[IP] Could GM, Microsoft End Up in Chinese Hands?
Begin forwarded message:
From: eekid@xxxxxxx
Date: June 27, 2005 8:12:22 AM EDT
To: dave@xxxxxxxxxx
Subject: Could GM, Microsoft End Up in Chinese Hands?
Could GM, Microsoft End Up in Chinese Hands?
William Pesek Jr.
June 27 (Bloomberg) -- Executives at Unocal Corp. and Maytag Corp.
are on the cutting edge of a trend that's sure to shake up corporate
America as rarely before: China's desire for Western brand names.
Lenovo Group Ltd.'s agreement in December to buy the personal
computer business of International Business Machines Corp. for $1.25
billion was the first sign China is becoming rapidly more
internationally acquisitive.
Now, with CNOOC Ltd., China's third-largest oil company, going after
Unocal and Haier Group, its largest appliance maker, bidding for
Maytag, there's no mistaking China's strategy. And those here in
Washington pushing China to let its currency rise should know they're
making that pursuit easier for Asia's No. 2 economy.
By acquiring household names, China wants to boost global sales and
distribution capabilities. Because brands take time to build, it's
logical for companies like Lenovo, CNOOC and Haier to look for quick
entry points into the U.S.
This is really phase two of China's mergers and acquisitions
strategy. The first entailed locking up the foreign commodity
resources -- mining companies, mostly -- China needs to feed its
economic rise. Just about every company of this sort in Canada,
Australia, Southeast Asia, Africa and elsewhere is a target.
Raising Eyebrows
Phase two will likely raise far more eyebrows in Washington. U.S.
Treasury Secretary John Snow already is fielding questions about
whether the Bush administration plans a national security review of
the Unocal deal. Tensions may rise even further as more Chinese
companies scoop up marquee Western names.
As politicians concerned about China's trade surplus with the U.S.
demand a stronger Chinese currency, they should keep two properties
in mind: Pebble Beach and Universal Studios.
It was the purchase of those American icons by Japanese in the 1980s
that had people from Seattle to Miami fretting over their economic
future. One member of Congress even warned the U.S. was ``rapidly
becoming a colony of Japan.''
As with China, the concern back then was Japan's huge trade surplus.
Bothering average Americans even more was the perception Japanese
were buying up the U.S. on the cheap. Are Chinese about to become a
similar target of U.S. fear and loathing? Yes, in all likelihood, and
a Chinese currency revaluation may accelerate things.
Target of Scorn
Chinese purchases of U.S. companies and properties will be more
affordable if the yuan rises the 10 percent, 20 percent or even 40
percent that analysts expect. Stronger Chinese purchasing power could
make China the target of U.S. scorn that Japan was 15 or 20 years ago.
Sound farfetched? After all, for all the hype about China's economy,
the per capita income of its 1.3 billion people is a fraction of U.S.
living standards. And China has a dearth of internationally known
companies that operate on a global scale and market their products
abroad.
Yet things could change rapidly. The important story of tomorrow
isn't how much foreign capital is flowing into China -- it's the
mounting tide of investment flowing out as an increasing number of
Chinese firms spread their global operations.
Observers including Joseph Quinlan, chief market strategist at Banc
of America Capital Management, have been pointing out that this
likelihood has gotten lost in the debate over China's pegged currency.
Trophy Acquisitions
Just wait until it helps Chinese manufacturers buy up what's left of
the U.S. textile industry. Or when a stronger yuan aids Chinese
electronics firms in acquiring key U.S. component makers, or helps
Chinese real estate tycoons snap up trophy U.S. properties, or when
executives at General Motors Corp. or Microsoft Corp. get calls from
acquisitive Chinese executives.
Here, Japan's post World War II experience may be instructive. In the
early 1970s, the idea of Japan scooping up Columbia Pictures, Pebble
Beach, Rockefeller Center and Universal Studios seemed preposterous.
Yet by the 1980s, you may have been traveling to Tokyo or Osaka if
you wanted to see your favorite Picasso or Van Gogh painting.
Rather than bow to U.S. demands for more market access and a yen
revaluation, Japan went on the defensive. It encouraged investment
outside Japan and eased currency restrictions. Loan programs and
other incentives helped boost Japan's presence as a major economic
power by the start of the 1980s.
Jumping Barriers
Might China follow the same route? The more the U.S. hammers China
about its growing trade imbalance, the more inclined Chinese firms
will be to jump potential trade barriers by investing directly in the
U.S.
None of this is to say it's a bad trend. Some struggling U.S.
companies that aren't well managed or are otherwise out of favor
might be rejuvenated by a Chinese partner. It would be a mistake for
U.S. politicians to fall into the same kind of xenophobia they
exhibited with Japan.
At the same time, China faces serious challenges like maintaining
rapid growth to create jobs while also avoiding overheating. And
multinational companies won't exactly roll over in the face of
competition, complicating things for Chinese corporations with little
global experience.
Yet China, like Japan a few decades ago, is encouraging the process,
prodding executives to look overseas and offering incentives to help
companies go global. What does all this mean? Get ready America --
Corporate China is coming.
To contact the writer of this column:
William Pesek Jr. in Washington, through the Tokyo newsroom, or at
wpesek@xxxxxxxxxxxxx, or.
Last Updated: June 26, 2005 20:59 EDT
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