This corporate bid is probably no big deal, in fact maybe a great deal for Unocal’s competitors.

But on the military subject, I read something disturbing (maybe here?) about the number of books in China discussing the future war with the US.

Anybody know much about this? This is one of the times I wish I could read Chinese characters.

July 13, 2005 @ 6:21 pm | Comment

Well, Mao was always planning for nuclear war with Russia; you’ve probably heard about the notorious shelters he constructed, wreaking permanent and irreversible havoc on so much of the environment (what else is new?). Maybe my reasoning is simplistic, but China needs us every bit as much as we need them – and much more. How on earth do they support all those factories making shoes and toys and knobs and hinges, without the US market to buy all that shit? A war with China is literally inconceivable. But then again, so is our current war with Iraq…

July 13, 2005 @ 6:29 pm | Comment

I would like to say that I (ahem) posted quite cogently on this subject at China Matters http://chinamatters.blogspot.com/2005/06/china-goes-long-on-oil.html

Secondly, Gaffney is a ringleader of the “Blue Team” adventurers who look to use any dispute to create a climate of confrontation with China

Third, CNOOC’s bid is a sophisticated Wall Street play (Goldman Sachs is the advisor). I think Wall Street would like to see the bid succeed and usher in an era of profitable Chinese M&A activity.

July 13, 2005 @ 8:25 pm | Comment

A successful CNOOC bid would increase China’s leverage over U.S. interests in Asia, warned Rep. Duncan Hunter, chairman of the House Armed Services Committee. He added that Chinese companies did not behave as normal commercial entities on the international market. “Instead, they obey the political directions of China’s Communist government,” he said in an opening statement at the hearing.

Duncan Hunter has missed the boat by more than a decade. Mainland companies were buying up mountains of iron ore in Australia’s north in the late 80s. And in Southeast Asia they’ve been dramatically ramping up investments for about as long. That he thinks CNOOC’s bid is the start of something big (i.e., increasing leverage over US interests in Asia) suggests that Hunter knows next to nothing about what’s actually happening in this part of world. Given that I’m about the only academic around who’s actually researching and writing on mainland investment in Southeast Asia, I can safely say that what’s happening there today is simply a continuation of something that started in 1979 and has been proceeding apace. The difference today is the size of investments and the spread of sectors (much more money pouring out of China and into many more sectors).

Moreover, although the Chinese government does in fact recommend areas for investment, much mainland investment in SE Asia (and elsewhere) is by private companies investing abroad for the same reasons other companies do. Even SOEs have been known to make decisions based on profit [/sarcasm off]. The view that Chinese companies don’t behave like other companies in the international market is based on gossip. Perhaps Mr Hunter could give us some examples of Chinese companies doing things that no other companies do. For God’s sake, CNOOC is trying to buy a company that’s just been in court over charges that it employed the Burmese military to enslave villagers to work on its pipeline in Burma.

The argument against the CNOOC bid is just ridiculous. Perhaps, just perhaps, Chinese companies operating abroad will actually learn something positive from operating in more transparent markets. Why should we assume that they will simply export bad practices?

The US government wanted China in the WTO so business could gain access to Chinese markets. Is this same government so clueless to think that Chinese companies wouldn’t be doing likewise? Didn’t anyone advising them see what’s been happening for more than two decades? UNCTAD noted this in 2002, and a colleague in HK has been researching this for a decade. I’ve published several pieces and mention it fairly routinely on the CSR Asia blog. It’s not like it’s a secret or anything.

Having said all that, there are ramifications of mainland investment; they just aren’t the ones that people like Mr Hunter jump up and down about. But they are more or less the same issues that arise for other multinationals (compliance with labour or environmental standards in the supply chain, etc). If Mr Hunter was really concerned about improving China’s corporate performance, rather than rejecting this bid he should be welcoming it. Engaging with companies like CNOOC on US legal turf might be beneficial in the long run.

July 13, 2005 @ 9:29 pm | Comment

China Hand, I appreciate your input, and as I said, I am not expert in this area, so I was somewhat reluctant to say anything about it.

That said, just because Goldman Sachs blesses the deal says little to me. They were among the leaders in arranging those dazzling mergers back in the days of the the tech boom, like AOL-Time Warner, et. al. Just because they say it’s smart doesn’t necessarily make it so, though I’m willing to listen to counter-arguments. Remember, whether it’s smart or not, Goldman Sachs still makes the commission money!

