GlobeSt.com: Can you explain a bit more about the FIE impact on foreign players?

Dudek: The corporate structure of China has developed over the years, and if you go back 15 or 20 years, there really was no such law, and the earliest laws that came out did so because of foreign investors. One of the earliest was a joint-venture law that allowed foreigners and the Chinese to put a company together or to cooperate without a company. Then an equity joint-venture law came out and then a wholly foreign-owned enterprise law. The legal system developed really to control foreigners in China. Then they realized the legal system had to expand to deal with Chinese issues and corporations as well. So in parallel they created a completely different set of laws for Chinese companies.

GlobeSt.com: Did the restrictions put a burden on your business?

Dudek: Business immediately picked up after that first month. This past year we're talking $6.4 billion. I don't know exactly what the volumes are now, but I can say we're busier right now than we were last year at this time, and that's probably a proxy for the market. But right now you have a certain type of investor since it's not a stabilized market yet. It tends to be funds of investment banks that are a bit more willing to take risk. But you're starting to see prepackaged one-property deals you can buy outside of China where you end up with a Chinese or Shanghai skyscraper and the risk has already been taken out. But most of the deals are being done by funds.

GlobeSt.com: Is it easier for certain projects to get a green light than others?

Dudek: Absolutely. But it depends on where the project is and if the government is trying to encourage development there. If you come into a big city--Beijing or Shanghai--and you're willing to build mass quantities of low-income housing, housing that's less than 90 sm, which is what they want, and you're willing to do it cheaply--because they're afraid prices will get too high, you'd get all of your approvals very quickly. But, of course, no one wants to do that because if the margins aren't there, why would you invest in a place like China?

Also, when you go into historic districts, your approvals are going to be more complicated. This is true of course in every country and it's not true just of foreigners. But under the new rules, every aspect of creating a deal has become more complicated, which means you might need special approvals. For instance, for auctions, you effectively have to have a company in China to bid on a project. But it's a chicken-and-egg situation because you aren't allowed to set up a company unless you have a project.

GlobeSt.com: What does 2008 look like?

Dudek: The Chinese economy acts like a race car with no clutch. Yesterday's Shanghai stock exchange was a classic example, and it's typical of China. They talk about the run up of the Shanghai stock exchange being over 100% over the past 12 months or so, but if you go back two years it was dropping just as fast for no apparent reason. The reality is that the Chinese stock market is not the equivalent of the US market. The companies don't rely on it for their capital, and most of the companies that are listed are still state-owned. In other words more than 50% of their stock is owned by the government. Rumors started that the government was afraid that, like real estate prices, the market has gotten out of control and it would take rapid and huge measures to slow it down. So, people who are speculating--and China's trying to stop the speculation--started saying that if there's going to be a sudden tax on these types of stock transactions, they needed to get out, and everybody fled. Everyone lives in fear of the government changing its mind.

GlobeSt.com: And it does change its mind without notice?

Dudek: If you go back less than 10 years in Shanghai, no one was buying houses. So the government gave this incentive: If you buy a house in Shanghai and you have a mortgage you can deduct the mortgage against your taxes dollar-for-dollar. I've never heard of anything like that anywhere in the world. But buy houses they did. If you look at the statistics for homeownership in China, it's extremely high and it's really all been in the past decade. Then suddenly the government decided they had to stop this and they've tried to put on a lot of taxes to slow the market dramatically. Again it's the race car without the clutch. Either they give it too much gas or they put the brakes on too quickly. They can't fine-tune their economy. They're just not good at that yet.

GlobeSt.com: But given the interest and flows of capital, aren't they starting to get it?

Dudek: It's a good question, and I think they are, partly because there's a market now, a real market, and the market takes care of itself over time. But a lot will depend on whether or not the government considers the economy to be overheating. If they do the brakes will still be on. If it goes the other way and China goes into recession, it will be easier to get projects through.