
The primary driver of Asia’s resilience in 2009 is China. As China’s economic fortunes go, so do those of the rest of the continent. With a stimulus package that both experts and investors believe is working, deep capital reserves, liberated policies on lending, and a low debt-to-GDP ratio compared to those of other countries, China could begin its recovery as early as second half 2009. Here are five reasons why:

1. Aggressive bank lending
China’s banking system is in much better shape than those of the US and Western Europe. China is currently the only economy experiencing credit expansion, which some economists view as a major indicator that a mid-2009 recovery is possible. In January 2009 alone, Chinese banks lent almost a third of the total lent in all of 2008, according to the People’s Bank of China. Unlike US and European financial institutions, Chinese banks, which are not saddled with toxic assets, can more easily extend credit to individuals and corporations alike.

2. Strong balance sheet, strong stimulus, high investor expect–ations and stock market gains

China has been described by economists at Merrill Lynch as having “perhaps the deepest pockets in the world.” A recent lending spree in February illustrates the depth of China’s pockets, as China not only lent US$25 billion to Russia, US$10 billion to Brazil and US$4 billion to Venezuela, but also had enough financial endurance to make a US$19 billion bid (through the mostly state-owned Aluminum Corporation of China) for an 18 percent stake in Australian mining company Rio Tinto. A growing number of countries and major global corporations are now approaching China hoping for a similar bailout, a trend that is expected to continue.
Further, China has public debt of only 18.5 percent of GDP (compared with 75 percent in India), foreign currency reserves of US$1.95 trillion, and a balanced budget. The strength of China’s balance sheet means that China has more public funds to earmark for expanding its 4 trillion renminbi (US$585 billion) stimulus package, which already includes projects such as the building of 3.5 billion renminbi of public houses in Shaanxi province and Shanghai, and three new railway lines in Shandong province, construction on both of which commenced in December. Because China’s economy is production-oriented, as opposed to service-oriented, the Chinese economy can be easily aided by doing exactly what the Chinese stimulus plan is doing – spending cash on infrastructure and capital developments. At the time of this writing, financial market indices worldwide broke a week-long slump with a day of gains buoyed by optimism that that China will increase its stimulus package. The prices of oil, copper, zinc, steel, chemicals and plastic surged based on this speculation, as any increase in China’s stimulus package means that China has additional resources to create more government-financed, large-scale construction projects.

3. M&A growth
Chinese M&A remained strong in 2008 despite the global economic slowdown. According to a Thompson Reuters report, 2008 M&A activity in China reached a record high of US$159.6 billion in deals, up 44 percent from 2007, as compared to a year-on-year 11.1 percent fall in Asian deal volume (excluding Japan). Xie Tao, a PriceWaterhouse Coopers transactions partner based in Beijing, attributes this resilience to the fact that Chinese companies are not suffering from a dearth of cash, which is crucial for M&A activity.
China has already started exploring 2009 outbound M&A opportunities. Diesel engine giant Weichai Power is expected to soon acquire a French plant owned by cash-poor General Motors, which is desperate to sell off such assets. A high-level Chinese trade delegation is scheduled to travel to Western Europe at the beginning of the month to evaluate “opportunities for financial participation in European companies,” according to Commerce Minister Chen Deming. Officials in China’s Ministry of Commerce said this will be the first mission of its kind to Western Europe, according to the reports. According to Beijing-based trade specialists, the most attractive target companies are likely to be manufacturing, clean energy and environmental protection companies. Financial service companies are less attractive due to market volatility.
China’s growing M&A appetite, according to Li Jian, a researcher with the Chinese Academy of International Trade and Economic Cooperation, is economically shrewd. “The global economic crisis allows Chinese companies, with their ample cash reserves, strategic cross-border partnerships with cash-strapped international companies,” Li said.

4. Not as export-dependent as the rest of Asia
One concern about Asia’s economic future is its export dependence. Until the American and European economies – main export markets – recover, demand for Asian exports in consumer goods will remain depressed. While China’s economy is certainly dependent on exports, China is arguably in a better position than other Asian economies due to its infrastructure. Morgan Stanley (Asia) chairman, Dr Roach has recently opined, with regard to Asia’s overdependence on exports: “Export-led regions are followers, not leaders. The only possibility (to recover earlier) is China, as it has large infrastructure spending in place that could provide support for economic growth.”

5. Regulators may relax rules on domestic IPOs

Industry insiders are predicting that China’s securities regulator will allow IPOs to be launched on the ‘second board’, which would help stimulate a previously dormant IPO market. A source close to the China Securities Regulatory Commission claims that the Commission has requested for companies who received their approval for IPOs in 2008 to submit their annual reports to the Commission for possible issuances in 2009. If the Commission makes this allowance, some investment bankers predict that China’s capital markets could see IPOs as early as the second quarter of 2009.

