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SOVEREIGN MAN

Where to make a fortune in China

If you’re an entrepreneur and want to make an absolute fortune, you need to head to Asia.

The last several weeks on the ground here have only reinforced my long-held premise that Asia’s economies represent vast, wide open potential.  These economies are growing, and shall continue to grow thanks to solid macroeconomic fundamentals like a large pool of savings, lack of reliance on credit, and dual trade/budget surpluses.

Nowhere is this more clear than in China.  Despite its dizzying growth rates in recent years, the middle kingdom is still developing, albeit rapidly.

What does this mean?

In the US or Europe, true innovation is uncommon– anything that could possibly happen has pretty much already happened. If an entrepreneur wants to start a business in New York or London, s/he will be competing in shark infested waters against dozens if not hundreds of other businesses.

Not so in China.

In most cases, the market is wide open simply because there is a critical shortage of qualified talent… this is readily apparent in Shanghai’s financial community where everything from gold traders, CFA analysts, accountants, fund managers, and experienced executives are in short supply.

The latest statistics show that of 376 listed funds in China, nearly 22% of the fund managers have less than 1 year of experience, and only 3 have been in the business for more than a decade.  Pudong, Shanghai’s financial district, should be a haven for Wall Street refugees… if anyone has the insight to be looking east.

In China, as in most countries, the ‘stiffest’ competition is in the Tier-1 cities, which means Shanghai, Hong Kong, Beijing, Guangzhou. And while I am convinced that hard-working entrepreneurs can make a killing in these cities, the virgin territory is in China’s Tier 2 / Tier 3 cities… you know, the ‘small’ cities with fewer than 10 million people.

For example:

Kunming, Yunnan province: This is a major logistics hub of southwest China that is known by its pleasant sobriquet “city of eternal spring” because of its fantastic weather.  Despite having a population greater than Miami, Houston, and San Francisco, few people have ever heard of it.

Kunming has been experiencing double digit growth rates due to its direct trade routes with key partners in Asia; it is strategically located to do business with Vietnam, Myanmar, India, Thailand, Malaysia, Cambodia, and Singapore… in fact, foreign investment from Singapore in particular has been surging.

Right now the city is raw, cheap, and full of opportunity– the government has problems that need solving and has the money to throw at sharp entrepreneurs who can provide solutions.

Qingdao, Shandong province: I pen this missive tonight from a city of ‘only’ 7.5 million; originally settled by Germans in 1903, the city is most famous for its “Tsingtao” brand beer (pronounced ‘CHIN-dao’).  What’s more though, this coastal city is a major eastern seaport and manufacturing hub with strong ties to Korea (both of them).

Qingdao is also a strong agricultural and fishing center, and the government is desperately trying to figure out how to meet the growing demand for organics.  These are all problems that need solving… and this is the key theme of entrepreneurship.

A brief anecdote– several years ago, a British man who was an expert in the beer and wine industry stumbled upon Qingdao and determined that it was ideal for a wine vineyard.  He also realized that wine consumption would grow with affluence rates.  He was right– wine consumption is now growing at a 15% annual rate.

With just a $700,000 initial investment, his brand is now considered to be the best white wine in China, and the vineyard makes a metric truckload each year.

I could cite you examples all night of other successful entrepreneurs who came to China, spotted a trend, solved a problem, and made a fortune.  Christine, my friend and colleague who has given me a personal tour over much of this trip, is one of them.  More on her story tomorrow.

The formula is not complex; the best entrepreneurs are the ones who solve the biggest problems in the most efficient way. Because it is developing so rapidly, China is experiencing significant problems and simply does not have the expertise to solve them organically.

Let me know if you are interested and we can have a discussion about specific examples.

About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

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Comments on this entry are closed.

  • Dan Barr

    “Let me know if you are interested and we can have a discussion about specific examples.”

    Simon…I’m interested to learn more about the specific examples

    thanks for any additional info you can provide

  • campbell evans

    i am in Houston and run an indy oil/gas company. However, while prospecting for oil in Colombia we discovered a surface gold mine in the State of Tolima, approx 80 km north of AngloAshanti’s La Colossa mine (one of 10 largest in world). We have 2 MM oz Proved and another 17 MM Probable easly minable gold. We want to discuss monetizing a portion of this in China/Lubaun. Please contact me to discuss. We have a technical report and power point to share.
    Thanks,
    Campbell Evans

  • Charley

    I was perplexed by Jeff Clarks from The Growth Stock Wire writing the following about China today (09/15/09). I would like your take on his view. Thanks much.

    China Is a Fraud
    By Jeff Clark
    Is China cooking the books?

