There is little doubt that China is going to have a great century to come. No question. However, it can't ALL be cake. What potential pitfalls do foreign investors have with investing in China? How can that be explained to Joe Starbucks? Discuss the good, the bad, and the ugly! To start, it might be best to focus on what China's Achilles' heels could be and what type of black swan events could do serious damage in the short term and long term.
China has massive problems that will take them years to deal with in order to create true stability, and even then, their long term political stability and regional strategic strength may still be precarious. So much potential, but so many obstacles...
I once heard a VC give a talk about doing business in Shanghai. He said that when investors go to Shanghai to invest, they like to sit across the Huangpu RIver and stare at the Bund and see the bright lights and the tall shiny buildings, but that that wasn't the real Shanghai or China...the real Shanghai when you got close was dirty and filled with the poor. Basically, China has a lot of problems that, while not hidden, are overshadowed by the shiny newness of growing opportunities. My experience from time working in China is that China is still in great need of more infrastructure and quality control and until they get those 2 things under control, there will be serious dangers to any investing there. That and customs not being asshats about shipments from the US and slowing down the flow of goods through customs inspection...stuff will sometimes sit for months in customs unless you can get the right commie boss to talk to the right customs official.
The problem is that their stock market is essentially a Potemkin Village, based on a non existent value system as its foundation. You can't even short stocks... fits in great with the communist mentality. I think investors forget that this is STILL a communist dictatorship!
My personal experience is worse than that. Never trust a china man. If you outsource to him, your product will be selling in Africa the next month at 1/10 of what you are retailing. If you partner with him, in one month he will have a competing firm running con-currently with your partnership. In one year he will take all your clients. If you trade with him, your money will never be returned to you. If you train him to manage your business. In one month he will have opened a competing business. These are a few things large multi nationals are now finding out about their chinese "partners".
This happens with business in all countries, there's nothing particular to China about it. If you don't align your partners interests with your own, you will get screwed. End of story.