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HONG KONG TOPS FREE ECONOMIES LIST

WASHINGTON, DC - Hong Kong, in an uproar over plans for new anti-subversion laws, still tops the 2003 list of the world's freest economies, according to a study.
 
The former British colony was followed by Singapore in second place and the US in third place in the seventh annual Economic Freedom of the World Report. Hong Kong has been in first place in each report since the index of economic freedom was first published in 1996. At the bottom of the list of 123 countries was Myanmar, according to the report published by the Washington, DC-based Cato Institute, Canada's Fraser Institute and more than 50 other institutes.
 
Hong Kong, ironically, took first place again in economic freedom just as it strained against a perceived threat to its democratic freedoms after six years under Chinese sovereignty. Hong Kong chief executive Tung Chee-hwa was forced to defer final reading of a new anti-subversion law after widespread international and public protest that culminated in a massive July 1 demonstration.
 
The economic freedom index of the world is based on 38 criteria, such as personal choice, openness to competition, the ability to exchange goods or travel, and protection of person and property. The other countries in the top 10 were New Zealand and Britain, sharing the number-four spot, followed by Canada at six; Australia, Ireland and Switzerland tied at seven; with the Netherlands at 10.

Among major economies, Japan came in at 26, Germany at 20, Italy at 35, France at 44, Mexico at 69, China at 100, India at 73, Brazil at 82 and Russia at 112, the report said.  Most of the lower-ranking countries were African, Latin American or former communist states. The bottom five countries were Guinea-Bissau (119), Zimbabwe (120), Algeria (121), the Democratic Republic of Congo (122) and Myanmar (123).  The highest-ranking African country was Botswana (26), which tied with eight other countries, including Japan.
 
CHINA NEEDS SUSTAINED FOREIGN INVESTMENT, CONSULTANT SAYS

HONG KONG - China's economy will need $400 billion in investment annually for the foreseeable future to sustain momentum and minimize the friction caused by the massive transition currently underway from planned to market economy. This, coupled with China's recent accession to the WTO, will create new business opportunities in a wide range of China's major industry sectors.

But, according to Dr. Jonathan Woetzel, a director with global management consultants McKinsey & Company based in Shanghai, the rules of the game are changing rapidly.

According to Woetzel in his new book - "Capitalist China: Strategies for a Revolutionized Economy" - privileged relationships will no longer drive business success. Foreign investors, he writes, "need to start now to build their competitive advantage to capture a sizeable and sustainable share of the China market."

"Given the rapid pace of reform, the already highly competitive nature of China's industries, and the emergence of market-leading Chinese firms with global aspirations, foreign investors have, at most, a 3-5 year window of opportunity to win in China," he said.
 
According to Woetzel, profits of China- affiliates of US companies grew from $0.1 billion in 1990 to $1.5 billion in 2000. In that year, foreign invested enterprises captured about 30% of the profits of industrial enterprises in China.

Despite these promising signs, however, many foreign enterprises have encountered serious setbacks in China, and some have withdrawn entirely from the market due to failure, he wrote.

 According to Woetzel, two main causes lie behind these failures: poor strategic assessments and weak execution. A host of factors can doom a strategy to failure: ignorance of regional differences leading to overestimated markets; lack of understanding of consumer dynamics resulting in unsuccessful products; lack of preparation for government intervention; or poor assessment of complex distribution structures.

"Having a deep understanding of China's market dynamics, an innovative strategy, and a capable organization and leadership on-the-ground in China are increasingly crucial to success."

On top of this, poor execution is at least as notable a reason for failure.
"Investors," he wrote, "simply fail to apply the same rigor and discipline to implementing their strategy in China as they would elsewhere in the world. Testing the waters with remote office experiments are now, more than ever, a waste of money."

While China's entry into the WTO is creating new investment opportunities, success for the foreign investor will mean building competitive advantage over the next couple of years to ensure their position in this hotly contested market, he wrote.
 
"A 'winner-takes-all' structure characterizes most Chinese industries, and participating in and winning the investing game requires both a competitive strategy and on-the-ground capability to execute it. The next three to five years may represent the most attractive window of opportunity for MNCs to win in China," Woetzel said.
 
"If they don't, they'll see their Chinese competitors walk away with the biggest piece of the market. And it won't be long before they also run up against Chinese competitors in the global markets where they have traditionally succeeded."

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