China Inc’s new low-profile expansion

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reEEPGLINT, Chinese Facial recognition companies were one of 14 companies sanctioned by the United States on July 9 on suspicion of being linked to human rights violations in China’s westernmost Uighur Autonomous Region of Xinjiang. It is also a globally recognized leader in this field, raising funds from Sequoia Capital and other large American investment firms. The founders of DeepGlint, graduates of Stanford University and Brown University in the United States, must now discuss the prospects of separating the Western business sector with overseas supporters. Many Chinese companies are forced to engage in similar consultations.

China Inc appears to be a hind leg. In the United States, President Joe Biden has echoed Donald Trump’s hiatus and imposed restrictions on Chinese companies. Last year, Congress passed a bill that could potentially delist Chinese companies from the US stock exchange, which would impact the market value of around $ 2 trillion. Huawei banned from US struggled to sell Part 5g Communication kits elsewhere in the west. ByteDance was forced to pull out of its valuable short video app, TikTok, over concerns from the United States that the Chinese administration could gain access to the personal data of global users. Another internet giant, Tencent, is said to be negotiating with US regulators who are concerned about a 40% stake in Fortnite developer Epic Games.

All over the world, Chinese companies, whether righteous or not, are seen as a tool of the Communist Party. British Prime Minister Boris Johnson said on July 7 that the government would investigate the acquisition of China’s largest chipmaker, Newport Wafer Fab, on national security grounds. Australia’s defense sector could break its 99-year lease with a Chinese private sector over a major port. Overseas acquisitions by Chinese companies have grown from around $ 200 billion in 2016 to $ 36 billion in 2020. Cross-border loans, mainly to poor countries, by some Chinese state-owned banks have stopped growing.

This is not the first time that the wave of Chinese business expansion has received a cold reception. The commodity giants like CNOOCThe oil company, which began buying foreign exchange reserves, raised fears of resource colonialism in the 1990s. In the 2010s, the Chinese industrial group aggressively pursued its Western chemical rivals (acquisition of Syngenta by ChemChina ) to the automobile (Geely of Volvo), which is very concerned about the conquest of Japanese companies in the 1980s. It reminded me of the world government. At the same time, the Chinese acquisition of trophy assets such as the Waldorf Astoria hotel (by Amban, a conglomerate) allowed other Westerners to dismiss China Inc as not serious or dangerous (later Amban and some). Suspicious fraud charges confirmed by the collapse of a similar group of).

Today, China’s increasingly authoritarian regime single-handedly dominates the world champions, just as innovative Chinese tech companies have fascinated Wall Street. President Xi Jinping, detached from the west side of capital markets, seems inclined to manage his data. Tencent and e-commerce giant Alibaba have lost $ 340 billion in market value since the crackdown began late last year. Days after the $ 67 billion levitation in New York City, Didi noticed that the ridesharing app was banned by Chinese data regulators. ByteDance plans to release it in New York.

Speak softly and carry a small check

It all sounds like a dangerous climate for Chinese companies. But take a closer look. A new generation of businesses is not only adapting to it, but thriving as well. Many have grown their global businesses over the years, but now they are making as much money as in China. Some are pursuing small investments under the radar. And it reverses the ten-year-old trend of copying Western intellectual property (IP), Some have become high-tech powerhouses in their own right, selling advanced products to the world.

The scale of China Inc is formidable. China was the world’s largest investor in 2020. Foreign direct investment (IDE) Chinese business hits reached $ 133 billion, a slight decrease from 2019, despite headwinds (see Figure 1). Consultancy Bain estimates that there are approximately 3,400 multinationals in the country, roughly the same number as the United States and Western Europe. About 360 large Chinese listed groups report foreign income. According to Bloomberg data, these reached about $ 700 billion in 2020, with 250 large companies making a total of $ 400 billion in 2012 (see Figure 2). In 2020, Chinese venture capitalists invested around $ 3.2 billion in 249 deals in American start-ups. Research firm Rhodium Group estimates this to be the second most important year in monetary terms. CB Information shows that Chinese investor participation in US venture capital in the last quarter was the highest since at least 2016.

China has a deep and broad presence. Last year, more than 100 listed companies made at least 30% of their revenues outside of China. 27 won over 70%. Overall, China’s top 10 foreign employees recorded around $ 350 billion in overseas sales. According to Bain, that total has grown an average of 10% per year since 2005, twice as fast as its counterparts in the United States, Europe or Japan. Tencent’s overseas sales have grown at an annual rate of 40% for nearly 10 years and now represent 7% of its huge revenue.

The forefront of China Inc’s new global strategy is deep localization. Most Chinese in the past IDE It involves buying assets. In contrast, last year the profits of foreign companies were reinvested. Home appliance maker Hisense wants to triple its overseas sales from $ 7.9 billion in 2020 to $ 23.5 billion in 2025. That’s half of the expected total. It will leave a lot of money to spend on foreign factories, R&D and marketing (it sponsors the 2022 FIFA World Cup in Qatar, among other sporting events).

Chinese companies also retain the foreign leadership of their subsidiaries. Despite its recent merger with another state-backed giant, ChemChina has allowed the foreign assets to operate as a global corporation. Purchased in 2015 for 7.1 billion euros (7.6 billion dollars), Pirelli still manufactures tires in Italy. Syngenta paid $ 43 billion a year later, but maintains a nine-member board consisting entirely of a Swiss headquarters, mostly foreign management, and two Chinese government officials. of it. GE Top brass appliances after the acquisition of an American company. “You can belong to China without a board of directors controlled by China,” said an executive at a Chinese multinational.

The second pillar of China Inc’s new globalization strategy is to put the smallest first and avoid mega-deals. The wave of speculative outward investment from 2015 to 2017 engulfed $ 425 billion in assets and raised eyebrows equally between foreign and Chinese regulators. In contrast, of the 235 outbound transactions so far this year, only three were valued at $ 1 billion or more.

The master of making mini-deals is Tencent. According to data provider Refinitiv, it has made at least 85 cross-border investments since its inception in 2019. Many of these are small-cap stocks taken as part of a larger consortium of investors, including groups. leading non-Chinese private equity firm. For example, this year Tencent bought a 4% stake in Japanese internet group Rakuten for around $ 600 million. It’s a small change for the nearly $ 700 billion giant. He has also invested in the United States with at least 12 deals over the past two and a half years, including the purchase of $ 150 million of shares of Reddit, a US online platform that hosts a popular discussion board. I go.

Chinese companies have a global presence in a final way. Rather than rushing abroad to buy technology or copy the West IP, They themselves are on sale, says Bagrin Angelov CICC, an investment bank based in Beijing. China’s subsidies for electric vehicle and battery makers require them to own part of the core. IP, Etc. BYD, CATL, Gangfeng and SBolt competed to develop it. And they are currently targeting the export market. BYD And SBolt has a factory in Europe. That is true CATLAlso announced plans to build $ 5 billion in Indonesia in December.

Hokuto, the Chinese state’s response to the United States GPS The satellite navigation system was used in more than 100 countries in 2020. EY,consultant. China’s telecommunications services cover more than 170 countries with a population of 3 billion people. Huawei remains 5 popular choices, regardless of US sanctionsg Network in parts of Europe. Horizon Robotics, the developer of autonomous driving systems, has partnered with Volkswagen and Bosch in Germany.

And the new Chinese stars keep rising. Few fashionistas understand that Shein, the beloved fast fashion sweetheart on the trendy TikTok set, is Chinese. The company has the best shopping apps in 50 countries, including the United States, which were downloaded to more iPhones than Amazon in June. OneConnect, a financial technology platform owned by leading insurance company PingAn, sells a number of digital banking products developed for China to banks and other companies in and outside Asia. We recently designed an artificial intelligence fraud prevention system for Sri Lankan lenders.

The conquerors of these subtle enterprises may still be in dire straits by the heavy hands of the Chinese and US communist rulers and their allies. Successful Chinese multinationals have to adapt again. They have shown that it is more than they can. ■■

This article was published in the Printed Business section under the heading “Discrete Extensions”.

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