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The Asian Trader: Chinese Opportunities Amid the Wreckage

The Southeast Asian financial crisis came at a terrible time for


. It was only a few weeks earlier that the Chinese communist leadership had announced the Great Leap Forward toward capitalism -- the selloff of the state industrial sector. Then the share markets, particularly Hong Kong, went into free fall. Unfortunate timing.

But if you take the broad view, China is still looking fine, and the (somewhat delayed) listing of all those state corporations presents lots of very interesting opportunities for investors.

China is certainly not in tiptop shape right now: Share markets are nervous, foreign investment is falling, triangular debt problems are unresolved.

But thanks ironically to the extent to which central planning controls are still in place, China is looking better than most other places in Asia and stands a chance of maintaining its predicted solid growth over the next decade.

The same is true of Asia. The region has a better shot at rebounding than Latin America or Eastern Europe. What you have in Asia are a lot of hard-working people with plenty of savings and a highly flexible outlook. Asia will eventually adjust to the new realities and move on. Surely this battered region is worth investing in for the long haul. You could argue that after the dramatic falls of recent weeks, a sturdy bounce (once other factors have settled themselves) is almost a sure thing. What is not so sure is the timing of that bounce.

China is not facing the same threats as its neighbors in Korea and Japan, largely because its economy is still tightly controlled. The Chinese yuan is not freely convertible, the banks are all effectively state-owned and not required (just yet) to face the fact that a large proportion of their loans are duds.

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The selloff of Chinese state assets promised a few months ago was aimed at solving the problem of the huge number of state companies that are hopelessly inefficient and effectively bankrupt. This is an urgent problem, but in the Chinese context, it is not imminently fatal. The problem has been around for decades, after all.

The positive impact of the current international financial turmoil is that it will force the Chinese to be much more careful about listing only companies that are really solid and that have good management and solid track records. In the current environment, where it is not so easy to lie to the markets, there are signs that the momentum of the "China for sale" concept is slowing.

But the danger is that China's success at evading recent market-related troubles might encourage the country to slow certain badly needed market reforms. Indeed, the Chinese appear scared to take some of the radical steps that would help to kick the economy into shape, such as a long-awaited cut in interest rates, although it would appear that a similarly long-trumpeted cut in bank reserve ratios might occur soon.

The interest-rate cut is needed, among other reasons, to reduce the debt-servicing burden on the state-owned enterprises, while a cut in the bank reserve ratio will push some much-needed credit into the economy to help the enterprises grow.

The difficulties in Korea and Japan must be particularly sobering for the premier-in-waiting and economic czar Zhu Rongji, who is known to have seen Japan's MITI and the Korean chaebols as excellent models for China's development.

The control the central government still maintains has saved them this time, but with the world increasingly moving on Internet time, it may not be possible to repeat the trick too often. Reform of enterprises and regulatory structures is increasingly urgent.

Because of the financial crisis outside its doors, China will have to sell its state assets at lower prices, which should present investment opportunities. It will also increase the chance that what foreign investors buy might actually have value.

Anton Graham, our Hong Kong-based correspondent, provides commentary weekly for His column appears every Wednesday and he most definitely welcomes your