Article published in the Chinese newspaper China Daily on June 27, 2007

To say that China is now on almost every investor's lips is not a difficult conclusion to make. Actually, China is considered by far to be the main destination for Spanish companies interested to enter the Asian market. A recent study revealed that in fact, 78% of Spanish companies present in Asia had chosen China. While some came in order to reduce their production costs, other were trying to escape from a saturated Western European market. One thing that is sure is that the celebration of the year of Spain in China has renewed both the curiosity and the interest of Spanish investors for the world's fastest growing economy. The only question that remains now in their head is: are we too late?

If some of the legendary European explorers could come back to help Spanish entrepreneurs in their quest, they would all agree on one point: in order to be successful in an emerging market you must come in as a pioneer.

We can easily affirm that China is now the world's most popular emerging market to invest in. Still, we can count only a little more that 200 Spanish companies registered in China. How can this be possible if countries like France have been developing foreign relationships with China since the imperial times. Actually, the first penetrations of Spanish firms in China can be easily traced back to the beginning of the reform and opening up of the economy proclaimed by Deng Xiaoping only few decades ago.

In addition, the same study reveals that most Spanish companies established in China are mostly located in the coastal zones. It is an option and even, in some cases, it can be the best election. However, we must not forget that the French and the English have had a presence in these regions since the colonial times, and that, in consequence, their contacts network is much deeper and extensive than the one of freshly arrived Spanish business investors. And if there is one thing that the Spanish have understood, it that in China, contacts are the key.

To the question: does China still represent an opportunity? the Spanish Economist Antonio Valverde, collaborator of the firm AGM Abogados based in Barcelona and Madrid, answers yes. He mentions that although coastal regions are becoming more and more saturated, China has much more to offer. According to him, there is still a way to be a pioneer by going directly to central China. While most official commercial mission continue to run along the traditional route Hong Kong – Shanghai – Beijing, Mr. Valverde will rather bring his clients to Xi'an.

The law firm AGM Abogados is in fact a good example to illustrate that the best way to succeed is by breaking new grounds. AGM was the first Spanish law firm to open a representation office in the city of Xi'an, and is now enjoying a privilege position in the region after having acquired significant experience on the field and developed strong relationships with reliable local contacts.

Although the Spanish are said to have a more traditional investment profile than other European countries, they are now starting to realize that if they want to survive in a global market getting more and more competitive, they must be able to compete on cost. Central Chinese markets are constantly growing, emphasizing the interest for Spanish companies to establish their production there with the aim of exporting production to Europe (which is in fact the main market for Spanish goods), a market where margins are low, competition is heavy and most national markets and products lifecycles have reached a mature stage. Others more adventurous are even turning to Chinese consumers. In both cases, to remain competitive reducing costs remains imperative.

Most Spanish investors are still hesitating to enter the Chinese market because of the risks involved. The most common example is the case of copyrights protection. However, many are now realizing that the possible damages they can suffer are much inferior to benefits they can get on a medium to long term basis.

The last aspect to consider is that most companies in Spain are Small and Medium size Enterprises (SMEs). For this reason, most of them do not have the capabilities to meet the high investment level required in big cities such as Shanghai. However, the new measures taken by the Chinese government to encourage investment in central regions are perfectly adapted to the needs of this type of investors. In fact, central regions such as the province of Shaanxi offer opportunities of investments in a multitude of sectors at a much lower cost. Moreover, this region offers at the moment a more controlled environment for investment, which contributed to offer more security for Spanish SMEs. In other words, you do not always need to be a big multinational to be able to invest in China.

In brief, although Spanish people were not the first to position themselves in China's main markets, there are still plenty of opportunities left to explore. It is not so much about who has the idea first, but rather how we put it into practice and collect the benefits. Spanish companies have in this sense a great advantage: they have the opportunity to look at their predecessor's mistakes to avoid committing the same ones. This way, they have a chance to succeed were other have failed.

Antonio Valverde
Director of the Corporate Finance / M&A Department
AGM ABOGADOS
Barcelona, SPAIN