SOURCE: Technomic Asia

February 28, 2007 11:11 ET

China Stock Market Woes Point to China Butterfly Effect

China Strategy Consultants and "China Ready Company" Authors Look at Reasons Behind the World's Dramatic Reaction

SHANGHAI, CHINA -- (MARKET WIRE) -- February 28, 2007 -- China's stock market dropped 9 percent on Tuesday, leading to dips in markets around the world, including a 3.29 percent drop in the Dow Jones industrial average. While many are focused on attempting to analyze the cause of the drop -- China's worst one-day slide in a decade -- two China strategy consultants are focused on the reasons behind the dramatic reaction in the global business community.

"Several years ago, a drop like this in the China market would not have caused this type of worldwide disturbance, but this 'butterfly effect' validates the idea that China is playing an increasingly larger role in the global economy," said Steve Ganster, managing director of Shanghai-based market strategy consulting firm Technomic Asia and author of "The China Ready Company."

"The real story is that no one is insulated from what is happening in China these days," said Kent Kedl, Technomic Asia's general manager and co-author of "The China Ready Company." "Every company we talk to is affected by China in some way -- as a market, as a source of goods, as a growing source of competition. This response to the Shanghai market means now even capital markets are sitting up and taking notice."

Instead of worrying about the details of the China stock markets, Ganster says foreign companies and investors should pay attention to the growing overall importance of China in global economics, politics and society.

"In three decades of working in Asia, I've never seen such a global interest in China," Ganster said. "At times this interest leads to paranoia, but there's really no reason for that. While it's certainly a challenging market, there is no mystery to being successful in China. It is simply a matter of getting deep market insight and following good business practices."

Kedl adds that China investors are still learning "how things work here" and will likely be quite cautious. "The lack of macro reasons behind the sell-off is encouraging. The equity market is basically healthy," Kedl said.

"The generally accepted view here is that Chinese investors were nervous about the possibility that the government will install controls to limit or slow market growth," Kedl said. "No one can really point to one concrete cause of the decline, other than a general edginess among investors. I would classify it as an itchy trigger-finger in the psychology of a rather young market."

About Technomic Asia

Technomic Asia assists companies in entering the Asian market or in expanding their business by providing critical market insight, an understanding of business potential and assistance in designing the optimum strategy for success. The firm's main offices are in Shanghai and Chicago. (www.technomicasia.com) (www.chinareadycompany.com)

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