Opinion-r1:AMM grid in qxp 12/30/09 10:19 AM Page 10
OPINION
.....FORMOREOPINIONONCAPITALMARKETMATTERSINASIA,LOGONTOWWW.ASIAMONEY.COM.....
WhyChina’sglobalasset-grabiswin-win
Thedesireofcash-richChinesefirmstobuyortieupwithinternationalcompanieswithbrand
powershouldbenefitbothsides.Crucially,itisalsolikelytospeeduptheevolutionofChina’s
financialmarkets.
As recent times have shown, China’s international
asset-grab is rapidly expanding from the resources
sector. It’s beginning with automobiles.
The country’s privately owned company Geely
looks set to get its hands on Ford Motor’s ailing
Swedish unit Volvo with a US$1.8 billion bid.
Meanwhile, the future of General Motors’
Scandinavian subsidiary Saab could yet end up in
the hands of Beijing Auto, provided the US parent
decides to sell rather than close the subsidiary.
Rewind just 18 months and western xenophobes
would have railed at such purchases as signs that
Beijing was intent on using its vast reserves of cash
to hollow out western economies.
Such protestations would have been remarkably
similar to the cases of nerves back in the 1980s,
when Japanese firms began to snap up western com-
panies and brands on the back of a thriving econo-
my.
LISHUFU
Doom-laden projections back then suggested presidentofGeelyAuto,
that Japan would quickly catch and outstrip the US
whichwantstobuyVolvo.
economy, while buying anything that wasn’t nailed
down.
Today it’s a different story. Many beleaguered US and European of interest, and that all the grunt work and manufacturing will swiftly
firms are desperate for Chinese corporate capital. As these businesses be moved to cheap facilities in mainland China.
struggle to survive amid weak markets, it matters little to them While such fears are not unfounded, Chinese companies are unlike-
whether the acquirers are owned or supported by Beijing. ly to gain access to brands without promises of retaining international
It’s not just a one-way street. On November 13, UK supermarket staff. Plus, these companies are unlikely to buy international assets
chain Tesco announced it was forming a Chinese joint-venture with a only to cut them apart.
group of companies – including HSBC Nan Fung China Real Estate Aside from the potential win-win of such deal-making, perhaps the
Fund, Metro Holdings and Nan Fung Group – with the aim of opening most positive consequence is that it demonstrates the increasing will-
a set of hypermarkets in northern China. ingness of Chinese corporates to engage on the international stage.
Its desire to do so is understandable, given that the mainland’s That can only be a good thing.
retail sales shot up 16.2% year-on-year in October. As they buy international assets or cooperate with international
In truth, the fit is good between many Chinese and western firms. A companies, Chinese corporates will have to cater to international
large number of the former have a great deal of money or can get working standards and business norms.
access to it from the country’s eager-to-lend banks. Plus, they have They will also become increasingly exposed to international finan-
direct access to one of the world’s largest and fastest-growing markets. cial conditions and markets.
In contrast, many western firms are based in moribund or flagging That, in turn, will force these businesses to consider more sophisti-
economies and a large number are struggling with sizeable levels of cated financial options, and make them realise the limitations as well
debt. as the benefits of having a strongly regulated currency regime.
But these western firms also possess global brand-names, cutting- The more Chinese companies that internationalise, the more pres-
edge research and development departments, and top-notch market- sure they will begin to put to bear on making the country’s local finan-
ing and distribution lines. These are all areas in which many Chinese cial markets more sophisticated.
companies are weak. Ultimately China’s economic growth means that more people can
Mainland firms that buy or tie up with international brands gain afford better quality items. And given years of advertising, the ones
access to those advantages, while the western companies in turn get with the most cachet tend to have western names.
access to capital and one of the world’s largest and fastest-growing Home-spun firms will gradually close this gap, but for the coming
markets. few years don’t be surprised to see other car-makers, retail outlets and
Real concerns do exist among the employees of western companies goods manufacturers falling into welcome Chinese arms, or negotiat-
being bought, principally that it’s just their intellectual capital that is ing access to its increasingly wealthy population.
10 DEC2009/JAN2010 ASIAMONEY
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