Take a look from a Chinese perspective at the collapse of Sichuan Tengzhong's bid for GM's Hummer business, which some China blogs had been predicting for months and our friend Dan Harris at the China Law Blog from the get-go. Harris also offers some advice on what makes such cross-border deals work.
Chinese authorities were always going to let the deal falter, the no-go argument ran. Officials didn't like the idea of a Chinese company buying the poster child for American gas-guzzling extravagance ("one highway, zero city," as the cartoon The Simpsons once satirized the Hummer's fuel consumption rating) at a time when Beijing was both trying to establish China's green credentials in the highly political run-up to the Copenhagen climate conference last year and also stake a claim to being a leader in green technologies in the auto industry.
Some bureaucrats also felt put out by a private vehicle maker trying to expand abroad ahead of state-owned ones, messing up the government's plans for an industry it had identified as key for China's strategic development. Chinese car companies had all patriotically passed on Hummer when GM's bankers started shopping it around in 2008. Sichuan Tengzhong, on the other hand, is a heavy equipment maker run by Suolang Duoji, one of those larger-than-life entrepreneurs who are now falling out of official favor in China.
Dan Harris, whose law firm has hands-on experience dealing with Chinese direct investments in the U.S., reckons that the deal also made no industrial sense, especially as Sichuan Tengzhong was planing to keep production in the U.S.:
Chinese companies looking to buy American companies are usually looking for a valuable technology or commodity or, to a much lesser extent, a strong brand name. If the company you are pitching has neither, the chances of a Chinese company buying it are really slim. People have told me that Chinese companies "have to be" interested in companies with really good marketing people. They tell me Chinese companies are terrible at marketing and so they obviously will be buying American companies that are good at it. That's true in theory, false in reality.
Harris sees an exception in Haier, the white goods manufacturer:
Haier came to the United States so as to minimize export/import risk in the long term, so as to improve its reputation in the U.S, so as to learn from the U.S., so as to improve its marketing in the U.S. and the West and so as to be better perceived in the U.S. In other words, it did what
Toyota andHonda did when they built U.S. car plants back in the 1970s. This sort of prescience from a Chinese company has so far been vary rare.
As we've noted before (see "The Next Wave From China"), private and state-owned Chinese companies are, slowly, starting to invest internationally so they can produce locally for local markets. Two auto industry examples that come to mind are Chery's assembly line in Uruguay and a planned second plant in Brazil to produce Tiggos for the Mercosur market, and the Shanghai Automotive (SAIC)-GM joint venture that will be manufacturing in India. But all such initiatives will come to naught if they don't fall broadly in line with Beijing's greater plans.
