ECONOMY MIKE BASTIN Growth overseas can boost domestic activity
While stock markets around the world greeted China’s better than expected firstquarter GDP figures with moderate enthusiasm, the recently announced 7.4 percent growth rate also sparked wide-ranging debate on the issue of current and future government intervention.
A rate of around 7.2-7.3 percent had been widely expected, but even with a slightly higher rate reported, anxious speculation remains rife with “stimulus package,” “public sector debt,” “over-capacity” and “domestic consumption” among the most common topics of discussion.
Certainly, many of the issues under discussion deserve attention— perhaps “domestic consumption” most of all.
However, the key to halting this modest slowdown and re-igniting the Chinese economy with a more sustainable model is the continued international expansion of Chinese companies.
Paradoxically, it is successful international expansion that will contribute most to stimulating domestic consumption and contribute much toward a more modern Chinese business culture.
In the past fewyears, we have witnessed a surge in the number of Chinese companies expanding overseas, and not just to similar emerging market economies across Asia, South America and the Middle East. Sanpower’s recent 89 percent stake in the UK premium retail clothing brand, House of Fraser and Chinese meat processor, Shuanghui InternationalHoldings’ $7.1 billion acquisition of Smithfield Foods, the largest pork producer in the United States, are but two prime examples.
But for these overseas takeovers and for international expansion to succeed, history tells us that central government must play an active, supporting role. This is the government intervention that must dominate the current and future debates on the Chinese economy.
At present any central intervention and involvement appear unclear.
China’s central government should establish clearly its role as a special type of market research agency, specializing in the identifying attractive international market opportunities for China’s army of increasingly ambitious and expansionist companies of all sizes and sectors. In addition, China’s central government should present supportive finance and training packages to those Chinese companies willing to take advantage of any suitable overseas expansion opportunities.
Successful international expansion will lead very quickly to numerous benefits to the Chinese economy. Both Shuanghui and Sanpower pledged that immediately following their cross-border takeovers, they would introduce premium foreign brands to mainland China, which should serve to stimulate domestic consumption.
The takeover of well-known, successfully built foreign brands such as Volvo (Geely Automobile, 2010), IBM PCs (Lenovo, 2005) and Guangming Foods (Weetabix, 2012) will also provide a path for Chinese companies to follow toward a more modern, market-oriented, brand-focused business model.
Six out of 10 takeovers are unsuccessful, and cross-border acquisitions present additional cultural complexity and challenges.
Only with active support from China’s central government can Chinese companies cement effective cross-border takeovers and build an international presence.
Central government intervention and support, however, should not be interpreted as a “handout” but as a “hand up” the international corporate ladder.
Government-led analysis and targeting of the more developed international markets should take priority with particular supporting of finance and training packages available to the more entrepreneurial Chinese companies.
Greater understanding of the international business environment will also enable China’s central government to engage and integrate more with the world economy, which will also prove beneficial to long-term growth domestically. The author is a visiting professor at the University of International Business and Economics in Beijing and a senior lecturer on marketing at Southampton Solent University’s School of Business.