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SPEAKING
FREELY
Betting on the next
Lenovo
By George Zhibin Gu
Speaking Freely is an Asia Times
Online feature that allows guest writers to have
their say. Please click here if you are
interested in contributing.
December 2004 will be remembered as a time
when a faceless Chinese company, Lenovo, suddenly
took the global stage. The bluest of blue-chip
multinationals, IBM, got out of its personal
computer business by selling out to Lenovo, making
the faceless company the third-biggest global PC
player. So are there other Chinese brands that
could take the world by storm? A rising economy
must create multinationals. The UK and US have
done it. Japan and South Korea have followed. Now
it's China's turn.
State-sector
giants
There are several dozen Chinese
companies that will eventually join the exclusive
500 club. That could happen within the next 10
years or even less. Currently, 15 Chinese
companies are already in that club, including
several telecom operators, four banks and State
Grid, China Life, BaoSteel, and SAIC, the Shanghai
based auto maker. They are all state-run.
China now builds a new power plant every
week. The prize goes, mostly, to State Grid, the
energy monopoly for several decades. Only in this
reform era, private investors and overseas parties
are allowed to enter the field. But still, nobody
can compete with State Grid. It has been as
powerful as the government. Complaining about its
poor services invites trouble; its service people
are a nuisance. In the last few years, however,
State Grid has been behaving more like a company,
improving its management and services
substantially. The energy company is already
ranked 46th in the club. It could become a top-10
player as China's energy needs grow. In the last
few years, there have been frequent power cuts in
China, even though it is the biggest energy
producer after the US. Naturally, there is room
for more investments.
Among state
companies, China National Petroleum Company (CNPC)
and Sinopec are already global players. These two
constitute the state monopoly in China's oil and
petrochemical market. Their annual profits could
reach US$4.5 billion or higher. CNPC complained to
Fortune magazine when its editors wrongly ranked
the company 73rd, causing the magazine to upgrade
CNPC to the 52nd slot. A booming Chinese economy
has offered all the perks for these two giants.
Since 1993, China has been a net importer of oil.
In 2003, it consumed 7% of global oil supplies. By
2020, its oil demand will triple. Thus, CNPC and
Sinopec must go out to acquire both supplies and
assets.
So far, CNPC is competing with
Sinopec head-on at home and abroad. Both have
already cut more than a few dozen deals around the
world. Both are aggressive and go anywhere there
is a whiff of oil. CNPC is eyeing a unit of
Russia's troubled oil giant Yukos and may hold a
small stake in it. For many years, the erstwhile
Soviet Union was a major oil trader with China.
Now China just needs more oil from Russia, and
beyond.
These two oil giants are clearly
ahead of the curve in China Inc in terms of
international expansion. But several others are
not far behind. Take China Mobile and Unicom for
example. They hold the sway over China's mobile
communication market as private companies are
barred here. China is already the biggest mobile
phone market; by the end of 2004, it had 330
million connections. With billions in cash and 330
million consumers on hand, China Mobile and Unicom
can go a long way. Perhaps one day word will
spread that Quest and French Telecom have been
sold. The buyers? China Mobile and China Unicom,
strange names. After the IBM-Levono deal, what is
not possible? In particular, both Quest and French
Telecom are performing poorly, much worse than
IBM's PC unit. They could certainly do with some
help. In investor conferences hosted by China
Mobile and China Unicom, many investors ask for
their plans and timetables. But the truth is that
they have yet to gain international experience.
Even at home, it has been a little rough of late,
and their profits have been going down.
Shanghai-based steel mill BaoSteel is
expanding fast beyond China. It is creating a
major joint venture in Brazil worth $1.9 billion.
China's steel market is already bigger than the US
and Japan combined. BaoSteel's expansion is
creating ever-increasing demands for metals,
steels and cements, among other basic industrial
raw materials. So along with other Chinese
companies, BaoSteel is reaching out to places
where supplies are plenty: Canada, Australia,
Africa and Latin America. Expect more deals from
Chinese companies in these areas.
Now the
big four Chinese banks. On an asset basis, they
are already among the top 25 global banks but
their health is terribly poor. They need booster
shots, and the government is injecting more
taxpayers' money - tens of billions of dollars -
into them. Nobody knows for sure how long will it
be before they return to health. But they must go
through a painful transition to independent
business organizations before that.
New
giants in the making
There are dozens of
relatively new, more entrepreneurial Chinese
companies. They are more than eager to trot the
globe. These include TCL, Huawei, Haier, Galanz,
Chonghong, Ningbo Bird, Kelon, and Konka, among
others. They are all manufacturers, still growing,
and have a penchant for expansion beyond China.
TCL, Chonghong and Haier focus on white goods and
consumer electronics. They have now added handsets
to their product list. Huawei and Ningbo Bird
focus on handsets or telecom networks. One out of
three handsets in the world is produced by Ningbo
Bird and TCL.
Galanz is the world's No 1
manufacturer of microwave ovens. Its global market
share is around 40%. It takes Europe $80 to
produce a simple microwave oven, but only $30 if
it is done by Galanz. Watch out for Kelon too. It
could become the biggest cooling product maker in
China. This is partly because the old controlling
shareholder, a government unit, is out of the game
now that Kelon is a purely public company
controlled by a very ambitious 40-something. How
will these companies enter the big boy's club?
Well, for starters they are players in the world's
fastest-growing consumer market - China. In 2003,
China produced 65 million television sets, 22
million air-conditioners and 180 million handsets.
TCL alone produced 18 million TV sets and 20
million handsets.
But there are large
issues to be settled before these Chinese firms
can morph into competent multinationals. China
will first need to transform all state and private
companies into modern business organizations.
Turning a state-run economy into a modern market
economy will take some work. It demands the entire
package, skipping any component will be disastrous
- as can be seen from the mess in China's stock
market; in January, about a dozen listed companies
were found to be abusing the market and several
dozens of senior executives were arrested.
At the next level, the overcrowding in
every business sector has to be sorted. China has
some 400 air-conditioner makers and more than 100
car makers. All these firms can only mean needless
price wars, which could in the process pull down
the really strong ones. So rational consolidation
has to take place. If China's consumer electronics
and home-appliances makers, now numbering 1,300,
can be reduced to half a dozen companies, the
resulting ones will be among the biggest
multinationals.
George Zhibin Gu
is a business consultant based in China and is the
author of a forthcoming book, China's Global
Reach: Markets, Multinationals, and Globalization
(Haworth Press, Fall 2005). He can be reached at
gzb678@yahoo.com.cn
(Copyright 2005
George Zhibin Gu.)
Speaking Freely
is an Asia Times Online feature that allows guest
writers to have their say. Please click here if you are
interested in
contributing. |
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