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Sun, Jan 05, 2003 - Page 12 News List

Multinationals in China have less to complain about

After decades of trying, many foreign companies are making money by manufacturing and on consumer sales in the country and, in some cases, depend on China's steady growth to keep in the black

By Joseph Kahn  /  NY TIMES NEWS SERVICE AND AP , SHANGHAI

China's sale of cellphones long ago passed the point of worry. Motorola first invested US$3.5 billion in China in the last decade and built a semiconductor plant in Tianjin. Now the country accounts for almost 15 percent of Motorola's global revenue, partly thanks to the sale of cellphones, for which China is now the world's biggest market.

PHOTO: NY TIMES

Barely has a big international company spun its wheels as fecklessly as General Motors (GM) did when it first raced into China. Amid notions of fabled riches -- if just one in a hundred Chinese drove Chevrolets! -- GM's 1992 foray collapsed after the company made about 300 pickup trucks, traded insults with its Chinese partner and entered local lore as another fool mesmerized by China's mythical market.

GM has a different story to tell now. Its four flexible production lines churn out a subcompact family car, a leather-lined executive sedan and six other models -- 110,000 cars last year. Industry experts estimate that GM's profit margins are at least twice as high on cars it makes in China as on similar models made in the US. It is the skeptics, GM executives now say, who look like dupes.

"We had our moments of agony," said Philip Murtaugh, the company's top executive for China. "But I look back now and can say that China has been the smoothest and most successful venture GM has undertaken in recent history."

A year after China joined the WTO, and two decades after it began allowing foreign companies to invest locally, China is no longer the impenetrable enigma and inevitable money pit it long seemed. Plenty of foreign investors still lose money. But they are increasingly outnumbered by multinationals making profits that if not quite justifying the exaggeration of the 1990s, at least make China an indispensable part of their global operations.

Just as remarkable is the way they are making money. Foreign companies have long taken advantage of China's low-cost skilled labor to make goods for export: China is the leading exporter in the developing world, with foreign-financed companies accounting for about half, or US$275 billion, of China's total exports last year.

But many multinationals have shifted their sights to the domestic market, which has become more lucrative and more openly competitive than many imagined even a few years ago. China's economy, defying the global slowdown, has had economic growth rates of 7 percent to 8 percent in recent years. While most Chinese cannot afford even low-end foreign-made goods, the average annual income of people living in eastern China has reached US$1,200 a year, creating a lower-middle-income market of 470 million people -- larger than in every other country in the world except India.

Companies invested record amounts in China last year, probably more than US$55 billion, primarily because they now aim to tap Chinese consumers as well as its workers.

Already, the Chinese buy more cellphones than consumers anywhere else. They buy more film than the Japanese. They now buy as many vehicles as the Germans. Foreign companies dominate sales in those categories and have a hefty presence in scores of others, like DVD players, electrical power, heavy equipment, shampoo, software, even hamburgers.

Foreign companies operating in China are not required under local accounting rules to provide financial information about their operations, and most decline to provide details for, they say, competitive reasons. Still, growing numbers of multinationals are boasting that their China business now pads their global bottom line.

For companies like Siemens of Germany and Motorola of the US, China has become the single most important market for mobile-phone handsets and equipment, accounting for billions of dollars in annual revenue and outsized profits, their executives in China say.

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