Will the Market Dig a Hole All the Way to China?

By Ash Kalb

Stock prices have tumbled with, it seems, no end in sight.  The Dow broke 10,000 in the wrong direction this Monday. Fannie Mae and Freddie Mac have let us down.  US banks are failing and consolidating at an alarming rate. An unprecedented economic bailout package, whose true cost to taxpayers and implications for Wall Street can’t even be guessed at has been signed into law.  Prospects for any sort of near term recovery are at best dim. The US markets are currently, in a word, unattractive.

It is, therefore, far from surprising that individuals and businesses with money to spend are looking abroad for stability and growth opportunities.  Asia’s ever increasing significance as a global economic player makes it an obvious target for investment in these uncertain times. It is unclear, however, if the Chinese market will remain unscathed by the current economic crisis. What is clear is that the fortunes of the Asian markets will have a direct effect on the quality and quantity of job opportunities in the region.

While economic indicators have been far from stellar for quite a while, very few people, expert or otherwise, could have foreseen the sweeping economic events of September.  No one can be certain how the effects of the US crisis will resonate in the Chinese markets, but there are certain indicators that are cause for hope. While we don’t pretend to know what is in store, the following are some factors that are worth taking into account.  The Hang Seng Index has fallen 40 percent and the growth rate has dropped from 9/10 points to 7/8 over the last year.  The Chinese index’s growth rate remains one of the highest of any Asian market.

Foreign direct investment in China remains strong, to the tune of US$ 42.78 billion in the first five months of this year, up 54.97 percent from the same period last year according to the Chinese Ministry of Commerce. The number of new foreign-funded enterprises, however, fell 20.95 percent to 11,915 in the same period. The Ministry of Commerce holds however that the ”the quality of China’s FDI use has improved as a raft of new measures were introduced to regulate foreign investment… Foreign companies now tend to have more interest in investing in high-tech and high-value sectors, which need vast financial input, than in labor-intensive and lower-value industries.”

Recently released trade figures may be cause for optimism for the future of the Chinese market. Higher-than-expected exports and a surge in factory price inflation were announced in July, with trade surplus growing four percent over the same period last year and export growth of 26.9 percent.  While these figures predate the worst of the recent crisis, they do indicate a strong trend towards growth. How the turmoil of the last month will affect these figures is still up for grabs, but analysts remain hopeful.

In general, the trend in the Chinese markets remains one of growth, but at a slowing rate, a cooldown not a meltdown. There is a school of thought, however that holds that the latest data may be distorted by a so-called “Olympics Effect,” with Olympics-related restrictions on production and travel negatively distorting China’s economic picture.  The Chinese government seems prepared to act to ease both monetary and fiscal policy if necessary, which seems further reason for encouragement.

China is more self-sufficient than it ever has been as the country’s infrastructure, agricultural sectors and regulatory schemes mature, and the population becomes ever more highly educated.  As the equity markets decline, if China can actually maintain a growth rate of 7/8 (curbing investors fears that growth will stall and has occurred too quickly), it may very well become an attractive market for investors trying to get a bargain on foreign assets. Many investors have been concerned with hyperinflation in China due to the level and speed of growth, meaning a slowdown could actually be a healthy thing for the market by giving it time to consolidate its gains.  

Uncertainty is the watchword in the global market of late, and that makes any sort of prediction not much more than a best guess.  We are certain, however, that Cypress remains busier than ever, with legal placements to date this year double the number for the same period last year. The market shift seems to mean that there are more opportunities for litigation and arbitration associates as well as transactional corporate attorneys. Weaker markets do mean that hiring standards are on the rise, especially with more associates on the job market as a result of recent rounds of layoffs and firm dissolution; many US and UK firms are requiring that their Asian offices justify every hire with the home office. Several hiring partners we have spoken to recently, however, have indicated that they are still looking for top quality talent in China, both in Hong Kong and onshore.  Some firms have gone so far as to note that this is a great time to make opportunistic hires as quality associates become increasingly interested in practicing in Asia given the demand, outstanding packages and increase in complex, cross-border work.

Given the small supply of bilingual attorneys with US qualifications and strong technical legal skills, such candidates remain extremely attractive in the Asia markets. In fact, the weakening of the US markets may in the end mean more jobs for US and UK attorneys in China and indeed all of Asia, as the focus of international investment moves from the damaged US and European markets to the slower but still fundamentally strong Asian markets.  For the right candidate, opportunities in China abound, and will continue to do so for the foreseeable future.

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