Asian markets
Usha Haley, Professor of International Business at Massey University, “In China, you don’t know what you don’t know; information is so spotty and random.”
Chinese corporations: servants of two masters? Chinese capitalism post-Mao is very new, there is still a ‘buddy’ system and China has developed a unique brand of state capitalism. Companies have responsibility to government and their shareholders – some say the primary role of companies is to serve the state. Corporations have a ‘red’ telephone, connecting them to the appropriate Ministry and all decisions must be passed by them. The only way to succeed is for a company to correctly interpret government interests and synchronise its interests with them. In what is more a political than a business environment, many people spend their time ascertaining what government interests are and aligning their interests with them. Where interests become misaligned, problems arise. In the final analysis, it’s all about the interests of the state. Mid- cap companies can deal with provincial government, rather than Beijing, making it easier for them to synchronize and align interests. Success, even of private companies, can depend on the relationship with the government sponsor – companies that lose their government sponsors can suffer heavily.
Corporate objectives In the West, it’s all about profits. In China, many companies don’t care about profits. What then are their objectives? It’s all about growth and/or technological acquisition and market domination. Consequently, Chinese companies compete furiously against each other. The appeal to Chinese companies of foreign partners seems to lie primarily in tax advantages; less corporate tax means all Chinese companies seek out foreign partners. Moreover, the question inevitably arises as to whether China really wants capital or whether what it wants is know-how, intellectual property and commodities?
Other issues investors should consider • While there are major problems with corporate governance in China, for the investor there are also concerns relating to market governance. This is not so much a concern of what governance is, but the stability of the environment for long- term investors.
• As with other emerging markets, it’s not just a question of how easy it to invest in China but also how easy is it to disinvest, should you wish to remove your funds.
• Efforts to control the debate through tight control of information and the absence of a free press, mean due diligence is difficult, creating a strong need for diversification of investments.
Encouraging trends • Muhtar Kent, chief executive of Coca-Cola, recently said that China is a more friendly business environment than the U.S. and that, “in many respects” it’s easier to do business in China, which he compared to a well-run company.
• Talent is a force for good: increasingly young people want to work for companies that benefit the planet. To attract the best talent, you need strong governance.
• The internet age encourages greater social responsibility at the corporate level.
This article follows input from a breakfast meeting sponsored by Aberdeen Asset Management at the Economist Conferences ‘The High-Growth Markets Summit’ on September 30, 2011. Monica Woodley, EIU Senior Editor, chaired the session, delegates included:
• Frank Braeken, Executive Vice-president, Africa, Unilever;
• Usha C V Haley, Professor of International Business, Massey University, New Zealand;
• Fred Kalantari, MD and Vice-president, Kodak Greater Russia and Eastern Europe;
• David Michael, Senior Partner and MD, Boston Consulting Group, China;
• Charles Tang, Chairman, Brazil-China Chamber of Trade and Industry;
• Peter Taylor, Fund Manager, Global Emerging Markets Desk, Aberdeen Asset Management.
Special thanks go to Professor Usha C V Haley and George T Haley, Professor and Director, Centre for International Industry Competitive, University of New Haven for their valuable input to this article.
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