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The coming age of Chinese multinationals

By George Gu - posted Wednesday, 13 April 2005


December 2004 will be remembered as a time when a faceless Chinese company, Lenovo, suddenly took the global stage. The bluest of blue-chip multinationals, IBM, got out of its personal computer business by selling out to Lenovo, making this faceless company the third-biggest global PC player. So are there other Chinese brands which could take the world by storm? A rising economy must create multinationals. The UK and US have done it. Japan and South Korea have followed. Now it's China's turn.

There are several dozen Chinese companies that will eventually join the exclusive 500 club. That could happen within the next 10 years or even sooner. Currently, 15 Chinese companies are already in the club, including several telecom operators, four banks, State Grid, China Life, BaoSteel and SAIC, the Shanghai-based auto-manufacturer. They are all state-run.

China now builds a new power plant every week. This prize goes, mostly, to State Grid, the energy monopoly for several decades. Private investors and overseas parties are allowed to enter the field as a result of the reform era, but still nobody can compete with State Grid. It has proved as powerful as the government and complaining about its poor services invites trouble. In the past few years, however, State Grid has been behaving more like a company, improving management and services substantially. The energy company is already ranked 46th in the club. It could become a top-ten player as China's energy needs grow. However, over the past few years there have been frequent power cuts in China, even though it is the biggest energy producer after the US. Naturally, there is room for more investment.

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Among state companies, China National Petroleum Company (CNPC) and Sinopec are already global players. These two, together with China National Offshore Oil Corp, constitute the state monopoly in China's oil and petrochemical market. Their annual profits could reach US$4.5 billion or higher. CNPC complained to Fortune Magazine when its editors incorrectly ranked the company 73rd, resulting in the magazine upgrading CNPC to the 52nd slot.

A booming Chinese economy has offered all the perks to these two giants. Since 1993, China has been a net importer of oil. In 2003, it consumed 7 per cent of global oil supplies. By 2020, its oil demand will triple. Thus, CNPC and Sinopec must go out to acquire both supplies and assets.

So far, CNPC is competing with Sinopec head-on at home and overseas. Both have already cut more than a few dozen deals around the world. Both are aggressive and go anywhere there is a whiff of oil. CNPC is eyeing a unit of Russia's troubled oil giant Yukos and may hold a small stake in it. For many years, the erstwhile Soviet Union was a major oil trader with China. Now China needs more oil from Russia, and elsewhere.

These two oil giants are clearly ahead of the curve of China Inc in terms of international expansion, but several others are not far behind. Take China Mobile and China Unicom for example. They hold sway over China's mobile communication market because private companies are barred.

China is already the biggest mobile phone market. By February 2005, it had 340 million connections. With billions in cash and 330 million consumers on hand, China Mobile and China Unicom can go a long way. Perhaps one day word will spread that Qwest and French Telecom have been sold. The buyers? China Mobile and China Unicom? After the IBM-Levono deal, anything is possible.

In particular, both Qwest and France Telecom are performing poorly, much worse than the IBM personal computer unit. At investor conferences, hosted by China Mobile and China Unicom, many investors ask about their plans and timetables, but the truth is that they have yet to gain international experience. Even at home, it has been a little rough of late, and their profits have been going down.

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Shanghai-based steel mill BaoSteel is expanding fast beyond China. It is creating a major joint venture in Brazil worth $1.9 billion. China's steel market is already bigger than the US and Japan combined. Its fast economic expansion is creating ever-increasing demand for metals, steels and cements, among other basic industrial raw materials. So along with other Chinese companies, BaoSteel is reaching out to places where supplies are plenty: Canada, Australia, Africa and Latin America. Expect more deals from Chinese companies in these areas.

The big four Chinese banks - Bank of China, Industrial and Commerce Bank, Construction Bank and Agriculture Bank - on an assets basis are among the top 25 global banks, but their health is very poor. They need booster shots, which the government is administering by injecting more taxpayers' money - tens of billions of dollars - into them. Nobody knows for sure how long it will be before they return to health, but they need to go through a painful transition into becoming independent business organisations before that.

There are dozens of relatively new, entrepreneurial Chinese companies more than eager to trot the globe. These include TCL, Huawei, Haier, Galanz, Chonghong, Ningbo Bird, Kelon and Konka, among others. They are all manufacturers, still growing, and wanting to expand beyond China. TCL, Chonghong and Haier focus on white goods and consumer electronics. They have now added telephone handsets to their product list. Huawei and Ningbo Bird focus on handsets or telecom networks. One out of three handsets in the world is produced by Ningbo Bird and TCL and other Chinese companies.

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Article edited by Judy Cannon.
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Transcript of an interview with George Gu can be viewed here.



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About the Author

George Zhibin Gu, a business consultant based in China, is an author of several new books on China and globalisation, including: China and the new world order, China's global reach, and Made in China. He can be reached at gzb678@yahoo.com.cn.

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