Wednesday, June 12, 2013

Integrity counts for Chinese firms - Janet Carmosky

Janet_-_023Should China put its hope on private companies, or rely on the old state-owned forces. For China veteran Janet Carmosky it is not important where a company gets its capital from, but integrity counts, she writes in Forbes. "Bankers never had the skills to evaluate commercial risk." 

China’s future is less about whether the enterprises who get capital are state owned or private enterprises. It’s about the integrity of the process through which they get that capital. 
To be sure, numerous distortions, waste and illogic are among the results of central policy-driven lending by China’s banks to State Owned Enterprises. Still, assuming those polices were all revoked tomorrow, what would remain in place would still fail to support innovation, environmental stewardship, ethical practices in business, employee security, investment in R&D.  Any of those warm fuzzy things people are supposed to think of when private enterprise is extolled. 
Why? Because the bankers who allocate capital have never had to develop the skills and knowledge necessary to evaluate commercial risk.  They do not know what level of expertise, analysis, or due diligence is needed to evaluate a loan application. Don’t let anyone tell you that lenders in China are doing deep and real commercial due diligence. That includes VC.  The reality is that the political alignment of an enterprise – whether it’s State Owned, or the pet private project of a Party princeling – is first among all criteria for taking an equity stake. 
Where patronage is the de facto criteria for lending, lenders and investors have no need or experience in identifying  that elusive, powerful quality that Li Junheng calls Innovation DNA.  China’s bankers and VC’s don’t have the right skill sets now. They could develop them. They could educate and hire and train people to have them. But until that happens, free market enthusiasts, don’t get too excited about big changes in China’s direction.
More in Forbes.

Janet Carmosky is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers' request form.


+China Weekly Hangout 

The China Weekly Hangout discusses trends in China and focus on May 24 on the changing labor for with +Dee Lee (Inno), of the NGO Inno in Guangzhou, running a workers' hotline, mainly funded by big brands who want to keep an eye on working conditions. +Heleen Mees, NYU professor in New York, +Sam Xu  and +Fons Tuinstra, of the China Speakers Bureau, ask him questions.

Chinese labor in Africa is the subject of the China Weekly Hangout on Thursday 13 June, following the story of over 124 Chinese gold miners, who got arrested in Ghana last week. Our expert panelist will be +Eric Olander of the China Africa Project, and you can read our announcement here. You can register for participation at our event page.
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