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Betting on the next Lenovo
Asia Times ^ | Feb. 11, 2005 | George Zhibin Gu

Posted on 02/13/2005 6:37:08 AM PST by blue kangaroo

Feb 12, 2005

SPEAKING FREELY Betting on the next Lenovo By George Zhibin Gu

Speaking Freely is an Asia Times Online feature that allows guest writers to have their say. Please click here if you are interested in contributing.

December 2004 will be remembered as a time when a faceless Chinese company, Lenovo, suddenly took the global stage. The bluest of blue-chip multinationals, IBM, got out of its personal computer business by selling out to Lenovo, making the faceless company the third-biggest global PC player. So are there other Chinese brands that could take the world by storm? A rising economy must create multinationals. The UK and US have done it. Japan and South Korea have followed. Now it's China's turn.

State-sector giants There are several dozen Chinese companies that will eventually join the exclusive 500 club. That could happen within the next 10 years or even less. Currently, 15 Chinese companies are already in that club, including several telecom operators, four banks and State Grid, China Life, BaoSteel, and SAIC, the Shanghai based auto maker. They are all state-run.


TOPICS: Business/Economy; Extended News; Foreign Affairs; Front Page News; Government; News/Current Events; Philosophy; Your Opinion/Questions
KEYWORDS: business; china; chinaeconomy; chinanews; chinese; competition; economy; expansion; export; finance; globalexpansion; globalreach; import; internationaltrade; investment; leadership; multinationals; nationalcompetition; trade; usmarket
Feb 12, 2005

SPEAKING FREELY Betting on the next Lenovo By George Zhibin Gu

Speaking Freely is an Asia Times Online feature that allows guest writers to have their say. Please click here if you are interested in contributing.

December 2004 will be remembered as a time when a faceless Chinese company, Lenovo, suddenly took the global stage. The bluest of blue-chip multinationals, IBM, got out of its personal computer business by selling out to Lenovo, making the faceless company the third-biggest global PC player. So are there other Chinese brands that could take the world by storm? A rising economy must create multinationals. The UK and US have done it. Japan and South Korea have followed. Now it's China's turn.

State-sector giants There are several dozen Chinese companies that will eventually join the exclusive 500 club. That could happen within the next 10 years or even less. Currently, 15 Chinese companies are already in that club, including several telecom operators, four banks and State Grid, China Life, BaoSteel, and SAIC, the Shanghai based auto maker. They are all state-run.

China now builds a new power plant every week. The prize goes, mostly, to State Grid, the energy monopoly for several decades. Only in this reform era, private investors and overseas parties are allowed to enter the field. But still, nobody can compete with State Grid. It has been as powerful as the government. Complaining about its poor services invites trouble; its service people are a nuisance. In the last few years, however, State Grid has been behaving more like a company, improving its management and services substantially. The energy company is already ranked 46th in the club. It could become a top-10 player as China's energy needs grow. In the last few years, there have been frequent power cuts in China, even though it is the biggest energy producer after the US. Naturally, there is room for more investments.

Among state companies, China National Petroleum Company (CNPC) and Sinopec are already global players. These two constitute the state monopoly in China's oil and petrochemical market. Their annual profits could reach US$4.5 billion or higher. CNPC complained to Fortune magazine when its editors wrongly ranked the company 73rd, causing the magazine to upgrade CNPC to the 52nd slot. A booming Chinese economy has offered all the perks for these two giants. Since 1993, China has been a net importer of oil. In 2003, it consumed 7% of global oil supplies. By 2020, its oil demand will triple. Thus, CNPC and Sinopec must go out to acquire both supplies and assets.

So far, CNPC is competing with Sinopec head-on at home and abroad. Both have already cut more than a few dozen deals around the world. Both are aggressive and go anywhere there is a whiff of oil. CNPC is eyeing a unit of Russia's troubled oil giant Yukos and may hold a small stake in it. For many years, the erstwhile Soviet Union was a major oil trader with China. Now China just needs more oil from Russia, and beyond.

These two oil giants are clearly ahead of the curve in China Inc in terms of international expansion. But several others are not far behind. Take China Mobile and Unicom for example. They hold the sway over China's mobile communication market as private companies are barred here. China is already the biggest mobile phone market; by the end of 2004, it had 330 million connections. With billions in cash and 330 million consumers on hand, China Mobile and Unicom can go a long way. Perhaps one day word will spread that Quest and French Telecom have been sold. The buyers? China Mobile and China Unicom, strange names. After the IBM-Levono deal, what is not possible? In particular, both Quest and French Telecom are performing poorly, much worse than IBM's PC unit. They could certainly do with some help. In investor conferences hosted by China Mobile and China Unicom, many investors ask for their plans and timetables. But the truth is that they have yet to gain international experience. Even at home, it has been a little rough of late, and their profits have been going down.

Shanghai-based steel mill BaoSteel is expanding fast beyond China. It is creating a major joint venture in Brazil worth $1.9 billion. China's steel market is already bigger than the US and Japan combined. BaoSteel's expansion is creating ever-increasing demands for metals, steels and cements, among other basic industrial raw materials. So along with other Chinese companies, BaoSteel is reaching out to places where supplies are plenty: Canada, Australia, Africa and Latin America. Expect more deals from Chinese companies in these areas.