July 13, 2005 @ 9:32 pm | Comment

China’s efforts to control oil at the source displays the kind of economic thinking one would expect from Communist Party bureaucrats.

First, Unocal isn’t shipping much if any of its Asian oil to the US now and it won’t be shipping it to China after a CNOOC takeover. Most of the oil and gas is committed to other countries (like Thailand) by long term contract.

Second, CNOOC isn’t going to ship US oil to China. It’s more efficient to sell the oil in the US (avoiding shipping fees) and use the money to buy in the markets.

Third, even if CNOOC did divert all Unocal oil to China, every barrel diverted is one less barrel China is buying in the markets, creating an economic effect of zero.

Fourth, CNOOC is a publicly traded company whose shares are listed on the NYSE. It owes legal duties to its shareholders. It cannot sell its oil to China at anything but market prices, or it’s shares would plunge and class action lawsuits would follow, both of which would cast the Chinese more than the money they saved on discount oil.

Fifth, in the event of US China hostilities, almost all Chinese oil passes through two narrow straights both of which are completely dominated by the US Navy and too far from China for its “brown-water” navy to intervene. In short, the US could cut off China’s oil supply virtually completely and there is nothing China could do about it.

Sixth, the average annual income in the US is about $38,000 (in 2003). Average annual income in China is about $1,100. Yet, by subsidizing this purchase, China is taking money from its taxpayers/citizens and sending it to (primarily) Americans. Given that the sellers are voluntary particpants in this transaction while the Chinese taxpayer are not, and the CNOOC is spending someone else’s money, I’m betting the sellers are getting the better of the deal.

Seventh, Unocal doesn’t possess any technology of military significance and that isn’t already available to China on the market.

Eighth, Open markets and the free flow of capital are benificial to the US and the world and should be encouraged.

Ninth, allowing the acquisition makes it easier to insist that China open its markets and comply with its WTO obligations. Blocking the sale would have the opposite effect.

Tenth, Conrad owns shares in Unocal and wants to see an insane bidding war break out. I also love the irony of receiving a windfall profit taken from the threadbare pockets of nongmin.

July 13, 2005 @ 9:34 pm | Comment

Haha to point 10. Absolutely correct though.

July 13, 2005 @ 9:58 pm | Comment

Conrad, item six is not accurrate. The funding for this takeover does not come from the Chinese taxpayer, it comes from the current account surplus that China has with the USA.

The current accounts issue is another horse of a different color, but it is also serious; but not because of mercantilist reasons.

Stephen Frost appears to be rather accurate in much of his comments. His comment about the Blue faction, I think is somewhat iffy. By this, I mean that the two cabals in the USA, let us call them the Red States and the Blue States, will use the China card, and have, when it suits their own factional purposes (which are unrelated to China itself). I have read some comments from the Senators from NY concerning rather frivolous attacks against China (not that there are real issues in and with China)

July 13, 2005 @ 10:28 pm | Comment

Doubt if much of what gets taken from nongmin ends up in CNOOC’s pockets. It hardly makes it beyond county borders. But point taken.

Just out of interest, Conrad, how much influence do you think Communist Party bureaucrats had on this decision? This is not a rhetorical question: I’m genuinely interested in your view.

July 13, 2005 @ 10:32 pm | Comment

JFS, you are right about the origin of “excess” dollars that makes the acquisiton possible, but the money is still coming from taxpayers/citizens.

First, the current account surplus does not belong to the Party it belongs to the country (ie, citizens and taxpayers)

Second, the acquisition is being financed, a below market rates, by CNOOC’s parent which is state owned (i.e., owned by the citizens/taxpayers) and by a state owned bank (from citizen deposits). The difference between market returns which the money could be earning and the below market returns it will be earning is a loss to taxpayers/citizens/depositers. If the loans are not repaid, that too is a loss to citizens, taxpayers, depositers.

What you assert is like saying that Chevron’s cash bid isn’t coming from Chevron’s shareholders but from its accumulated assets. Well, yes. But who owns those accumulated assets?

July 13, 2005 @ 10:43 pm | Comment

Stephen:

I really don’t know. Given the nature of the system and that below market state money is making it possible, the government is clearly involved, approves and wants it done. This is reinforced by government statements telling US politicians to “butt out” and Chinese government policy to obtain oil at the source.

On the otherhand, I can see plenty of reasons why the management of CNOOC would want to do this deal too and they certainly could have been the originators of the proposal.

