I have recently written  (and spoken ) about China’s two faces for foreign direct investment (as well as challenges for privatisation and private equity ), so it is with interest that I read news of some more big deals – from Intel on the one hand, and Arcelor Mittal and Saudi Basic Industries on the other – that have caused very different reactions in government circles:
• Intel just announced, with much fanfare and a press conference in the Great Hall of the People (implying not a little official support), that it is investing US$2.5 billion chip fabrication plant in Dalian. The deal is attractive to China because it brings in lots of lovely technology, added-value manufacturing, and support to a strategic sector of the economy.
• Arcelor Mittal, which has been busy buying up steel mills around the world, recently did a deal to buy a minority share in China’s Laiwu Steel. However, as with Carlyle’s Xugong deal (which I covered here ), this has been held up by government due to concerns over the pricing of the deal, and continued worry about foreign influence in the sector.
• Saudi Basic Industries (and the private Chinese firm Shide) have been in discussions to set up a US$5.2 billion petrochemical plant in Dalian (a popular place at the moment), but has reportedly become frustrated at delays, of over 18 months, in getting approval for what would apparently be China’s first privately built facility – breaking the monopoly of Sinopec and PetroChina.
China still wants foreign direct investment, but it does not view it in the same way it used to. Right now it is all about technology and added-value rather than dollars and cents. And of course, there is the strong desire to protect strategic sectors of the economy, as well as local brands that may have global ambitions. As Andrew Hupert at Diligence China said in response to an earlier post on attitudes to FDI: “The honeymoon’s over, but the marriage is solid”.
Another perspective on this issue (citing Carlyle and Telstra deals), has been written at All Roads Lead to China , and is well worth a read.
The overall message from these stories is that foreign investors should be sensitive to the concerns, and strategic development plans, of the Chinese government and local incumbents. Patience, a low profile, and political due diligence and lobbying, may not suit all big boardroom types, but they are recommended for anyone that wants to buy into the China market in a big way.
See news sources: