ECON­OMY MIKE BASTIN Growth over­seas can boost do­mes­tic ac­tiv­ity

China Daily (Canada) - - BUSINESS -

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.

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