Biz Weak Inadvertently Tells Us Why CNOOC-Unocal Was a Bad Idea
Now they tell us.
Oh, they didn’t mean to. They were just trying to enlighten us on how things really work in China.
But Business Week’s August 22 article on “The State’s Long Apron Strings” tells us in a few paragraphs the kind of world Unocal would have been absorbed into (requires subscription; bold is mine) if the deal with CNOOC had been allowed to go through, and therefore why the deal’s prevention was for the better:
But even if it doesn’t interfere in day-to-day matters, the state — really the Communist Party — still has plenty of clout. Every state-linked company has a Party organization that acts as a kind of shadow management and vets all senior appointments. The state-owned Assets Supervision & Administration Commission (SASAC), a sort of über-holding company with a controlling stake in nearly 200 big enterprises, keeps a close eye on the results of China’s giants, tracking metrics such as return on equity, gross margins, and sales growth just as closely as Wall Street might.
Like activist shareholders in the West, SASAC also sometimes shakes up management. In November, SASAC rotated the heads of rival phone companies China Telecom (CHA ), China Unicom (CHU ), and China Mobile without any explanation. And Wei Liucheng, who earned praise as chairman of CNOOC, was promoted to governor of Hainan Province in October. “Senior managers have to keep their finger on the pulse of their business, but also on the pulse of the Communist Party,” says George J. Gilboy, a researcher at the Center of International Studies at Massachusetts Institute of Technology. “They ignore either one at their peril.”
State control can clearly give these businesses advantages at home. In the early 1990s, when China began embracing the market economy in earnest, state-owned companies in key industries were chosen to lead the country’s development drive, landing lucrative contracts or receiving tariff protection, cheap land, easy credit from state banks, and preferential access for listing their shares. Legend Group, which owns 60% of Lenovo, is 65%-owned by the Chinese Academy of Sciences, the country’s top research body. Its staff of more than 60,000 has lent a hand in developing Lenovo’s PCs and servers.
Another big benefit: The government has steered foreign joint-venture partners to these national champions to ensure they have access to imported technology and management knowhow.
To those like the normally quite sane James Glassman, who opposed and now warns of the dire consequences of preventing the CNOOC-Unocal deal: If you don’t mind a Communist Party-controlled company that is part of the mother of all cartels buying a US company, simply say so, in those words (Glassman still clings to the fantasy that CNOOC is a “foreign company,” not a de facto part of a still-tyrannical speech-repressing government whose unapologetic legacy goes back to this guy, and which still has no regrets over this more recent massacre). Otherwise, what about the above features of Party control don’t you understand?
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Outside the Beltway Jammer.
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UPDATE: The August 10 Wall Street Journal (requires subscription) points out that there’s also this little problem of thousands of Chinese Communist spies in the US engaging primarily in industrial espionage.
