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Issue 26, September 2010
Welcome!

This newsletter is a monthly supplement to ChinaAnalysis.Com, a new website that aims to promote knowledge sharing in China-related analysis. This newsletter contains original content and may not be reproduced without exclusive written permission. If you have any questions, comments and suggestions, please email support@chinaanalysis.com.

ChinaCompass - Can Money Buy China Innovative Capabilities?

The Financial Crisis has accelerated the shift of economic power from West to East in many ways: one of them is that more and more cash-strained American and European companies have been looking for buyers from their counterparts in emerging economies, particularly China. Last month, Geely, a Chinese car manufacturer, set a new record by completing the acquisition of Volvo, the Swedish premium car maker, from Ford for $1.5bn. Meanwhile, the largest foreign investment in Germany’s engineering sector for years came from Sany, a Chinese industrial conglomerate. Sany will build a machinery plant near Cologne to gain access to Germany’s rich engineering skills.

For years Western media have been talking about Chinese state-owned enterprises, backed by Chinese state banks, buying strategic assets, such as minerals, oil, and gas, all over the globe. But the newest players in the merger & acquisition game come from more competitive sectors with diversified ownership. Profits from China’s booming domestic market certainly helped companies like Geely and Sany to be in the position to do the acquisitions mentioned above. Remember that not that long ago, in 2006, Sany failed in its bid for Xugong, a state-owned heavy machinery maker, in competition with Carlyle Group, the US private equity firm. This year, Sany is already the market leader in sectors such as concrete pumps, with enough confidence – and cash – to “push into Germany’s heart and soul” (Financial Times, August 11). Indeed, aided by the Chinese state’s “walking out” strategy, which plans to utilize the country’s inexhaustible foreign reserves to help make Chinese companies global players, Chinese companies are increasingly adept at obtaining technological knowledge, managerial experience, and, more recently, global brands through overseas acquisitions.

Never before in world history has a country in the process of development been so deeply involved in offshore acquisitions. East Asian economies such as Japan, Korea, and Taiwan rarely engaged in outward investment at a similar stage in their development. Instead these economies confined themselves to establishing public institutions to help domestic firms to identify, import and absorb foreign technologies, as well as to nurture domestic innovative capabilities. With “walking out” through outward investment, has China discovered a new way, or even a shortcut, to technological advancement and capabilities accumulation?

So far, China’s record of using overseas acquisitions to strengthen its capabilities remains a mixed outcome. Successful stories include Lenovo’s successful integration of IBM’s personal computer business, which not only consolidated Lenovo’s position in the domestic market, but also helped the company leapfrog into being a competitive player in both US and EU market. But there are failures. The high-profile acquisition in 2006 of France’s Thomson by TCL, the world’s largest television maker at that time, turned out to be a waste of time and money. By the time TCL closed most of its facilities in Europe, it lagged behind its aggressive domestic rivals in next-generation flat screen products. Overseas acquisitions of strategic assets can accelerate enterprise growth, but these foreign acquisitions may be at the expense of investments in indigenous innovation.

Last month, China surpassed Japan as the second largest economy in the world in terms of nominal gross domestic product. But it is still too early to say that China has outperformed other East Asian developmental states in building innovative capabilities, through various policy options it experimented including outward investment. China’s GDP per capita is only 1/30 that of Japan. And more critically, when Japan achieved the position of the number two economy in the world in the late 1960s, a group of world-class companies like Toyota, Sony and Toshiba had already emerged. In climbing the technological ladder, corporate China has a long way to go.

Top News of Last Month
Aug 09 Chinese official calls for reduction of China's intellectual property trade deficit
Aug 13 State-owned assets in central SOEs grow to 2 trillion yuan
Aug 16 China overtakes Japan as world's second largest economy
Aug 17 China announces new move to boost yuan's overseas use
Aug 19 China Will Encourage Overseas Investment in Value-Added Industries, West
Aug 22 China closes factories as green deadline looms
Aug 22 China's Wen calls for political reform: state media
Aug 24 China to Merge Television, Radio Networks Into Cable Company, Daily Says
Aug 27 China to Allow Companies Keep Foreign Currency Income Overseas in Trial
Aug 28 China Backs Rare Earth Controls as Environmental Step
 
New Books
China Today, China Tomorrow: Domestic Politics, Economy, and Society

By Joseph Fewsmith

"'This book offers the best overview available of Chinese society, economy, and politics. It brings together many of the finest scholars on contemporary China, giving a rounded view of the PRC over the past thirty years and raising incisive questions about where China is going. The authors show that the country's rapid economic growth, adaptive authoritarian government, and developing institutions over the last three decades give hope for coping with difficult problems like pollution, climate change, corruption, and inequality.' --Ezra F. Vogel, Harvard University" - from Amazon.com

 
Red_Engineers

By Yong Shi (Editor), Siwei Cheng (Editor), Cunjun Zhao (Editor)

"This unique book presents the contemporary achievements in management research and managerial practice of Chinese enterprises. Featuring a collection of keynote and plenary speeches by well-known international scholars and CEOs of multinational and national corporations, this book puts forth their solutions to management challenges from both China's reality and global concerns. Comprehensively discussed and examined, the various topics being broached are strategic management; organizational behaviors; accounting and finance; management science; information and technology management; and, innovations. This book not only highlights the cutting-edge findings of management research in China but is also a reflection of the changes of management theory and applications in the face of China's economic reform and Open-door policy; hence making it a useful resource for readers interested in China's management and economic development." - from Amazon.com
   
Reforming China: International Comparisons and Reference (Enrich Series on China's Economic Reform)

By Peng Sen (Author), Xiaochong Zhang (Author), Chuntin Jin (Author), Li Tieying (Editor)

"Viewing the nation's reforms from an international perspective, this in-depth study delves into the historical background of China?s economy, analyzing its reform process with reference to the experiences of different countries. The resultant changes in belief and ideology are explored in detail as well as the persistence of innovation. Comparative analyses of the wide-ranging reforms are offered, from government institutions and administration, capital markets, taxation, and financial systems to corporate governance, state-owned assets management, social security, reemployment, rural reform, and urbanization processes. The survey concludes by putting forward relevant solutions to persistent and complex problems." - from Amazon.com
 
Upcoming Events
Sep 08 - Sep 11 China International Fair for Investment & Trade
Sep 08 - Sep 10 Annual Asia Shared Service and Outsourcing Summit
Sep 17 - Sep 18 China Scope 2010
Sep 21 - Sep 21 Asia Connections 2010
Oct 15 - Nov 04 China Import and Export Fair
 
Latest addition to ChinaAnalysis.Com

Economic & Monetary Policy

A special issue with International Journal of Technology Management on China's new innovation-oriented strategy
Science & Technology Management of Technology Study Center
Economic & Monetary Policy The Association for Sustainable & Responsible Investment in Asia
 
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