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Three lessons stand out in China

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lijunj

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Joined: Nov 18, 2002
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Location: Kerry Center,Shanghai
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Posted: July 20, 2005 - 06:29 PM
Post subject: Three lessons stand out in China

American posturing on China is short-sighted
By Maurice ‘Hank’ Greenberg

Suspicion of Chinese intentions is undermining a rational approach to doing business with China. CNOOC's $18.5bn all-cash offer for Unocal, the US oil company, has prompted concerns from some business leaders and politicians in the US, particularly those alarmed by China's rapid economic growth and growing power. Yet its offer is clearly good news for shareholders - since it is more generous from a financial point of view than competing offers.

The rhetoric from Washington is increasingly shrill and several bills in Congress threaten arbitrary sanctions on Chinese products. This is short-sighted and wrong.

Given the size of our countries and the complexity of our bilateral agenda, individual issues will constantly arise. But it is not in US interests to allow these issues to detract from the overall relationship. America cannot advocate a global marketplace when it suits it and raise barriers when it does not. Consistency in both the conduct of foreign policy and the maintenance of economic relationships is essential to achieving our national objectives. A great nation practises what it preaches.

Not too long ago, Japan occupied a similar place to that of China today. Critics complained that Japan was buying real estate in the US at prices at which American companies could not compete. But look what happened. US companies bought back many of the same assets at a fraction of the price. The market ultimately determines economic values; governments typically cause distortions and inefficiencies in the free movement of capital.

Yet China is nowhere near where Japan was - or is - in acquiring US assets. In 2004, Chinese companies accounted for only $490m of US direct investment out of total foreign investment in the US of $1,500bn. US companies have nearly $350bn in cumulative direct investments in China, which far exceeds the amount that Chinese companies have invested in the US.

The benefits to the US of a healthy and constructive relationship with China are too important to be put at risk by a modest-sized commercial transaction such as the Unocal deal. America's relationship with China may be its single most important bilateral relationship in the world today. It encompasses a broad array of important economic and security issues. These include trade and currency valuations, the North Korea problem and transnational threats posed by terrorism, environmental degradation and the spread of disease, among many others. Moreover, China encompasses one-fifth of the world's population and is an enormous, still largely untapped, market for US goods and services.

China and the US need each other. China is an important creditor to our debt-laden economy, having purchased more than $230bn in US government securities. Without this, the US would have been forced long ago to raise interest rates, thereby choking off its own economic recovery. Significantly, Chinese manufactured goods have kept prices low for American consumers, helping to keep inflation in check.

China still has much to learn from the west. Chinese businesses need western technology and expertise. And China needs to accelerate legal, regulatory and bureaucratic reforms to maintain economic growth and to realise fully the ambitions of its people.

But confrontation is not the right way to advance US interests. In 1975, I began what turned out to be a 17-year process of cultivation, negotiation and persuasion to secure an insurance licence in China for American International Group. As a result, in 1992, AIG was the first foreign insurer to open for business in that country and now is the one of the leading foreign insurers there. That success did not happen by accident. I studied the Chinese market, established strong personal relationships and came to understand the unwritten rules of dealing with China.

.Three lessons stand out. First, we should resist the temptation to engage in "public diplomacy". The Chinese speak politely in public and save their most direct, outspoken comments for private meetings. In North America and Europe, we tend to do the opposite, posturing in public while being "diplomatic" in private conversations. That does not work with China.

Second, reciprocity is essential. Each side must acknowledge the other's interest. The Unocal bid, for example, reflects China's need to secure its energy supplies and its desire to invest prudently some of its large foreign currency holdings. There is nothing inherently wrong with either objective and we must be careful in ascribing nefarious motives to what should be considered a routine business transaction.

Finally, be patient. The US-China relationship is unfolding at high speed. In 10 years, China's exports to the US have rocketed from $35bn to almost $200bn. The Chinese learn quickly but need more time for essential reforms. I have no doubt that in another 10 years we will be astonished by the progress the Chinese have made. That does not mean that we should not pursue issues that affect core national interests or values. But we should not let bumps in the road set off course a critical bilateral relationship.

Like most nations - and most people - the Chinese respond to sincerity, courtesy, respect and old-fashioned diplomacy. They do not respond to posturing, threats or hypocrisy. They want to do business with people and institutions who care about China and its people; who give as well as take

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lijunj

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Joined: Nov 18, 2002
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Location: Kerry Center,Shanghai
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Posted: July 20, 2005 - 06:37 PM

I just read this article from FT. As a local chinese I'm total agree with the 3 lessons stand out by this former CEO of AIG. Just want to share the good stuff with you guys. And please comment.
For me, personally I don't like the Expats always complaining how hard it's to have deal with Chinese. Comparing with Western, It has different culture, it's not begin for you and will not follow you if you don't know how to deal with chinese people.

