Responsible Investor

Can ‘Made in China’ be responsible?

Theme of the month: Why investors must help clean up South East Asia’s companies.

Institutions have never had more assets primed for investment in China and South East Asia. Edwina Neal, chief investment officer for equities at ABP, the giant Dutch pension scheme, recently announced it would invest more of its €211bn ($288bn) in assets in China and other Asian markets, favouring sectors like energy, materials and capital goods. The reasons are clear. China – the world’s factory – continues to grow faster than any other country. It makes more than 50% of all cameras, 30% of air conditioners and televisions, 25% of washing machines and 20% of refrigerators. Its rise has been breathtaking. Millions have been lifted from poverty as a result. According to figures from the International Labour Organisation (ILO), current real GDP growth in the Asia-Pacific region is 6.3% compared to worldwide GDP growth of 3.1%, partly due to strong foreign direct investment. At least 52 foreign asset managers now have QFII approval from the China Securities Regulatory Commission to invest foreign exchange quotas worth almost $10bn in company A-shares (see link).

In addition, more than three hundred private equity companies are estimated to be active in the region. Investors are expected to commit $25bn (€18.3bn) in the second half of this year to private equity funds in Asia, according to the Center for Asia Private Equity Research, on top of $15.4 billion committed to regional funds in the first half of 2007. The figure is a rise of 57% on 2006 levels.
Yet China should be on the emergency watch-list of any responsible investor, as recent events have demonstrated. China also makes more than 70% of the world’s toys. The suicide last month of Zhang Shuhong, the Chinese toy factory owner hit by the scandal of lead-tainted toys produced for US group Mattel, was a reminder that in China, supply-chain failures can have tragic consequences.
The execution, a month earlier, of the former head of the food and drug watchdog, recalled that the authorities stamp down on corruption when they want to set an example. Cyberspace continues to be repressed. Yahoo!, the internet provider, is the latest – after Google and

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