Chinese Companies Abroad

From The Economist: The dragon tucks in

“Going overseas for Chinese companies is a prerequisite for success,” argues Gordon Orr, a consultant with McKinsey in Shanghai. Indeed, there are more deals in the pipeline. SAIC, China's leading car company, remains keen on overseas expansion following an acquisition in South Korea and a last-minute withdrawal from buying Britain's MG Rover. ZTE and Huawei, the two main producers of telecom equipment, are already serving international clients and the latter is rumoured to be interested in Marconi, a perennially troubled British rival."

"Does this amount to a carefully planned assault on global assets? For all its appearance as a communist-directed monolith, China is ultimately too fragmented for that. Unlike Japan's fabled Ministry of International Trade and Industry in the 1960s and 1970s, China does not have a single agency powerful enough to be an effective co-ordinator. Nevertheless, China's acquisition spree has clear political backing. The leadership in Beijing is determined to create its own set of “global champions”—30-50 internationally competitive, yet still state-controlled, firms."

"Although it is clear what Chinese firms want, it is less clear that their buying spree will prove successful. In their favour, Chinese firms can contribute cheap finance, cut costs by relocating factories to China and tap their potentially vast domestic market. Of these, the first is the most compelling. For state firms—and most big companies still have government links—that do not have to make a commercial return or perhaps even repay loans from state banks, the cost of capital is very close to zero. This gives them a huge advantage when it comes to competing with private-sector firms from abroad. And there is increasing evidence that Chinese companies are routinely overpaying for assets."

"In terms of peacefully integrating China into the world economy, this is to be welcomed, not feared. Chinese companies will make their mistakes, and they will need to learn fast. Another wave of hopefuls is already discernible. On June 28th, Thomson of France sold the final leg of its TV operations—not to China's TCL, its partner until now, but to an Indian rival."