Time Magazine reports that a bid was effectively a done deal before CNOOC even bothered to mention it to its board of directors and that the outside (Western) directors then went ape-sh*t and refused to back it (which is how Chevron came to bid first). This would be consistent with Chinese government as the, or a, driving force and consistent with the approach and lack of business sophistication of Party bureaucrats.

But again, who knows?

Good point about the nongmin.

July 13, 2005 @ 10:54 pm | Comment

The truth is, a couple of years down the line I can see CNOOC selling further shares on the market to recoup the several billions dollars extra it will need to buy Unicol.

DOn’t forget that, unlike Unicol, CNOOC has huge access to cheap money, either via governemnt hands outs ot via bank loans that it might not have to pay back.

Stephen, re influence of CCP officials. I do believe that there is a certain “trophy” aspect to some recent China state-owned purchases. Otherwise I can’t fully explain why they don’t seem to mind buying over the odds for questionable companies. IBM is the best example I can think of, don’t those headlines look great in China: “China Buys IBM’s Ass.

July 13, 2005 @ 11:17 pm | Comment

I agree with nine of Conrad’s points. Point 10 is unfortunately not applicable to me. Damn it!

July 13, 2005 @ 11:27 pm | Comment

Thanks, Conrad. Seems a fair call to me.

Martyn: the trophy aspect is certainly there. And of course it’s not just Chinese companies that do this. Corporate history is littered with the corpses of companies that thought likewise.

The thing that interests me what goes on below the radar of the US media. For instance, Chinese companies have been quietly acquiring high-tech Korean firms (in one instance for reasons related to an IPR case brought against the purchasing company – buying your accuser must surely be a novel way of dealing with IPR issues), and in Cambodia they were – the last time I looked – the equal 3rd largest investors in the apparel sector (which isn’t large but accounts for about 90% of the country’s exports). Some people are concerned about resource acquisition (and it’s a fair point – take a look at Chinese logging companies in Cambodia for instance), but mainland companies are moving into more diverse fields (think of the mainland companies in Singapore – biotech, etc; or in Germany – where we see the same thing).

And it isn’t all grim, as Mr Hunter suggests. Huawei, for instance, kicked in with substantial in-kind donations related to communications networks after the tsunami, which was probably more useful in the long run than a lot of the cash that has subsequently been swallowed by the usual suspects.

July 14, 2005 @ 12:04 am | Comment

Conrad, I ahve some reservations about your position. The current accounts surplus is not money that the government owns, it represents the bookkeeping surplus from importers/exporters. From the United States China has a huge surplus, which much of it must be used to pay the huge deficit they have with the rest of Asia (and Europe, too). The remainder is surplus. The government, just as the Japanese before them, cannot allow this surplus to enter the domestic market lest it inititate a significant inflationary trend. So it controls this money through various monetary controls, consequently most of the money is banked.

It is not the taxpayers as taxpayers that are being hurt, it is the citizens as consumers that are being hurt, but the primary victims right now are not the Chinese, but the Americans. This whole system is part of a symbiotic relationship between American and China/Japan. It is the American side that receives below market loans that allow the continuance of the system. And this below market acquisition by the USA is what fueld the dot.com boom in the USA (and perhaps a real estate boom also). All booms end in busts.

Although not directed at me, I will also respond to Stephen’s question. I believe the Chinese have been heavily influenced by the Japanese model, after all, it worked (that is, untill basic economics caught up with them a dozen years or so ago). And in the spirt if MITI, I suspect certain government agencies worked with CNOOC, or at least to me it would be very plausible. There was a book written a decade or more ago about how successfull MITI was (is). In truth, MITIs record is rather dismal. The real success were those companies that disregarded MITI’s advice. Government bureaucrats will not have a finger on the right pulse economic trends to predict with any accurracy of what is going to happen. The same case will be with China. Having written that, the CNOOC bid may have originated from them and received the government’s blessing afterward, or it may be vice versa. No matter which, the response from the USA government is just factionalism and trivia to the issue itself.

July 14, 2005 @ 12:30 am | Comment

Someone who knows international trade law can chime in, but under WTO rules I imagine if CNOOC is knocked back they could appeal directly to the WTO. Realistically the US authorities don’t have a legal leg to stand on, and they know it. Congress will vent, the President will “reluctantly” allow the deal to go through and we can all get on with out life. If Lenovo can buy IBM’s PC business, CNOOC can buy Unocal.