    It’s a reasonable question. After all, we’ve exported many of our jobs and most of our manufacturing base to the People’s Republic… We might as well send them our accounting standards, too.

    Every conspiracy theorist, most rational consumers who buy groceries for their families, and nearly all taxpayers suspect the U.S. government massages its economic statistics to make things look better (or less worse) than they actually are. China appears to be taking our lead, supported by the United Nations Conference on Trade and Development.
    In a report released last Tuesday, the U.N. Conference estimated the Chinese economy would grow 7.8% this year, while the global economy is likely to decline. The obvious question here is… How does the world’s leading exporter of manufactured goods grow 8% while the rest of the world stops buying manufactured goods?

    It certainly can’t be because the Chinese population is increasing its spending habits. Over 50 million Chinese adults are unemployed, and they’re moving from the manufacturing cities back to their rural family farms. So they’re unlikely to buy the $100 sneakers we here in the West like so much.

    Perhaps it’s because the Chinese government has committed to spending $585 billion on various infrastructure projects. As we’ve seen here in the U.S., massive government spending can provide a temporary boost in economic activity. But it’s debatable whether there are any lasting effects.

    The Chinese stock market, as represented by the Shanghai Stock Exchange Composite Index (SSEC), bottomed last November, when the Chinese government announced its plan to throw a few trillion yuan at the economy. Between then and its peak in August, the SSEC was up over 100%.

    But the price action since August has been weak, and it appears reality is entering the equation. Here’s the chart… (won’t copy)

    After an amazing run higher, Chinese stocks broke down below the rising support line (the blue line) in mid-August. The fall was swift and severe and chopped more than 20% off the index in just one month. Since then, Chinese stocks have gotten the predictable bounce back up near resistance (the red line). If you doubt the validity of the “Chinese Miracle Economy,” this is an ideal situation to make a short side bet.

    Make no mistake, the Chinese economy – much like the U.S. economy – relies on the U.S. consumer. If Americans aren’t buying big-screen TVs or $100 sneakers, Chinese stocks are ultimately headed for trouble.

    The American consumer isn’t buying.

    Oh, sure, if you dangle a $4,500 carrot in front of his face, he can be motivated to trade in his rusty old truck for a sleek, new, pimped-out ride. But unless the government is willing to fund cash for jeans, cash for sofas, cash for refrigerators, and cash for rubber dog poop programs, that stimulus is spent.

    The American consumer has no savings. His main source of spending, the home equity line of credit, is nonexistent. And total consumer credit dropped $21.6 billion last month alone. That’s a 10% annual decline.
    So the question again is… How can the world’s leading exporter of manufactured goods grow 8% when its best customer can’t buy the manufactured goods?

    The answer is… It can’t. And the Chinese stock market is slowly coming to grips with that reality.

    Best regards and good trading,

    Jeff Clark

  • Myron Bevans

    Interested? Hell yes, but the big question in my mind is the language barrier. I would feel like I had been thrown overboard into shark infested waters with bleeding limbs.

    How much Chinese do you know?

  • Aruna Auld

    How do I get information on how to invest in these places, and how much to invest. As much information you can give would be great.

    Aruna Auld

  • Nick

    Hi Simon,

    I’m always on the lookout for new opportunities and as a result I’ve developed a typically broad entrepreneurial set of skills from making beer to hi-tech electronics. I currently own my own small software development business and have clients all over the world.

    I’m also an active retail investor focused on options trading in the US markets and so your comments about a lack of experienced finance types peaked my interest.

    Ok, so the wine and beer references got my attention too…

    I would certainly be interested in hearing about more specific examples, especially for non US citizens like me.

    Thanks in advance,
    Nick

  • Anton

    Simon,

    I would be most interested to hear of opportunities in Tier 2 cities in China. I am currently based in Zurich but lived for a number of years in Malaysia and Singapore.

    I look forward to hearing from you soon.

    Best regards,

    Anton

  • Gary

    Simon,
    I am in the heavy construction biz here in Pennsylvania. Biz is very good right now with Stimulus, but someone may come along and make us an offer we cant refuse soon…would like to look into doing same thing in China. Any hope in that area? Or is construction well covered by the Chinese firms? I would also be willing to shift into just about any area if need be…
    Thanks,
    Gary

  • Steve

    I’m one of your subscribers and would like to speak to you, can I have your phone number? Thank you

  • Jim M

    I am interested. What examples do you see.

    Jim

  • John

    Well, hmmm… I have a idea in development on how to cut the cost of municipal-size desalination in half or more… who needs fresh water???

