China's champions

Economist Jan 6th 2005

Huawei's astonishing campus on the outskirts of the southern city of Shenzhen is straight out of the technology bubble too, with four football fields, swimming pools, apartments for 3,000 families and a fantastical Disney-esque research centre with doric pillars and marbled interior.

Huawei

Hu Yong, a vice-president, is proud of being in more than 70 countries, that over 3,000 of the group's 24,000 employees are overseas nationals and that two-fifths of its more than $5 billion revenues in 2004 will be made outside China.

Ren Zhengfei, one of its founders, was an officer in the People's Liberation Army. The company denies, but admits it cannot shake, speculation that it is really controlled by the military. It denies even more hotly rumours that its overseas offices, some run from Chinese consulates, spy for China.

Yet its multi-billion-yuan campus, lavish marketing and relentless expansion overseas are hard to square with it being a private company that made just $300m of profits last year.


Baosteel

China's top steel producer, already sits on the Fortune 500 list of the largest global companies by sales. It will more than double capacity by 2010 to become the world's number three producer.

China Minmetals

China Minmetals, the biggest base metals company, has gone further with its recent approach to buy Noranda, a Canadian copper and nickel miner, for a reported $7 billion.

Wanxiang

... an auto parts group started by a farmer's son as a bicycle repair shop, has $2 billion of annual sales in 40 countries and owns research assets in America.

Lenovo

In China, Lenovo's profits from PCs are rising by just 1% per year and its market share is being squeezed as Dell makes inroads in expensive computers and private-label firms undercut prices on basic machines. Far from being world-class, Lenovo is less efficient than its domestic peers

Haier

Having built up commanding domestic market shares of 20-70% for most home appliances, the group has offices in more than 100 countries and overseas revenues of over $1 billion. However, most of its international sales are in niche markets, and Haier lacks the cost control, production discipline, market dominance and sales support

Shanghai Automotive Industry Corp (SAIC)
.. aims to be among the world's top six car companies by 2020. In October it trumped a domestic rival to buy Ssangyong Motors, South Korea's fourth largest carmaker, and it is also in talks to rescue MG Rover in Britain.

TCL

At home it remains the most profitable TV producer. Internationally, buying the TV business of France's Thomson in early 2004 turned it into the world's biggest volume TV maker.


Chinese FDI

But the global footprint of Chinese companies is still rather faint. Their outward foreign direct investment was just $2.9 billion in 2003, compared with the more than $50 billion that flowed into the mainland. China's stock of outward FDI amounts to $33 billion, less than half a percent of accumulated world FDI.

If anything, the gap between Chinese and foreign firms is widening, as the latter merge, reinvest the profits yielded by their scale economies and continually hone their management systems.

These companies all had access to capital, cheap labour and a big domestic market..... they failed not because of poor products, but because of organisation and business strategy

China has so far failed to build world-class companies. Even the natural monopolies and resources companies are mostly just big rather than particularly efficient. In manufacturing, technology and consumer areas, a few companies are groping towards international competitiveness, but none are there yet.