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Happy New Year, China?
新一年的中国面临危机

Three questions businesses will be asking in 2012..
生意人应该问的三个问题

By JOSEPH STERNBERG (Wall Street Journal)

At the start of 2011, China's growth rate was above 9%. Beijing had scored a triumph only a few months earlier, at the November 2010 Seoul G-20 summit, in rebuffing Washington's pleas for more action on global rebalancing and thereby showing that China was an economic force to be reckoned with. As the U.S. slouched and the euro zone sank further into what now appears to be an interminable crisis, many businesses assumed China would be a good fallback.

At the end of 2011, the world looks rather different. Now the main speculation concerns whether China's landing will be hard or soft. Businesses are newly wary; capital is starting to flow out. This turned out to be a year in which investors and managers started asking some new questions about China. Here are three that will be on a lot of minds in 2012:

• Will China ever transition to domestic consumption?

Often presented as a matter of macroeconomic rebalancing, this one has micro implications, too. When foreigners say they "want China to consume more," they quietly add "of our products" at the end of the sentence. So far, foreign producers of consumer goods and heavy equipment have enjoyed some success. Chinese are buying more shampoo, batteries, computers and tractors as they grow more prosperous, and some of those products are foreign-made.

But consumption as a proportion of the economy still falls far short of where it ought to be, and consumer goods will go only part way to making up the difference. The real consumption challenge will be services, which also happens to be an area where countries such as the U.S. have a strong comparative advantage and could be exporting much more to China. Here Beijing remains stubbornly closed, not least for political reasons—services can be dangerous to autocrats for the interpersonal connections they foster, as service-provider Google discovered in 2010.

As an added twist, during 2011 Beijing transformed this from a simple economic matter into a political credibility test. The government promised in its new Five-Year Plan to encourage more domestic consumption. Those who think this transition will happen argue that if Beijing says it will happen, Beijing will find some way to make sure it does. But will that hold true for consumption? While an investment-led growth model provides easy opportunities to pull levers (as long as the investment is done by a relatively discrete set of state-connected companies), true domestic consumption puts you at the mercy of 1.4 billion consumers.

• How "real" are Chinese companies?

This year has seen many Western investors become newly alert to fraud risks at Chinese companies listed in Canada, the U.S. or Europe. What started around this time last year as a U.S. Securities and Exchange Commission fulmination against an obscure bit of financial engineering—the reverse takeover—has grown into a spate of delistings, shareholder lawsuits and regulatory investigations amid auditor resignations, charges of accounting irregularities, and a short-selling frenzy.

This is a microeconomic story with macro implications. Some of these companies may be outright frauds. But for many others, a plausible theory is that they are legitimate companies that have dressed themselves up as "frauds" to navigate China's stifling regulatory environment. Such is a charitable interpretation of the most famous blow-up to date, Toronto-listed Sino-Forest, whose complex corporate structure may well be designed chiefly to secure its forest assets in China absent normal property-rights protections.

Ponder for a moment what this state of affairs means for China. Why are its most entrepreneurial private-sector companies listing overseas at all? Why can't they access sufficient capital at home? And what does it mean for China's economic development that these companies find it so difficult to operate completely above-board? Can a sustainable economy be built on the back of a regulatory system that encourages—perhaps forces—firms to fudge their books?

• What about Indonesia?

One surprising theme for 2011 has been growing investor interest in Indonesia. No wonder, given 6% growth rates and a large potential consumer base coming online as the economy picks up pace. Suddenly investors seem less deterred than they used to be by Jakarta's infamous traffic jams and endemic corruption.

The "Indonesia story" is part of a broader trend, as investors have rediscovered all the non-China parts of Asia. Thailand is set to throw out a welcome mat for foreign investors as it tries to recover from devastating flooding. Low-end manufacturers are heading to Cambodia.

This year's anticorruption crusade in India evidences rising popular discontent with government, which could one day provide an impetus for more competitive economic policies. Foreign businesses are anxiously waiting the first opportunity to head to India.

Even staid old Japan may soon be up for a rethink if participation in a Trans-Pacific Partnership trade deal (a last-ditch effort by Tokyo to revive its stagnant economy) opens new opportunities for foreigners. All of which means that China can no longer count on being the only appealing prospect on the horizon.

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None of these questions necessarily presages a Chinese collapse in 2012. But they do suggest businesses and investors will be looking at China with new, more critical eyes in the new year. The most important question of all: How well will China stand up under that scrutiny?

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Mr. Sternberg edits the Business Asia column.