There have been notable instances where Western companies have moved into the lucrative Chinese market only to come a cropper.
Ignoring local customs and practices or failing to understand the rachets and levers that drive the economy stand out among the most egregious failures.
So commonplace are the mistakes that it cannot be long before an enterprising business school provides a course on how not to do business in China.
Not often considered is the failure of Chinese companies to observe Western conventions – and what happens (or doesn’t happen) when they turn up ill-prepared.
NTree International was set up to smooth this difficult transition from East to West for some of China’s most interesting funds and exchange-traded funds (ETFs).
Creating a bridge
The immediate question is why? Why did industry veteran Tim Harvey see the need?
He cites the rush of Chinese ETFs to Britain after David Cameron’s visit to Beijing in 2013, as they took the then Prime Minister at his word that Britain was open for business.
As part of its internationalisation, China’s A-Share market was opening up to foreign investors.
So, this was a period of opportunity – not all of it realised at the time. Crucial elements were lost in translation.
So, for example, Chinese ETF providers didn’t think about distribution planning or whether the management fee structure was correct.
Neither, it seems, did they consider what differentiated them in a crowded market where local providers such as HSBC and Lxyor were already selling low-cost products with Chinese exposure.
“But then they were never told any of this,” says Harvey.
NTree, which also has expertise in the natural resources and commodities markets, provides marketing and distribution expertise, as well as offering an educational component.
Practically, this might mean helping the client devise an optimal sales strategy that maximises the chances of success or setting up conference calls, meetings, or webinars with asset allocators and investors.
It will also help by getting the message out for clients through PR and promotion, seminars, white papers and thought leadership pieces.
The China Green Bond is an excellent example of the East-West/West-East failure to communicate, says Harvey.
While European and American experts are agreed on the lack of identifiable, investment-ready and bankable projects, for the Chinese, the problem is not opportunities, but just what qualifies as a green investment.
As Harvey points out: “The EU hopes to have a European Green Bond definition in second-quarter of the year, but today there is still no European definition; so there’s no benchmark.
“Basically, it comes down to one thing – education.”
Education, education, education
The ‘E’ word works both ways: So, providing the Chinese with the essentials for Western success is just part of the challenge.
Investor communities on this side of the world require the right information to understand what makes a stand-out long-term Chinese investment.
For example, Chinese government debt has long been prized in the West for providing a decent return when some G7 bond yields have collapsed to near zero.
However, the real insider’s trick is knowing that pseudo-government bonds issued by the country’s policy banks might provide an even better coupon still.
Harvey believes there are opportunities in the corporate debt markets too, which are subject to much closer scrutiny and supervision than they are in the US and Europe.
The wider Western world hasn’t quite been as quick on the uptake on these pockets of unrealised value.
The NTree founder says he’s no apologist for the Chinese political regime though he does reference the double standards sometimes applied by the West.
“Very few people have exposure to China, and, as I keep repeating, we think that’s education, we think it’s lack of information,” Harvey says.
Change and evolve
“China has changed, and continues to evolve, but it’s dogged by certain stereotypes. What I see is a country that is now telling the West, ‘we are not going to take your crap anymore’.
“Quite literally, it would seem, given China banned the importation of foreign waste three years ago. This ban left many of the world’s western economies scrambling to find waste and garbage disposal solutions.”
Helping deliver the message is a team drawn from investment management, research, and sales that also has experience raising significant sums.
CEO Harvey worked with ETF Securities and Velocityshares, and before that he held senior positions in equity sales.
Chief operating officer, Ashwin Tirodkar, meanwhile, was an algorithmic and programme trading strategist at Goldman Sachs, before becoming a commodity trader at Unicredit in London.
Tirodkar says: “We bring the expertise that doesn’t necessarily exist in-house, and that expertise helps ensure products are successful.
“We are also shifting mindsets of potential investors so they can make good, well-reasoned decisions.”