  • Andrew

    Simon,

    Regarding safe deposit boxes….yes, I have communicated with Robert several times via email. It was he who ascertained that neither Capital nor Global (nor any other bank he was aware of) have any available. He said there is a little hope that Capital may expand their storage facility toward the year’s end, but absolutely no hope for Global. In the meantime he promised to monitor the Best Safe project, about which he said his current info is sparse.

    BTW, I entered the Long Gray Line in the 60′s. Don’t keep up much with the official goings-on anymore. Wonder how many officers understand, let alone, keep their oaths. Also, too busy for the moment trying to “reorganize” our affairs.

    Regards, Andrew

  • john connor

    I am very interested. Im experienced in hydroponic, organic agriculture. This type of agriculture orginated for the space program (if we were ever to go into deep space) and can be used very efficiently if there is a lack of space. Now the technology is brought down to where if one lived in an urban apartment with a balcony, they could have their own organic garden. Of course it can be done on an industrial scale. How could an American be set up to take advantage of this?

  • john

    If you find a business that works it will be copied and copied and copied, some of the time by your own employees. There are opportunities there, but don’t be fooled into thinking there are no sharks in the water in China. They are there, you just don’t see them.

  • Chris La Grange

    Hugely interested! I live and work in Vietnam, which is like a Tier 2 China. All that applies there applies here.

  • Clement

    Simon,

    Thank you for the round up report on Asia and china. I have some plans to enter those markets as well. I just want to discuss these with you personally. i tis possible?
    are you on skype?
    can we talk?
    Also. is it possible for you to open up a network of interested followers like facebook, so we get to talk to each other and share ideas , instesd of just one way traffic to you only. this is an excellent forum for us to network with each other.
    My email is cnrecap@msn.com

    Thanks,

    Clement

  • Bruce

    Hi Simon,

    I’m interested in any specific examples.also anything on Labuan banks and brokers.Cheers Bruce

  • http://members.virtualtourist.com/m/8abc0/ Peter

    .
    Excellent concept about second-tier cities.
    I live in the same region as Kunming — just over the border in Thailand.
    Opportunities in this part of the world, yes, and I’m looking forward to Simon’s report on the “business culture” in Asia.
    Simon will certainly paint a vivid picture of the situation.
    For those who don’t know yet, if you’re doing anything in this part of the world, be prepared.
    “They” sure don’t do business as we are used to.
    A few examples:

    1) Laws don’t apply.
    Sure, they have laws, but those are mostly for show.
    What happens over here doesn’t necessarily follow the laws, it follows the power and the money.

    2) Negotiations begin all over again AFTER the deal is signed.
    We Westerners assume that an agreement is binding.
    Not here.
    Here, everything is always negotiable, all the time, without end.
    “They” are always trying to get an edge or figure an angle.
    It never stops, but it does gets tiresome.

    3) The language gap is immense.
    Sure “they” will speak some English, but that’s not the problem.
    The problem is what you heard is not what they meant.
    You said, “Delivery on 30 November”.
    They said, “Sure, sure, 30 November”.
    But what they really meant was, “Call us on 30 November and we’ll talk about it some more.”

    I’m sure Simon will do a more thorough job on these sorts of cultural differences than I can.
    But, my point is this: Before you sell everything and head East to Asia to make a fortune, please learn how business really works here.

    I’ve prepared a web page on life in Bangkok — it is not Kunming, but it is another major city in the same region.
    To have a look at that page, click on my name at the top of this post.
    If anyone wants to discuss more about life in this part of the world: my email is “Peter4″ (att) “Allmail” (dott) “NET”

    – Peter
    Chiangmai, Thailand
    .

  • Andy

    Simon

    An interesting take on China; there are definatley opportunities but also many pitfalls for the unwary…

    Law – don’t count on it, you need good relationships. Getting paid can be an issue and recourse to the law is not a smooth option. You need to work with people who have a track record. Perhaps this is what you can provide?

    Language – you must have the ability to communicate in Mandarin, by yourself or via somebody you trust

    Labour – Labour legislation is not employer friendly, something to be wary of, especially if you are a foreign operation i.e. an easy mark. There is little loyalty, IP will be ripped off.

    I’d be interested in the opportunities you have as I’m sure there are ways to make money in China just are there are ways to lose it.

    Andy

  • Spencer

    I’m from the midwest and have strong connections to wheat, corn, soybean elevators (where farmers come to sell grain that are then sold to ADM etc.) and farmers. We are right on the Mississippi River with a barge port (being expanded shortly). We would like to expand direct deals with foreign buyers on a contractual basis, monthly / yearly etc. Any thoughts on this would help. Any thoughts regarding other opportunities would be of interest too. We can provide expertise in farming, grains, building elevators / dryers etc. Our clients are the best at what they do in the world and are anxious to make contacts abroad to expand their markets.
    Great article, I look forward to talking further about opportunities.