July 14, 2005 @ 12:53 am | Comment

Just wanted to point out two things. (1) If CNOOC buys Unocal, it will not be a listed company in the US anymore. It will be 100% owned by CNOOC with no listing and no minority s/h to offend/sue. (2) The listed CNOOC in HK is 70% owned by Chinese Government. My gut feeling is they have no fear of the minority s/h there either.

So the rationale that CNOOC will have to act with economics as its first priority rather than politically does not hold up.

Still, some good points made here that I will be thinking about.

Disclosure: I own Chevron and do NOT want to see a bidding war break out. Also, I do not want politics interfering in the private market. But the fact that one party to the deal is decidedly NOT a private company does give me pause.

Good discussion.

July 14, 2005 @ 1:01 am | Comment

JFS just made several decent points, one of which was mention of the Japanese model. I suspect he’s referring to the Japanese purchases of US/Europeon assets, outsourcing and setting up manufacturing capabilities in target countries in order to bypass import tariffs and quotas (right JFS?)

This is largely true on the surface but there is one huge difference, that at least I’ve spotted, between the Chinese now and the Japanese in the 80’s.

That is, Japan was famous for purchasing US assets and hiring capable US managers to run the business and solve US problems. Japanese managers wisely assumed that US managers could do a hell of a better job in America than they could. The Japanese owners kept very much behind the scenes.

Although there are exceptions, generally speaking, Chinese-owned companies overseas (I’m thinking of Haier, TCL, Lenovo, etc) have mainland Chinese mangers swarming over them like ants and the few US-hires are usually subordinate to Chinese managers/CEOs.

The best example of this cultural arrogance that I can think of is the recent scandal involving China Aviation Oil in Singapore. The mainland Chinese managers, or at least one in particular, lost US$550+ million trading derivatives. Oops.

July 14, 2005 @ 1:19 am | Comment

Simon has the right of it a couple of comments up. The US Congress has no legal right whatsoever to block this deal. Their paranoia has no basis in fact.

As Conrad has said above, the oil equity will simply not give China more or easier access to Unical oil. Also, Unical is a medium-sized company, a tiny proportion of global oil output, what seismic/drilling/exploration technology do they possess that’s not available elsewhere? (assuming “sticky-fingers” China didn’t pinch the technology years ago that is!). None.

America would also have no damn right to criticise China re trade etc. if they blocked this deal, which, as Simon points out, will likely go through anyway at the end of the day.

July 14, 2005 @ 1:27 am | Comment

Chinese companies aren’t trophy hunting – that’s what the Japanese were doing when they bought prestige real estate and movie studios. The Chinese are making more calculated decisions, seeking marketable brands (Thinkpad, RCA), distribution networks (Maytag) and so on. The problem is that they don’t seem to be very good at evaluating assets yet.

Per the WTO, I am the last person in the world to claim expertise on this, but I seem to recall reading that there are certain exemptions allowable for national security etc. (all subject to debate). That could be a figment of my imagination, though.

Nevertheless, the US is known to take a somewhat flexible approach to the jurisdiction of multilateral organizations, including the WTO, so it may be a moot point.

Lenovo now has a US CEO, I believe, gained the acquisition, but it may be an exception.

Finally, I endorse all of Conrad’s points. Even the pivotal tenth one, which, while representing the base morals of a capitalist roader, is nevertheless totally understandable.

July 14, 2005 @ 1:32 am | Comment

Regarding 3 points above:

The WTO has no application here because this is a corporate acquisition and not a matter of trade.

As for CNOOC’s US listing, CNOOC is already listed on the NYSE in its own right (symb: CEO), so the fact that Unocal will no longer be listed, while true, doesn’t matter.

Regarding the current account surplus, Unocal shareholders are not receiving a bookkeeping entry, they will be receiving cold hard cash which must come from someplace. In this case, it comes from the coffers of CNOOC’s parent, which is state owned, and from a Chinese state-owned bank. In each case, these are liabilities for which China, and thus its taxpayers/depositers, are ultimately liable for.

July 14, 2005 @ 1:47 am | Comment

I’m definitely the mental lightweight in this discussion, so I will merely note that the Economist raises similar points to question why there is panic over the possibility of China investing in U.S. companies. They note that similar cries were raised when the Japanese began buying up U.S. companies, and all proved groundless. Nor did the Japanese, from a major investment standpoint, fare incredibly well. Why shouldn’t Chinese companies have the right to lose their money too?
More to the point, the shrillness of some panic arguments remind of of billboards I used to see while driving across Texas in the 1960s. “Why we are not going to win in Vietnam” (answer: It was all a U.N. plot to sucker the United States into a war which the U.N. secretly wanted to use to weaken the U.S. so they could take over and establish a world government.)

