China is no longer just a magnet for foreign investment; today, she is a foreign investor herself. And her ambitions are not small. Go to Wal-mart, the US mega-store, and you'll find the cheapest electronics emblazoned with a smiling Chinese boy -- the logo of Haier, an international Chinese brand. Even the gas stations are under siege.
If CNOOC, a Chinese company, had been successful in its bid for Unocal, a major share of the gasoline supply to the US would have been transferred to Chinese ownership. When a country is threatened with punitive tariffs from the US Congress and is pressured to revalue its currency, it must be a formidable country that's on the rise. In the 1980s, that country was Japan. Today, it is China.
Just as Japanese multinational corporations like Sony and Toyota flooded the US market with cheaper and better goods, and even flirted with buying the Empire State Building, today, Chinese firms are staging an entry that is no less dramatic. However, a key distinction lies between the two, and that is, the Chinese newcomers, like Haier and CNOOC, are state-owned enterprises. Arguably, Japanese companies also had strong links with the government. But having links does not amount to being explicitly owned and controlled by the state.
The brash appearance of the Chinese behemoths on the US market, though alarming to some, raises the question of their business rationale. Why did Haier build a sprawling factory of 10,684m2 in South Carolina, hiring thousands of US workers at perhaps 10 or 20 times the price in China? Besides, Haier is not a manufacturer of high-end products that might benefit from US technological prowess. Rather, it makes refrigerators, TVs, dishwashers, small appliances -- things that US companies would without hesitation make in China for its cheap labor costs.
But sitting in the US market no doubt makes Haier's presence as an international brand felt. The company has acquired a landmark building in downtown New York City, where a regal banner announcing "The Haier Building" drapes proudly over classic Greek architecture. As with all other multinational firms, face matters -- and a lot, too. But is good image worth relocating away from the well to reach a faraway pond? If Haier is truly sophisticated enough to bank on the comparative advantages of global locations, why spend its resources on a labor-intensive assembly factory, instead of an R&D or service center in a developed country?
Regardless of what it means for its bottom line, "Haier America" (as it calls its US unit) has become a fierce symbol of pride for the Chinese and its leadership. Former president Jiang Zemin (江澤民) personally visited the company and praised CEO Zhang Ruimin (張瑞敏) for placing China on the international corporate map. Building the Haier plant in job-starved South Carolina has also buffered complaints from the US Congress on Chinese dumping. In other words, Haier America, while making moves that seem irrational by business criteria, makes a lot of sense from the perspective of politics.
Or consider the case of CNOOC. In a David versus Goliath standoff, the spunky Chinese firm raised the stakes against a US competitor that is 20 times its size. Though the company finally withdrew its offer under political pressure in the US, CNOOC put up a US$19 billion dollar bid for Unocal, a price tag that was equivalent to about 85 percent of CNOOC's total market value. In a free market, the loan of US$7 billion that it seeks would be offered at 8 percent a year and would drag the company's credit rating to the floor. Back home, however, CNOOC's parent company, the China National Offshore Oil Company, committed to a low interest loan for its spin-off, amounting to a subsidy of about US$2.6 billion. Even with this merger, CNOOC's credit rating in China would suffer a mere one-rung downgrading from AAA to AA.
Chevron ranted against what appeared like corporate suicide on CNOOC's part. In effect, Chevron was competing not against a Chinese start-up but against the Chinese state. Here, the bottom-line also seems suspect; it is not profits that count, but rather national pride and the political control of strategic overseas assets.
State-owned enterprises are commonly said to be the bane of the Chinese economy, draining away critical resources and credit from the more competent enterprises. The losses that state-owned enterprises incur have much to do with the socialist burden they carry. Their primary function is oftentimes less to do business than to gainfully employ hordes of workers and achieve state-mandated goals. Internationally, the largest and most successful state-ownded enterprises -- like Haier and CNOOC -- may have the luxury of state support, but the strings attached to that support may tie their hands in making rational business decisions.
The emergence of Chinese multinationals, as we now witness, is the mark of a rising economy and the arrival of a strong new competitor in global markets. But upon closer examination, these firms are not emblems of a growing corporate China, but rather that of an ambitious and effective central government.
That is not to say that state-owned companies cannot compete internationally; they can, and their owners will see that they do. What is more worrying is that the real victim of state-backed corporations are not uncompetitive foreign firms, but rather China's own private companies, which simply cannot stand up against their privileged cousins. Until we see privately-owned Chinese companies bidding against US corporations and hiring skilled US staff, corporatism in China remains a spark but not a conflagration of change.
Yuen Yuen Tang is a doctoral student in political science at Stanford University, specializing in China and East Asian politics.
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