Just as China's growth is breaking new ground, most foreign investors are finding themselves in uncharted
territory when it comes to adapting to fast-changing regulatory and competitive environments.
Despite being the ultimate arbiter of business within its borders, the situation is similar for the Chinese government. As dominant shareholder in some of the country's major commercial enterprises, the state must also confront the unknown – in its case, international competition.
With most of China's WTO phase-in periods completed, many sectors lie more open to foreign investment than ever before and many forms of protection are at least compromised. How the government moves to support state-owned enterprises will have a major impact on MNC performance.
All seeing, all knowing
The state's involvement in commerce, as owner and operator, remains a subject of debate, especially given government efforts to curtail China's wealth gaps. The mixed results that greeted a campaign to separate regulators from operators in the 1980s and 1990s left some writers asking what the "free" in "free enterprise" really meant.
The State Asset Supervisory and Administration Commission (SASAC) continues to "own" 161 very large enterprises centrally, and provincial and local SASACs "impact" up to 300,000 more. All shades of non-commercial involvement weave through SOE parents and listed subsidiaries, banks and investment funds, local governments and local share companies.
SASAC has not retreated from significant involvement in the major enterprises, along with other top planning and administrative bodies.
At least near term, their role will likely include appointing top tier executives, directing capital to preferred sectors, restructuring sector giants, supporting national champions, controlling access to IPOs, and controlling outbound investment.
The underlying strategic goals of the last several years remain in place: aggressive economic growth fueled by high export growth, fixed asset investment and increased domestic consumption; increased share of the value chain across all goods and services; balancing opportunities for state-owned and private companies in their struggle to compete with more mature and competitive global operators.
But the means to achieve underlying strategic goals are changing.
As MNCs face less protection in China they will face ever more "opportunity management" and "market shaping". Semi-commercial entities – banks, investment funds, R&D facilities – are already being created that look increasingly like global businesses, and in many respects operate like them. But at the same time, they are the creatures of government and party planners.
Their impact will be widely felt, but it will be particularly intense in service sectors such as retail, distribution and finance, among the last to be opened under WTO.
The essence of opportunity management is to nurture domestic players who may or may not be capable of competing with the world's best, but can shape the environment in which foreign investors operate. Their resources and behavior will influence opportunities across China's most interesting markets – they will shape the markets even as China opens them.
They will become preferred if not required partners for foreign investors, shape bidding processes and market pricing, and control the major flows of critical goods and commodities.
Serving two masters
What is significant about opportunity management is that empowered domestic entities have a dual role.
On one hand, they are expected to be successful commercial players and, where necessary, learn from foreign partners. On the other, they work with government to achieve its strategic objectives, through agencies like SASAC and the National Development and Reform Commission.
Government interests frequently trump commercial interests so, even if these enterprises fail to be commercially succesful, they may well be kept whole and active.
For MNCs, they will constitute a new kind of competitor, somewhat unique to the Chinese development model. How these foreign players respond will be one of the more interesting developments in China's continued integration into world trade and commerce in this coming decade.