Now the big four Chinese banks. On an asset basis, they are already among the top 25 global banks but their health is terribly poor. They need booster shots, and the government is injecting more taxpayers' money - tens of billions of dollars - into them. Nobody knows for sure how long will it be before they return to health. But they must go through a painful transition to independent business organizations before that.

New giants in the making There are dozens of relatively new, more entrepreneurial Chinese companies. They are more than eager to trot the globe. These include TCL, Huawei, Haier, Galanz, Chonghong, Ningbo Bird, Kelon, and Konka, among others. They are all manufacturers, still growing, and have a penchant for expansion beyond China. TCL, Chonghong and Haier focus on white goods and consumer electronics. They have now added handsets to their product list. Huawei and Ningbo Bird focus on handsets or telecom networks. One out of three handsets in the world is produced by Ningbo Bird and TCL.

Galanz is the world's No 1 manufacturer of microwave ovens. Its global market share is around 40%. It takes Europe $80 to produce a simple microwave oven, but only $30 if it is done by Galanz. Watch out for Kelon too. It could become the biggest cooling product maker in China. This is partly because the old controlling shareholder, a government unit, is out of the game now that Kelon is a purely public company controlled by a very ambitious 40-something. How will these companies enter the big boy's club? Well, for starters they are players in the world's fastest-growing consumer market - China. In 2003, China produced 65 million television sets, 22 million air-conditioners and 180 million handsets. TCL alone produced 18 million TV sets and 20 million handsets.

But there are large issues to be settled before these Chinese firms can morph into competent multinationals. China will first need to transform all state and private companies into modern business organizations. Turning a state-run economy into a modern market economy will take some work. It demands the entire package, skipping any component will be disastrous - as can be seen from the mess in China's stock market; in January, about a dozen listed companies were found to be abusing the market and several dozens of senior executives were arrested.

At the next level, the overcrowding in every business sector has to be sorted. China has some 400 air-conditioner makers and more than 100 car makers. All these firms can only mean needless price wars, which could in the process pull down the really strong ones. So rational consolidation has to take place. If China's consumer electronics and home-appliances makers, now numbering 1,300, can be reduced to half a dozen companies, the resulting ones will be among the biggest multinationals.

George Zhibin Gu is a business consultant based in China and is the author of a forthcoming book, China's Global Reach: Markets, Multinationals, and Globalization (Haworth Press, Fall 2005). He can be reached at gzb678@yahoo.com.cn

1 posted on 02/13/2005 6:37:09 AM PST by blue kangaroo
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To: blue kangaroo

Welcome to FR.


2 posted on 02/13/2005 6:38:28 AM PST by Tijeras_Slim
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To: blue kangaroo

lenovo is the REASON why HP can have a future. Without the IBM company behind the IBM PC the number 2 computer company after Dell could carve out a very nice 35% share of what Dell leaves on the table. HP could make a truly compatible PC as Dell has and they would get more biz. Will they shake off Compaq? Will they make a PC as good as their printers? There is room for a second level of PC and servers - will HP invent or parish?


3 posted on 02/13/2005 11:12:18 AM PST by q_an_a
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To: q_an_a

The future battle will focus on price. Whoever has the lowest possible price will win provided equal quality.
For this, read China Factor: an interview

The China Factor and the Overstretch of the US Hegemony

3 books that can change your mind in 2005 about the geo-politic and geo-economic dynamics going on

Interviews by Jorge Nascimento Rodrigues, editor of Gurusonline.tv, Jannuary 2005
Transition Report is a quarterly online journal edited by Gurusonline.tv

George Zhibin Gu, the Chinese consultant based in Shenzhen and author of the forthcoming "China's Global Reach" (Haworth Press, US)
Chalmers Johnson, president of the Japan Policy Research Institute and author of "The Sorrows of Empire" (Metropolitan Books, US)
André Gunder Frank, associate of the Luxembourg Institute for Education and International Studies and author of the forthcoming "ReOrient the Nineteenth Century" (a sequel of his 1998's "ReOrient")


FIRST STORY
A view from an insider
George Zhibin Gu
CHINA IS BECOMING A GLOBAL THEATER
"A new power balance will emerge gradually and most likely indirectly"

http://www.gurusonline.tv/uk/conteudos/gu_report.asp


4 posted on 02/13/2005 3:46:09 PM PST by blue kangaroo
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To: blue kangaroo

if price is all that mattered here are a few companies from the past 5 to 10 years that had great prices - Packard Bell, Gateway, Acer, Commador, Tandy and NEC. Each of these companies and many more have tried the low price trick only to have companies like Dell and IBM continue to hold market share even when their price was a little higher, but the product was more stable. Everyone that fears the Chinese computer vs Dell or HP (if they get their act together) is missing public trust as a factor.


5 posted on 02/13/2005 6:52:32 PM PST by q_an_a
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To: q_an_a

I must agree on the issue of public trust. That certainly makes much difference. At the same time, even without brands, Wal-Mart can become a retail king selling some cheapest products. So, both are important.


6 posted on 02/13/2005 9:02:56 PM PST by blue kangaroo
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