July 14, 2005 @ 1:50 am | Comment

Gosh, Lirelou, the more things change, the more they are the same.

Conrad: Good point on the WTO. I guess it’s all up to CFIUS.

Good luck to CNOOC. They’re gonna need it, no matter how green their money is.

July 14, 2005 @ 1:59 am | Comment

You’re right to say, via the Economist, that these things are transient Lirelou.

Re losing money, so far, all I’ve seen is Chinese state-owned companies making shocking investment decisions (TCL/RCA), show almost total ignorance of doing business anywhere but China and arrogantly refuse to listen to the advice of local managers and/or ABCs etc.

Perhaps some of this will change but, for the moment, good luck to them, they’ll need it.

July 14, 2005 @ 2:03 am | Comment

“Good luck to CNOOC. They’re gonna need it” – Will

“good luck to them, they’ll need it.” – Martyn

Will: if we keep saying the same things then people will start to accuse us of having “fluid personas” etc!!! Haha.

July 14, 2005 @ 2:06 am | Comment

Well, perhaps we do…

Spooky.

July 14, 2005 @ 2:15 am | Comment

I’d like to repeat Martyn’s point above:

Simon has the right of it

Let’s always remember that.

It seems most of us are in strong agreement in what is becoming basically an echo chamber. Far more disturbing is that right now on CNN Larry King is interviewing B list celebrities from the latest reality TV craze: “Dancing with the Stars”. This beastly Australian export is one that SHOULD be blocked by Congress, immediately.

July 14, 2005 @ 2:20 am | Comment

Simon: turn off the TV and back away slowly.

July 14, 2005 @ 2:26 am | Comment

I can’t. Larry has me in his force field.

July 14, 2005 @ 2:41 am | Comment

Echo chamber or no, I think most people can see the wood for the trees on this issue.

Hopefully, Richard will decide to post more economic issues on TPD. Things are starting to become very interesting these days.

By the way, despite Simon’s shameless arrogance, anyone interested in this thread should check out simonworld’s “The Coming China Crunch” at:

http://tinyurl.com/czwge

It asks why China’s import growth has nose-dived while export growth has remained strong despite export growth in Asia going down this year. It’s from the SCMP so you won’t read it anywhere else on the Net.

July 14, 2005 @ 2:43 am | Comment

Martyn, you are correct. In addition to the companies already identified as being purchased by Chinese companies, there are several German companies, mainly small companies that were going bankrupt in Germany (and perhaps in other European countries also). This is actually a rather cheap means of acquiring technology and technical know how.

Conrad, yes, that is true, the money comes from somewhere, and it will come mainly from a Chinese owned bank, and it is that money that is derived from the current account surplus. This is exactly what Japan did a generation ago.

Concerning expat managers. My experience (for instance, Honda, but there are many others), have a large number of Japanese expat managers all over the place. This is not a bad idea. When Sony bout their cinema company, they put an American in charge, and did they have a bill to pay in a couple of years. They got rid of him and replaced him with a Japanese. Most foreign companies in America that I am acquainted with have their own expats, but also use American officials also. If you leave the company to just the nationals, things can get out of hand quickly (I am thinking of several American companies in China that do that).

July 14, 2005 @ 2:48 am | Comment

Martyn writes:

Chinese state-owned companies . . . show almost total ignorance of doing business anywhere but China.”

If you look at Jake van der Kamp’s column in today’s SCMP, it seems that a lot of Chinese state-owned companies show almost total ignorance of doing business in China as well (the the tune of 160 billion yuen — and rising — in losses this year).

Simon excerpts it here

http://simonworld.mu.nu/archives/102802.php

July 14, 2005 @ 2:57 am | Comment

I think we’re still a long way away from seeing a Chinese company (Haier, Lenovo, Huaneng, TCL, Huewei, Sinopec etc) become a real world class global industry leader like Intel, Toyota, Apple, Pfizer etc.

July 14, 2005 @ 3:00 am | Comment

Hey, Chinese economic issues are my schtick. Luckily there’s more than enough of them to share around. Think of it as Communism on Chinese economic issues.

