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.
PHOTO: NY TIMES
"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."
PHOTO: AP
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.
Toshiba, the Japanese electronics and industrial equipment giant, once used China as an export base. It now sells two-thirds of what it makes in its 34 China-based operations to the Chinese. Local sales reached US$2 billion in 2001, according to the company's China president.
McDonald's and Kentucky Fried Chicken have 700 Chinese restaurants between them and open scores more each year. Eastman Kodak controls an estimated 63 percent of the domestic market for rolled film, prompting some grumbling in the Chinese news media that it has become a near monopoly. Even Starbucks has found plenty of urban tea drinkers ready to spend US$2.50 for a latte.
A few companies have turned to their China operations to support parent companies that have hit hard times. The fallen telecom titans Lucent Technologies and Nortel have suffered enormous losses globally but continue to benefit from big China contracts, including a nearly US$1 billion order placed when Chinese President, Jiang Zemin (
Siemens' consistent profits on its nearly US$4 billion in China sales "help make up for losses we've suffered in other parts of the world," says Peter Borger, chairman of its China holding company.
Thanks to china
AES, the power company based in Arlington, Virginia, once settled for low-single-digit returns from the seven power plants in which it invested around China. But while AES struggles to pay off debt and restructure operations at home, returns from China have improved substantially.
"China is now the best-performing business in the whole corporation and one of the top cash generators," said Bill Ruccius, president of AES Orient. "I go home these days with a much nicer story to tell."
The success of a growing number of companies cuts against the persistent stereotype that China is a continental sinkhole for foreigners.
Since the age of Marco Polo, Westerners have tried, and usually failed, to create profitable businesses with the Middle Kingdom. Royal trade delegations failed to pry open the markets in the 1700s. British textiles makers never succeeded in lengthening Chinese shirttails by a foot, as the most exuberant among them imagined doing in the 19th century.
When China opened its doors to Western investment in the 1980s, almost all of the pioneers struck out. AT&T, Chrysler, McDonnell Douglas, Goldman Sachs and Occidental Petroleum were among the global brand names that invested heavily, hoping to reap a bonanza. By the mid-1990s, every one of them had scaled back amid losses, inconsistent government policy and brighter opportunities elsewhere.
Though Procter & Gamble and a handful of other early investors began making sizable sales and profits in the mid-1990s, they were regarded as aberrations. Sooner or later, the prevailing wisdom had it, Chinese consumers would reject foreign-made products. The communist government, it was thought, was happy to use foreign businesses to strengthen its domestic market and transfer technology but would ultimately make it impossible for them to collect steady profits at the expense of domestic rivals.
"Like adventurers in the quest for some fabled relic, investors press unendingly forward -- if only on the basis that the legend may one day prove real," Joe Studwell, a leading commentator on the Chinese business world, wrote in his book The China Dream, published last year. "The China investment proposition came down -- as it always had -- to hopes for the future."
piracy woes
To an extent, the image of China as a fickle, ornery place to do business is grounded in reality. China's corrupt legal system has only begun to honor property rights. Chinese entrepreneurs, with tacit support from local government officials, aggressively pirate Western products like cellphones, shampoo and software.
Tripping over one another to court China's bureaucrats, multinationals have overpaid for licenses, industrial land and office space. Those costs, along with the fact that they can rarely identify even small niches that are free of fierce competition, often mean steady losses.
Though Procter & Gamble created the market for shampoo in the country -- it promoted Head and Shoulders beginning in the late 1980s, when most Chinese washed their hair with soap -- it has more recently run into difficulties, former company officials and retail industry experts say.
Once-sleepy domestic brands, like White Cat laundry detergent and Slek shampoo, have challenged Procter & Gamble as top sellers. That has confined Procter & Gamble and Unilever of Europe, with their higher costs, to the narrow premium end of the market.
Other ardent suitors have withdrawn entirely. Maytag announced plans to sell its stake in a China joint venture last year after suffering persistent losses. Leading international brewers, like Bass of Britain, Foster's of Australia and Miller of the US, steamrolled into China in the 1990s but have pulled back. Even Durex, the condom maker, has had to sue domestic rivals that it contends stole its brand name and undermined sales.
Yet the broader picture may be more sanguine.
Huang Yasheng, a professor at the Harvard Business School and an expert on foreign investment in China, argues that the undiminished enthusiasm of foreign companies reflects weaknesses in China's half-state-run, half-private economy that outsiders can exploit. China's failure to overhaul its money-losing state industries, and its traditional ideology-based discrimination against local private firms, has allowed foreigners to sell many high-technology goods that the government once saw as vital national priorities, he says.
Money to be made
Huang also disputes the idea that foreigners routinely lose money. Government statistics show that foreign-financed companies received about US$27 billion in dividends in 2000, compared with US$6 billion in 1996. The total volume of incoming investment has grown more slowly over the same period, suggesting that companies are making better returns on capital, he said.
A recent study by the International Monetary Fund, examining average returns for foreign investors in developing countries during the mid to late 1990s, found that companies with operations in China, much like those in Brazil, Mexico and Turkey, earned returns of 13 percent to 14 percent on invested capital. China was only average among emerging markets during the period, but investors did substantially better there than those who put money in India, where returns were just 6 percent.
"Foreign companies are not being stupid," Huang said. "Even in many of the capital-intensive industries, you see Western firms making good profits because domestic firms are so weak."