  • Will

    Simon — I have a solid plan on how a viable Identity Resolution/Fraud and Risk mitigation solution could be developed for countries like China where limited public record data on individuals are available. Ping me if you think there is an interest in this arena of consumer marketing and credit adjudication.

  • bella murphy

    can you buy good quality wine in china if so i would be glad to here from anyone that knows anything about the business.

    • Insyc

      in fact we are working on this ..WINE…ChangYu…and why not come to China to make good quality wine?????

  • Anthony

    Simon,

    I stumbled upon your site this evening — and am glad I did, by the way — it’s fantastic. I notice you don’t reply to the posts. Given your background in intelligence, I assume there is a reason you do this.

    When you ask for suggestions from your readers or seek to gauge their interest in a particular post/idea, do you contact a respondent privately or do you post an article addressing interests/concerns/questions?

    Thank you for maintaining such an informative blog.

    Regards,
    Anthony

    PS — I would be interested in hearing about opportunities brewing in China.

  • Richard Verkley

    Hi Simon
    I thought you may enjoy this artical after your last missive.
    Love your stuff keep up the good work. I truly look forward to your insights.

    Australian government to introduce internet filter
    Last Updated: Tuesday, December 15, 2009 | 3:15 PM ET Comments71Recommend31
    The Associated Press

    Australia plans to introduce an internet filtering system to block obscene and crime-linked websites despite concerns it will curtail freedoms and won’t completely work.

    Adopting a mandatory screening system would make Australia one of the strictest internet regulators among the world’s democracies. Authoritarian regimes commonly impose controls. China drew international criticism earlier this year with plans to install filtering software on all PCs sold in the country.

    The government said Tuesday it will introduce legislation next year for the filter system to help protect Australians, especially children, from harmful material on the internet. Critics say it will not prevent determined users from sharing such content, and could lead to unwarranted censorship by overzealous officials.

    Communication Minister Stephen Conroy said the government would be transparent in compiling its blacklist of websites, but did not give details.

    Conroy said the Australian filter was among a number of new measures aimed at strengthening online protection for families. It aims to block material such as child pornography, bestiality, rape and other sexual violence, along with detailed instructions about committing crimes or using illicit drugs.

    Such material is already banned from publication on Australian sites, but the government currently has no control over it being accessed on servers overseas.

    Conroy conceded it may not be completely successful.

    “The government has always maintained there is no silver bullet solution to cyber-safety,” he said in a statement. But, “it is important that all Australians, particularly young children, are protected from this material.”

    Critics say illegal material such as child pornography is often traded on peer-to-peer networks or chats, which would not be covered by the filter.

    “The government knows this plan will not help Australian kids, nor will it aid in the policing of prohibited material,” said Colin Jacobs, vice chairman of Electronic Frontiers Australia, a nonprofit group that seeks to promote online freedoms.

    “Given the problems in maintaining a secret blacklist and deciding what goes on it, we’re at a loss to explain the minister’s enthusiasm for this proposal,” Jacobs said in an online posting.

    The group is concerned the blacklist of sites to be blocked by the filter and the reasons for doing so would be kept secret, opening the possibility that legitimate sites might be censored.
    Test shows speeds not slowed

    Conroy’s announcement coincided with the release of a report on a trial that found internet service providers were able to block a list of more than 1,300 sites selected by the government without significantly hampering download speeds.

    Telstra, Australia’s largest internet service provider, said blacklisting offensive sites using a filter system was feasible as long as the list was limited to a defined number of web addresses, but that no single measure would make the internet 100 per cent safe.

    “The blocking of a blacklist of sites is one element of the multifaceted approach that is required to create a safer online environment,” Telstra Director of Public Policy David Quilty said.

    Jacobs said smaller internet service providers would likely struggle to pay the costs of imposing the new filters. Conroy said the government would help providers implement the filters, without going into details.

    The filter would not likely be in place before early in 2011.

    Countries such as Egypt and Iran impose strict internet controls, and bloggers have been imprisoned. China has a pervasive filtering system.

    Controls in democracies that value free speech are less strict, though internet providers have at times blocked or taken down content deemed to be offensive.

    Canada, Sweden and Britain have filters, but they are voluntary. In the United States, Pennsylvania briefly imposed requirements for service providers to block child pornography sites, but a federal court struck down the law because the filters also blocked legitimate sites.

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