What’s really going on with these Chinese companies?

That’s the question Martyn takes on over at Horse’s Mouth, where he reveals just how high a price China’s global companies (“national champions,” in CCP jargon) are paying for their much ballyhooed growth. If you are interested in economics and the games some Chinese companies play, it’s a must-read.

The Discussion: 6 Comments

Thanks Richard, I spent the best part of two weeks, on and off, researching and writing “The Good, The Bad and The Chinese Companies” post. This probably explains why I have zero ambition to ever start my own blog!

Anyway, it’s already recieved some great comments over at The Horse’s Mouth—all from TPD readers I notice, which I’m over the moon about.

August 9, 2005 @ 2:00 pm | Comment

I had heard about the problem with Chinese banks and bad loans not being repaid, but I never realised that companies were expanding so quickly they were losing money. I mean, it just boggles the mind – why were the people in charge so short-sighted? Anyone in the world of business knows you don’t make wreckless decisions – you try to build yourself up from secure foundations at a reasonable pace.

I worked for a major multinational at one point (better not say which), as did my father. And although bad decisions have been made, its success was built on prudence. As the saying goes, “Rome wasn’t built in a day”. But I fear that China is rushing forward so quickly it is creating serious problems for itself in the future, economic, environmental, political and social.

China needs to slow down before it runs off the edge of a cliff.

August 9, 2005 @ 2:21 pm | Comment

Well put Raj. We’re definitely starting to see the consequences of “growth at all costs” with fixed asset investment at a startling 51-53% of GDP following the ‘invest and spend’ bank borrowing binge of 2002/3/4.

Economic growth, by nature comes in cycles. It’s the annual increases in the nation’s total output of goods and services/national product (from a trough to a peak).

In economic history, economic epxpansions average roughly 3-4 years but can be as short as 1 year and as long as 10 years.

China’s last economic slowdown was during the 1997-8 Asian Financial Crisis (despite what the CCP would have us believe—Google “Thomas Rawski” and “China” for good articles about this). Therefore, China has enjoyed 7-8 good years of domestic-lending and foreign investment-fuelled growth. The cracks are already starting to show.

Like I said in the article, a very broad and very deep economic slowdown remains easily within the realms of possibility in the forseeable.

August 9, 2005 @ 2:55 pm | Comment

Although I agree with the general gist of the article, a couple points on the reportage:

1) You probably shouldn’t have used Huaneng as an example of your main point. Huaneng, and all other power companies in China have suffered from coal prices that have doubled or more over the last 3 years, whereas heavily regulated power prices have not been allowed to increase much; this is the reason that their profitability went down – overinvestment may have occurred but is not the predominant cause.

2) In using M&A led growth rather than organic growth, Chinese companies are simply following the example of other international companies. So it is not correct to entirely characterize this behavior as some kind of new tack taken by a company with heavy governmetn support. The M&A failure rates you mention, after all, are mostly comprised of moves by those international companies, and are probably overstated in any case

August 9, 2005 @ 10:38 pm | Comment


Yes, point taken. This point and a few others such as China’s current shortage of rail cars to transport coal did cross my mind. However, I decided to stick with the two companies cited in Jake Van Der Kamp’s original article. Interestingly, the company is also headed by Li Peng’s son.

I thikn Huaneng’s first-half profits fell 32% this year, mainly as a result of higher coal costs. However, I understand that coal costs have started to decline since June.

Re your second point, I partly disagree for two reasons. First, unlike many other international companies, Chinese “National Champions” are pampered (access to cheap money etc), lack strong domestic competition and are therefore not tried and tested in a free-market system, i.e they are not ‘winners’ via Darwin-esque natural selection. Sure, many international companies engage in M&A to expand and develop but most Chinese companies are buying up brands and businesses and trying to manage them better than their previous owners without ever having been properly tested themselves.

Secondly, China does not allow a level playing field between its own privately-run companies, it’s state-owned companies and foreign companies. The recent CNOOC-Unical deal might not have caused such a fuss if a level playing field was in place.

August 10, 2005 @ 2:33 pm | Comment

Look at Taiwan’s state-owned enterprises and you’ll see where China’s are headed.

August 12, 2005 @ 1:16 pm | Comment

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