The only way in China is up

Jade Gray's Lush Bar is one of Beijing's most popular night spots

One Sunday in mid-February, Kiwi entrepreneur Jade Gray discovered that in just 10 days Beijing bar and club closing times would be set at 2am. Normally, bars in Beijing close when the last customer leaves, and when business is good, that can be just as the sun rises over the jumbled and smoggy cityscape.

The new regulations were not good news for Gray, who had just made an expensive investment in a lounge bar adjacent to his existing cafe/bar, Lush, in the city's student district. Lush is one of Beijing's most popular nightspots, with good food, frequent live music performances and a laid-back atmosphere.

"It's a good example of the problems you face when starting up your own business in China - namely the ever-changing rule of law, which can turn against you at any moment," says the 31-year old. "But as always, we will just have to deal with it, and find a way to turn it to our advantage."

Gray is one of a small but increasing of number of Kiwis who have made the jump over to China. For most of them, the experience has been frustrating and stimulating in equal measure. Only time will tell which of them has chosen the right path for succeeding in the world's most powerful emerging economy. And their fate is likely to have a powerful effect on others wondering whether they should make the leap of faith.

As for Gray, he knows all about the hard knocks you get when deciding to go it alone in China. In 2003, he went into partnership with a Chinese friend to set up a network of gyms focusing on the foreign student population in Beijing.

Despite a flourishing start, during which membership increased from 70 to 1200 in two years, Gray's business was struck by the panic sweeping China caused by Sars (Severe Acute Respiratory Syndrome). Gyms, because their warm, humid atmosphere is a perfect breeding ground for germs, were among the first places to be forcibly shut down by the Government.

It was more than 12 months before business returned to normal, and by that time Gray had decided to focus on other business models.

The food and beverage sector is built to a much greater extent on variable costs - that is, they arise in direct proportion to the amount of business you are doing: no customers, no cost - the exact opposite of the gym, which was consuming cash despite a complete absence of users.

It's difficult to say if Gray's restless pursuit of entrepreneurial opportunities is typical of Kiwis in China. Given his varied experience, including cattle ranching in north-east China, Gray is perhaps the exception, and the key to his wanderlust and curiosity might have arisen out of winning a scholarship from Christ College, Christchurch, to the English boarding school Haileybury at the age of 17. As a result, his eyes were opened early to the adventure that lies off New Zealand's shores.

Lending credence to the case that international exposure is a key to success in China is the example of John O'Loghlen.

An immaculately dressed banker, O'Loghlen has business and a foreign perspective in his blood. His mother, a Hungarian, ran a successful textile businesses in New Zealand that sourced material from China.

It didn't take long for O'Loghlen to strike out from New Zealand. By the age of 24 he had graduated from Harvard University in the United States and moved to Eastern Europe, where he ended up running a regional executive-search firm in Budapest.

But O'Loghlen, a national representative U-23 rower, also had the dream of making the New Zealand senior squad and in 1999 that lead him back home in the lead up to the Sydney Olympics. That dream ended with serious back surgery, but was followed by a stint of rowing at the UK's Cambridge University, where he could indulge both his academic and sporting passions. His blue-chip progression resumed after graduation, when he was hired by US investment banking firm Goldman Sachs.

"Travelling with clients in China in November 2004 I remember having an epiphany of sorts having done an examination of the national semiconductor industry. The Government was backing the industry heavily and this was complemented by extensive foreign investment from industry players and financial sponsors.

"It seemed quite obvious that many pieces were being put in place for China to command a significant share of tomorrow's semiconductor value," he says.

Interested in further aligning himself towards China, O'Loghlen took leave of absence from his employer and immersed himself in the study of Mandarin at Tsinghua University in Beijing. O'Loghlen believes he may be able to play a role as a conduit for capital and expertise from the West to Chinese companies expanding abroad.

"Chinese companies are eager to learn best practices from overseas as they look to expand beyond China," he says. In addition, O'Loghlen believes there is scope for taking direct equity stakes in China's booming private sector companies.

He's deadly serious about China's potential - and the fact that many Kiwis seem to be ignoring the elephant in their back yard. "It is very much China - and Asia's - century and New Zealand is fortunate to be close to much of China's momentum. I would suggest young New Zealanders stop focusing on London for their OE and pay attention to this rising tide closer to home."

John Shearer has already spent almost 10 years in China. An expert in horticulture and agriculture, he consults for large Western companies (such as Yum! which runs brands including KFC and Pizza Hut; and American Eagle) looking to set up vegetable processing operations in China's rural regions, notably Shandong and Gansu.

Shearer believes that New Zealanders have strengths and weaknesses when it comes to achieving business success in China.

"New Zealand has always been so far from our markets that we have only been able to compete if our products are first class. So we are good at quality control and that's exactly what China needs. Quality tends to get lost in favour of growth," he says.

But while Shearer and Gray agree that Kiwis are valued in China for their down-to-earth attitude, methodical approach and focus on quality, Shearer feels that Kiwis tend to be parochial.

"There's a tendency in New Zealand not to venture beyond the farm gate. That's got to change. I can't understand why industries in which we are world leaders are so under-represented in China. People back home seem to think it's all bicycles and Mao suits, which is nonsense."

Considering the food-related panics in China, Shearer says it is a no-brainer for Kiwi companies to apply to their expertise to improving China's food chain.

"But what do you see? A bit of New Zealand Anchor butter and Mainland cheese on supermarket shelves is about it. Yet we should be streets ahead in cattle raising and lamb."

One quality which Kiwis have in abundance, says Shearer, is grit.

"We don't mind getting our hands dirty. And we are pretty good at turning our hands to a host of different things. That's important in China where unexpected situations are constantly arising."

Shearer is a great example of this. He has been the only expat on huge projects in some of the poorest and most backward areas of China, as well as in some of the richest. He has worked for Hong Kong clients, New Zealand and US ones.

Grit is required in Shearer's line of work. The first thing he has to do is find a large concentration of arable land to achieve economies of scale. Chinese farmers tend tiny plots, so negotiations to unify land is time-consuming.

Sometimes it's also deadly, as when a giant foreign company agreed to keep on the farmers whose land rights they had acquired. However, the contract was unclear on who farmed what and when. The result was bloodshed as the villagers fought each other for the right to cultivate land on behalf of the company.

Once that's in place, Shearer must apply his expertise. China is upgrading its agricultural inputs, so improved seeds and nuts are an important growth area.

Contrary to what many believe, Shearer warns that production costs are high in China. A company wishing to go into cultivation must pay US$90,000 ($148,000) per hectare a year. On the other hand, he says, "the costs are not high compared with the potential benefits".