To remedy this situation, some domestic firms engage in joint ventures to gain from foreign knowhow. Just this week, Citigroup said it will purchase a minority share in China's Shanghai Pudong Development Bank. The foreign firm has less to loose and the Chinese partner has more to gain from such joining of hands.
The auto industry, for example, has proved ripe. Though the government once tightly controlled nearly all aspects of production, investment and sales, it has relaxed its grip in recent years.
A more genial regulatory environment has paid off for GM. After its initial frustration, the company agreed to open a modern factory with a Shanghai partner in 1997. Critics derided GM for agreeing to invest US$1.5 billion in China after flopping miserably. Many also argued that its decision to make a high-end Buick sedan geared to Chinese executives looked risky.
The Buick sold briskly, however. Late last month, the company unveiled a remodeled Buick tailored to the local market. It has a bright chrome grill and a plush interior, with DVD players on the back of the front seats for people who ride in the rear. GM has had little trouble adding models, including several aimed at Chinese families. The company had hoped to sell 100,000 vehicles annually after five years of operation, but it reached that annual target in November, a year and a month ahead of schedule.
Like GM, many other multinationals stumbled before finding their footing. Microsoft found trouble almost as soon as it began marketing its Windows software in 1995. It peddled a version of the program translated into Mandarin by Taiwanese employees, who embedded some standard Taiwanese anti-communist phraseology in the Chinese-language entry system, alarming users in China.
Beijing has also encouraged local companies to adopt the Linux operating system, the free rival to Windows, because of domestic fears that the American government could use the secret Windows software code to gather information surreptitiously, a suspicion Microsoft called unfounded. Moreover, some 90 percent of Chinese computers run illegally copied versions of Microsoft's software.
Yet Microsoft has begun to turn things around. Late last year, it persuaded nearly all the major Chinese computer makers to pre-install -- and prepay Microsoft -- for the latest operating system, Windows XP. The Chinese news media have reported that the payment is nearly US$80 a computer, not much less than what American computer makers pay.
"China is really improving the environment across the board for software makers," said Tom Robinson, one of Microsoft's Asia executives.
In the hypercompetitive market for consumer electronics, where nearly all the major international brand names have battled local companies, no one makes a consistent profit, industry analysts say. One exception in 2001 was Toshiba's joint venture in the northeastern city of Dalian, where it makes high-end projection TVs for wealthy Chinese.
"Of the 70 companies making color television in China, just one, ours, made a profit in 2001," said Nobumasa Hirata, the chief executive of Toshiba China, citing Chinese government statistics. "That shows that it is difficult, but that it can be done."
The government is aiming to recruit 1,096 foreign English teachers and teaching assistants this year, the Ministry of Education said yesterday. The foreign teachers would work closely with elementary and junior-high instructors to create and teach courses, ministry official Tsai Yi-ching (蔡宜靜) said. Together, they would create an immersive language environment, helping to motivate students while enhancing the skills of local teachers, she said. The ministry has since 2021 been recruiting foreign teachers through the Taiwan Foreign English Teacher Program, which offers placement, salary, housing and other benefits to eligible foreign teachers. Two centers serving northern and southern Taiwan assist in recruiting and training
WIDE NET: Health officials said they are considering all possibilities, such as bongkrekic acid, while the city mayor said they have not ruled out the possibility of a malicious act of poisoning Two people who dined at a restaurant in Taipei’s Far Eastern Department Store Xinyi A13 last week have died, while four are in intensive care, the Taipei Department of Health said yesterday. All of the outlets of Malaysian vegetarian restaurant franchise Polam Kopitiam have been ordered to close pending an investigation after 11 people became ill due to suspected food poisoning, city officials told a news conference in Taipei. The first fatality, a 39-year-old man who ate at the restaurant on Friday last week, died of kidney failure two days later at the city’s Mackay Memorial Hospital. A 66-year-old man who dined
RESTAURANT POISONING? Deputy Minister of Health and Welfare Victor Wang at a press conference last night said this was the first time bongkrekic acid was detected in Taiwan An autopsy discovered bongkrekic acid in a specimen collected from a person who died from food poisoning after dining at the Malaysian restaurant chain Polam Kopitiam, the Ministry of Health and Welfare said at a news conference last night. It was the first time bongkrekic acid was detected in Taiwan, Deputy Minister of Health and Welfare Victor Wang (王必勝) said. The testing conducted by forensic specialists at National Taiwan University was facilitated after a hospital voluntarily offered standard samples it had in stock that are required to test for bongkrekic acid, he said. Wang told the news conference that testing would continue despite
‘CARRIER KILLERS’: The Tuo Chiang-class corvettes’ stealth capability means they have a radar cross-section as small as the size of a fishing boat, an analyst said President Tsai Ing-wen (蔡英文) yesterday presided over a ceremony at Yilan County’s Suao Harbor (蘇澳港), where the navy took delivery of two indigenous Tuo Chiang-class corvettes. The corvettes, An Chiang (安江) and Wan Chiang (萬江), along with the introduction of the coast guard’s third and fourth 4,000-tonne cutters earlier this month, are a testament to Taiwan’s shipbuilding capability and signify the nation’s resolve to defend democracy and freedom, Tsai said. The vessels are also the last two of six Tuo Chiang-class corvettes ordered from Lungteh Shipbuilding Co (龍德造船) by the navy, Tsai said. The first Tuo Chiang-class vessel delivered was Ta Chiang (塔江)