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wildstar

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Joined: May 15, 2005
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Posted: July 21, 2005 - 05:14 AM

CNOOC's bid was being underwritten by the Chinese government with some unjustified and non-competitive loans. Western businesses generally don't like to foster a business environment where competitiveness is basically squashed for political interests. Few people raised a stink about Lenovo buying IBM's pc division (yeah, taiwan company, but still Chinese....) because it was done in the normal capitalist market arena... the fair market and square market in most western business eyes...

uglyamerican

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Joined: Feb 07, 2005
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Posted: July 21, 2005 - 08:41 AM

Quote:

Chinese businesses need western technology and expertise. "from the West"

They also need ethics

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adrenochrome

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Posted: July 21, 2005 - 09:35 AM

just for the record: Lenovo is NOT taiwanese. Lenovo is a the recent rebranding (2years ago) of Mainland China's LEGEND company, which is rather 'state-owned' if I remember right.

As usually I may be totally wrong though....

Cheers,

Adreno

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lijunj

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Joined: Nov 18, 2002
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Posted: July 21, 2005 - 01:02 PM

adrenochrome wrote:

Hi Adreno, I want to discuss with you about this point [which is rather 'state-owned' ]

I worked for Legend (Now lenovo) before. The story of Lenovo was started from Liu Chuan Zhi(Former CEO of Lenovo ). He was staff of Chinese Academy of Sciences the time he started the business. He got a few thounds money from Institute of Computing Technology, Chinese Academy of Sciences. (CAS)

After more than a decade's development, Lenovo now is the leading Computer company in China. And CAS is their biggest shareholder. Lenovo listed on the Hong Kong Stock Exchange since February 1994. And as I know CAS didn't involved the management of Lenovo. It's very hard to say they are a State-owned Company.

A lot of Chinese companies is no as simply as you said State-Owned. Like Huawei, like Haier, Chuanlan... like lots of Chinese enterprises you didn't even know about it, but famous in the China market. They became with State Invested, turned into Stock shared, Management Buy-Out, private company...

It's a revolution of chinese enterprises. Don't simply think it's taiwanese owned or state-owned. It's mixed.

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pat_togo

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Joined: Feb 22, 2005
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Posted: July 24, 2005 - 11:49 PM

Dear Lijunj,
As a Chinese I can understand that you are a firm supporter of Chinese enterprises. But one needs to have a minimum sense of objectivity. Saying that Huawei, Haier, Lenovo etc are not state-owned is absolutely WRONG. A quick look at the yearly financial statements that you can download for free at these companies websites, will give you a clear picture. It's true that they have gone public, but still there is an important part of their equity that is still state-owned. I know what I am talking about this is the job I do for living.

You mentionned that CAS is not involved in the management of Lenovo. This is your personal opinion. Or it may depends the way you define SOE (state-own enterprises). Anyway, the point is being state-own doesn't mean that the government is actually sending managers to manage the company. That's not the job of the government. But appartenance of companies managers to high political committees, facilities in terms of loans from banks or corporate bonds because of "relations" etc., that's all these that creates the non-competitive environment that the West is complaining about. But actually that's quite normal, each country has to support its own enterprises. Would government support not present in Korea that we would not know today about Samsung, LG, Hyundai or so...

Unless maybe, if you can give me that extraordinary advantage that allows a 10 or so years company to disburse billions of USD in cash to acquire a firm that has lasted for a century and has made itself known for its technological and manageurial experience?

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lijunj

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Joined: Nov 18, 2002
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Posted: July 25, 2005 - 12:25 PM

pat_togo wrote:

Dear Lijunj,
Saying that Huawei, Haier, Lenovo etc are not state-owned is absolutely WRONG. A quick look at the yearly financial statements that you can download for free at these companies websites, will give you a clear picture. It's true that they have gone public, but still there is an important part of their equity that is still state-owned. I know what I am talking about this is the job I do for living.

Hey man:wink:

Your comment didn't need responsibility for your career, right?
Huawei is still busying for it's IPO, their currently status : private company. And the owner of this company is Mr. Ren.
This is not professional to say Huawei is a state-owned.
And I'm not fan of State-owned Enterprise. I just felt if during the time they are doing business with Huawei, Haier... and they think these companys are their imagined state-owned, they will find that they are facing lots problems during the negotiation.

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pat_togo

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Posted: July 25, 2005 - 02:54 PM

Hi my friend,
So this is the only think that you found in my posting? Please read ALL the posting and not look for some flaw. The fact is still there: CHINA HAS STATE OWNED COMPANIES WHICH ARE TAKING ADVANTAGE OF THE STATE FACILITIES TO EXPAND OVERSEAS. Those companies did not make it through their own means (competitive advantage in terms of management, organization, product innovation or new technologies implementation), and the inefficiency that you can find in most of them is just proving that fact. Sure some companies are doing incredibly well (such as Haier) and most of them are taking advantage of the huge domestic market, but this only can't explain the fast pace of growth they experience. In Western countries you don't find inefficient companies getting easy funding and spending billions of USD in cash to purchase assets overseas after just a few years of activity.
By the way we were talking about Lenovo... Do you still claim that Lenovo is not state-owned and doesn't have anything to do with the government?

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