Sunday, October 02, 2005

Undue Fears of China Inc?

Undue Fears of China Inc?
Facing international suspicion and fueled by economic necessity, Chinese companies struggle to expand overseas, writes Paul Mooney in YaleGlobal, 29 September 2005
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1 comment:

Douglas Crossman said...

This article raises a really important point concerning China’s success and failure in acquiring foreign enterprises. While the buyout of IBM by Lenovo, Thomson by TCL, and even CNPC’s acquisition of PetroKazakhstan were successful, Haier, Huawei, and China Minnerals all failed in their attempts. Let’s not forget the very public CNOOC attempt to purchase Unocal. Why is this? What is it that allows one Chinese company to move into a foreign market, and not another?

The author mentions a significant cause for the failures, and one that will be responsible for many more problems for China’s economic inquests in the future. It’s all about politics.

As he also mentions, the ties to the state, whether real or imagined, have and will continue to hurt Chinese companies in their efforts abroad. While we are quick to overlook the ties between the US government and such companies as Haliburton or Enron, there is so much focus put on even the most minor of ties between Chinese firms and their government.

Herein resides a problem unique to Chinese society more than any that I know of. That is the concept of “Guanxi” 关系. Guanxi’s English meaning is “connection”, but in Chinese society it is far more than that. It will be one of, if not the most powerful determining factor in where a person goes in life, especially in the business world. Since the CCP is the most powerful entity in China, it will mean that most of the powerful men and women in China are in some way linked to the Party. This is not to say that they are party hacks, or are pushing an agenda. In fact, these companies are more likely to distance themselves from the CCP just to keep these opinions from being formed. Sadly, when paranoia runs rampant, foreign businesses and governments will usually be able to draw ties between powerful Chinese enterprises and the government, regardless how influential or accurate they might be.

The solution is relatively simple. Foreign companies have to stop looking through a red curtain at China, and educate themselves on the country and the culture. Yet, even the so-called “free-market leader of the world” is adopting protectionist policies towards China’s liberal economic policies, a fact I find rather disheartening.