Admittedly, handicapping the markets is largely an academic exercise and our predictions could turn out to be as off-base as our wagers at
Happy Valley race track each Wednesday. There are no crystal balls, and there are plenty of economists and industry leaders who take a much less rosy view on Asia’s predicted sustainable growth than those cited herein. However, it is hoped that this summary of current pro-Asia opinion shows you that the belief in Asia’s comparative economic strength is one that is held by at least a sizeable minority in the financial community.

evan@kinneyrecruiting.com
alexis@kinneyrecruiting.com

IN-HOUSE OPINION: If you are an in-house counsel and you have a comment or an opinion you’d like to share either on this article or its subject matter, contact us at: in-house@pbpress.com with the article title in the subject line, stating clearly if you wish your comments to remain ‘Private’ or ‘Anonymous’.
Related Articles by Firm
Foreign Banks Allowed to Operate in Myanmar
After more than 50 years of banning, the Central Bank of Myanmar has issued the first final licenses allowing four foreign banks to operate in Myanmar.
Tanzanian Draft National Energy Policy of 2015
Highlights on the ongoing and upcoming industry developments with focus on the transition of the energy sector since the introduction of the Big Results Now! campaign
Mineral Rights Available in Tanzania
Overview of the mineral rights available in Tanzania, with specific focus on the various categories of mineral rights
The Legal Framework of the Aviation Sector in Tanzania
As attention turns to Tanzania’s trade and energy opportunities, the spotlight has fallen upon the nation’s infrastructure. This update focuses on the capabilities and issues of the Tanzanian aviation sector.
Oil price volatility - Offshore oil storage
Are there any legal concerns with tankers being used for floating storage?
Oil price volatility - risks and opportunities in 2015
While many companies can weather the oil price slide and volatility, some industry players face a real risk of insolvency.
India: Union Budget 2015
A bullet-point overview of changes in Direct Tax, Indirect Tax and Goods and Service Tax in India in light of Finance Minister Arun Jaitley’s first full-year Budget…
Prohibition against transfer of personal data outside Hong Kong
Section 33 of the Personal Data (Privacy) Ordinance (PDPO) prohibits the transfer of personal data to places outside Hong Kong, except in circumstances specified in the PDPO.
Security of payment under FIDIC contracts: more secure, for now
The High Court of Singapore recently handed down an important judgment in relation to the enforceability of Dispute Adjudication Board (DAB) decisions under the FIDIC forms of contract.
Insurance Laws (Amendment) Bill passed as Ordinance in India
The long-awaited Insurance Laws (Amendment) Bill has become a provisional law in India. The Bill amends the Insurance Act (1938), the General Insurance Business (Naturalisation) Act (1972), and the Insurance Regulatory and Development Act (1999).
SICC: now open for business
On Monday 5 January 2015, the Singapore International Commercial Court ("SICC") was officially opened...
Myanmar insurance update
Clyde & Co partner Michael Horn recently visited Myanmar's commercial capital Yangon and reports on the current state of the insurance market...
Launch of the online mining cadastre transactional portal
Plus, a summary of the key mineral rights available in Tanzania; and, a look at the manner in which mineral rights can be transferred.
Restrictions imposed on holders of mineral rights
This briefing looks at some of the restrictions imposed on holders of mineral rights in Tanzania by the Mining Act 2010
Draft local content policy for the oil & gas industry in Tanzania
The first draft of the long-awaited local content policy for the oil & gas industry in Tanzania has now been published by the Ministry of Energy and Minerals ...
Tanzania: Revocation of mining licences
The Tanzanian government recently announced the cancellation of a total of 174 mining licences. This mining update examines the key continuing obligations imposed by the Mining Act upon mining licence holders.
Mining Development Agreements
In this month’s mining briefing we look at Mining Development Agreements (MDAs) and the role that they play in the mining sector in Tanzania.
The Tanzanian railway system: current legal framework
The railway system of mainland Tanzania has a total track length of 3,676 kilometers (km) with two separate networks, run by two separate organisations ...
Related Articles
Sanctions and Investigations Q&A
Asian-mena Counsel sought wise counsel on the key issues in these risk-heavy areas from those with expertise at leading International law firm Baker McKenzie, and two thought-leading GC’s ...
Anti-corruption compliance in India
In recent years, there has been a paradigm shift in how corporate India addresses corruption, according to Manjula Chawla, Chandni Chawla and Ashna Gupta, of Phoenix Legal ...
Investigations: effective, strategic crisis-management – the first 48 hours
When a crisis such as a regulatory raid or phishing attack grips an organisation, there are essential steps to take that can steady the business and help it steer clear of further danger ...
Related Articles by Jurisdiction
IP & TMT
Our IP & TMT Report includes Anjie Law Firm's article 'China makes detailed liability rules available for social media' and the 'WWE v. Reshma' case study, courtesy of Anand & Anand. We also get insights from ...
Competition and Antitrust Special Report
In the latest issue of Asian-Counsel, we are provided with an in-depth look at the competition regimes in South Korea, Singapore, China and India from leading legal practitioners in those jurisdictions, and investigate whether there is any merit in the ...
Investigative Intelligence
Investing in Mongolia: Opportunities and risks

Latest Articles
Are you ready for the global tax reform?
A brief discussion on how MNCs should respond to the OECD’s new measures relating to Automatic Exchange of Information and Transfer Pricing issues
Sanctions and Investigations Q&A
Asian-mena Counsel sought wise counsel on the key issues in these risk-heavy areas from those with expertise at leading International law firm Baker McKenzie, and two thought-leading GC’s ...