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Tuesday, August 12, 2008

Games will expose China

BEIJING - The Olympic Games that started in Beijing on Friday will probably only enhance China’s attractiveness as an investment destination, but there is still plenty that could go wrong to chill sentiment.

Looking to showcase the country’s economic achievements, authorities have pulled out all stops, spending tens of billions of dollars to build infrastructure and clean up the capital’s air.

Grenade Attacks
However, a grenade attack, which killed 16 policemen in the remote northwest on Monday, and protests in Beijing this week have underscored the risk of a turn of events that could spoil the business environment down the road. "There are already a lot of negative impressions out there, so I think for a lot of visitors and a lot of people seeing what’s going to be broadcast that there could be some positive changes," said William Hess, greater China manager for Global Insight in Beijing.

But Hess and other analysts pointed to a number of scenarios that could make things more difficult for companies doing business in China. For one, should protests against China’s policies towards Tibet or human rights spark a serious nationalist backlash, broadcast into living rooms around the world, protectionist voices in Washington and Brussels could gain force. "I think that kind of imagery would feed those who would be more in the ‘red-scare’ camp already, so maybe it would help to harden some perceptions of China’s rise," Hess said.

High-Handedness
Andy Rothman, a strategist with CLSA in Shanghai, said he was primarily concerned about whether authorities would deal with protests in a heavy-handed way.

"Mass arrests that do not result in injuries are likely to have a more subtle, longer-term impact: making it more difficult for mainland companies and the Chinese government’s new sovereign fund to invest overseas (and) damaging the image of goods made in China," he wrote in a research report.

Implications In Business
Most analysts consider it unlikely, but a serious security incident would probably have long-term implications on the ease of doing business in China. "If there’s a bomb or something serious that goes wrong, I’m afraid they’ll just tighten up security like crazy and there will be a lot of negative fallout from that for quite a long time," said Ian Stones, a long-time China-based businessman and adviser to the Conference Board.

Should such an attack occur, Stones said China might retain the tighter restrictions on visas it introduced for the games. "If security gets so tight, it would definitely slow business down," he said. Stones and others pointed to possible positive outcomes, and business opportunities, from the attention on China’s pollution problems. "This should spur the international community and China’s leaders to more aggressive action toward environmental protection and remediation. China deserves credit for being open to outside environmental help, and it remains China’s best long-run growth story," Donald Straszheim of Roth Capital Partners in Los Angeles said in a note.

But for many investors in China, their main feeling about the Olympics is that they cannot wait for them to be over, to put an end to the disruptions they have created - ranging from bans on shipping certain goods and shutdowns of some factories to restrictions on traffic and a clampdown on business visas.

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