July 14, 2005 @ 3:01 am | Comment

Potential Chinese multinationals face several problems. The primary one is they have emerged from what can at best be called a bastardised semi-capitalist system. When they join the real world they usually find they do not have the skills necessary to compete. That’s despite their access to ridiculously cheap capital from either banks or the government.

Leading global companies emerge because they either have a world beating product or process. There is no Chinese company yet with either.

July 14, 2005 @ 3:32 am | Comment

I think the issues about CNOOC’s attemtped buy of Unocal are broader than you all allow for.

I look at barring the sale to CNOOC as a matter of prudence. It is not good security strategy to sell off needed assets (oil) to a competitor for those same assets and in the bigger picture a potential compeitior in power.

The are two of Conrad’s items that I think are completely wrong. Item 3. “Net economic effect would be zero” That is besides the point. Even if this one transaction has only such an effect why is that important. I don’t think it is. In any case China’s energy needs and, of course, petroleum in particular will grow as I hope the U.S.’s will also.

Item 5. China-US hostilities.
I do not think Conrad is correct to surmise that the US can bottle up (sorry for the pun) the oil flow to China, maybe right now and in the near future, but in the long run most likely the U.S. cannot. China has its own internal petroleum resources and it is growing them, it is making deals with Russia for oil supplies and who knows what other countries. How many countries in Southeast Asia and the Middle East will side with the US in a China-US conflict? We have not been making friends there have we?

I don’t think you can pass this matter off as strictly a inconsequential business as usual transaction.

Steven Frost. I did find your claim that the arguments against the Unocal sale to China are ridiculous as unhelpful or unenlightening. You are saying even before I make my own comments that they and I am ridiculous, are you not? You have been arguing too much with your wife (I applogize to all feminists) perhaps? The rest of your positions are based on hopes and pollyannish thinking. I would hope that the people in Washington are hard-eyed thinkers looking at the worst case scenarios for the security of the US, not just at pocketbook issues.

July 14, 2005 @ 4:17 am | Comment

Simon, I hope you do crack on with economic issues at simonworld as there aren’t many bloggers doing it. A lot of bloggers are teachers and/or not interested in the economy but, anyway, there’s scant economic stuff around.

July 14, 2005 @ 4:18 am | Comment

Simon:

I would also add that to become a global company you generally have to build a brand. Chinese companies have no knowledge/experience with branding. Indeed, there is an enormous disincentive to brand in China because it will only get stolen/counterfeited anyway. Thus it is not only foreign companies hurt by the lack of IP protection in China.

July 14, 2005 @ 4:20 am | Comment

The importance of oil as the main means of energy for portable devices is transient. With the cost of oil rising, and apparently not from any cartel action, would imply that the marginal value of competitive resources will become significant enough to begin to replace oil. If that does happen, then the geo-political importance of oil will diminish. Oil companies will still exist, but their geo-political importance will not be as significant. So, Pete, I do not see the security threat in the same range as you do.

July 14, 2005 @ 4:27 am | Comment

Conrad,

Point taken. It again demonstrates that China’s domestic economic conditions hamper the ability of its companies to become global players. You need solid domestic market foundations to expand internationally. That does not exist for Chinese companies, even the biggest and most successful. I’ve heard from several international businessmen that one reason offshore firms go into what they know to be an incredibly competitive and typically unprofitable Chinese market is to keep Chinese companies from expanding internationally. If they’re fighting the competition domestically they won’t have the money or ability to expand offshore.

As to the overall CNOOC takeover, American hawks will always see this as a Chinese invasion by proxy and never be reconciled to any other view. If your worldview sees China always and only as a rising competitive superpower there can be no other decision. I choose to see other possibilities are equally viable.

July 14, 2005 @ 4:36 am | Comment

Conrad, I believe there is sufficient evidence for branding in China. I have a friend, for instance, who will given a choice always buy Hisense. Other friends, given a choice, will only buy Chinese. Then, on the other hand, I knew several Chinese who would only buy Sony in a particular category. Simon’s comment about international companies coming into China is to keep them competing here in China so they will not be able to go overseas, I would think, is going to be rather futile, just a bad strategy. At first pricing becomes the primary consumer criteria, but sooner or later quality emerges. Presently, the two most serious problems with Chinese domestic companies is quality control and production efficiency. Both of these problems are being slowly resolved by some companies (both by internal development are by purchase of technology from abroad). Do not underestimate the ability of these companies.

July 14, 2005 @ 5:34 am | Comment