It takes a different reasoning to make it big in China. An increasingly restrictive view of incoming capital, rapid growth of second tier (but more remote) cities, a thriving and growing economic base and a still uncertain view of how--if at all--the subprime mess will stir the Asian stew all combine to create a mixed bag indeed for outsiders mulling over a trip to Beijing or Shenzen. Michael Thompson has been riding the shifting, growing, globalizing waves of the Asian real estate market for Cushman & Wakefield for 10 years now, the last six as CEO. Thompson took some time from the networking of Mipim Asia last month to talk with GlobeSt.com about those shifting forces, and shared his thoughts on how global investing will change in the months ahead.

GlobeSt.com: It's been said that the subprime mess is being felt in Asia but not so severely. Do you buy that?

Thompson: The biggest issue is that we haven't yet seen the depth of the impact that subprime will have on the developed markets, particularly in the US and Europe. That's the big question. If the US can hobble along at a reduced growth rate, then there will be only marginal impact.

Intra-Asian trade is so dominant and strong and so independent of what is taking place in the European and US consumer markets that there is still tremendous potential for growth. If China falls from 11% GDP growth to 9% is that a disaster? No.

GlobeSt.com: I hear a lot of people giving the nothing-to-fear speech while US banks sink deeper into the mess. Then I'm reminded of the cockeyed optimism of this industry.

Thompson: And you're talking to the high priest of optimism. Many of the Western financial organizations have been affected and there's probably more to come. And it will impact on their investment criteria for North America and Europe, but they have to counteract that lack of growth in markets that offers opportunities. So you hear Lehman Brothers and Goldman Sachs announcing escalated investment plans in Asia because they see the opportunity. But that's not sentiment. It's based on the consumers. The engine of growth is not the financial sector. It's the 1.3 billion consumers between India and China and the development of intra-Asian trade.

GlobeSt.com: What's your take on the government's restrictions on foreign investors . . . the 50% equity invested in local partners . . .

Thompson: . . . the 30% of land cost in a Chinese bank before you can raise debt for the balance. Very severe limitations . . . .

GlobeSt.com: Does it hobble investment or do they just get more creative in getting it in here?

Thompson: I'll go for the former. It's interesting that the government in China has tried every means possible to slow foreign investment because values are rising too quickly and it's not good for the economy. They have tried every means to dampen it but it is not working. So I think you'll see more pressure for the government to stem the tide of capital looking to take part in the China dream.

GlobeSt.com: Is there a potential asset bubble?

Thompson: Probably not. The classic argument is Beijing. Every city that has experienced the Olympics has gone through a massive property depression. Is Beijing likely to follow that trend? We would argue not because it is such a high-growth marketplace. There is inherent demand in those markets and the government is very cautious about making sure the values don't move beyond take-up. The measures put in place to date have not worked because of very creative techniques to avoid them. So you will see further measures.

GlobeSt.com: Has investment volume slowed?

Thompson: In terms of the level of interest, no, there's been an increase. In terms of what's approved we are seeing delays. And approved is the key. The government is putting on the breaks and they're delaying that process.

GlobeSt.com: So what should outsiders coming into the market know?

Thompson: It's a very important question. You need to understand the Chinese markets and the controls. If you are in any sense concerned about China risk, don't come. If you understand the investment dynamics and are prepared to accept that there is an element of China risk, come. But you have to understand that China and other less developed Asian locales are not transparent investment markets as we assume in US and Western Europe. The opportunity is not in the acquisition of passive A-grade assets. And I don't know how many funds or investors we have told: "If you want to secure an A-grade building with 98% triple-A grade tenants, forget it. You're not going to find it." But for those who want to participate in the development process and add to the real estate infrastructure, there is willingness on the part of the government and local partners to work with you.

GlobeSt.com: But that's a whole different skill set. Is that where local partners come in?

Thompson: It's a two-way street. Foreign investors need to appreciate that the process of land acquisition and approvals is very much a local function and is best dealt with by a local partner who may or may not have development expertise. But many of the local developers are looking for a competitive advantage, and if the client can bring the experience of development trends and techniques of more mature markets and adapt those to the emerging markets of India and China, there's enormous potential.

GlobeSt.com: What cities provide the most opportunity?

Thompson: Don't try to do something in Shanghai or Beijing. There are opportunities there but the competition is great and the margins are slim. Look to second- and even third-tier cities. There's much more to China. You've moving out to not-as-Western-friendly environments, but that's where the opportunities exist. Walk around this exhibition hall and you'll also hear people talking about Vietnam or Pakistan.

GlobeSt.com: . . . Places where the risk factors are higher and the returns longer in coming.

Thompson: Bear in mind that international real estate funds follow international corporates. The IBMs and Intels are already there. They've made the investment. I hate to criticize my industry but there is a lack of vision in terms of understanding and dealing with the perception of China risk. US and European corporates have not had that problem.

GlobeSt.com: What about Chinese capital going out?

Thompson: Chinese corporates, driven by government policy, are beginning to penetrate global markets. You will see major Chinese funds going out and taking advantage of the very low dollar value. The attraction of US assets is getting more compelling, and over the next six months you'll see some of the investment groups forming now entering the US--to pick up assets that are very safe, very secure and very cheap.