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Saturday, September 03, 2005

China : The Myth, The Chaos & The Fear

(Via Economist) China’s growing trade surplus with the world, IP concerns has a new comrade in arms : the aggressive international expansion of China's corporations. CNOOC’s bid for Unocal, was portrayed as a state-funded grab for strategic American assets. The real scaremongers assert that the Chinese state is a single - and single-minded entity with a master plan to reclaim China's rightful place at the centre of the world. China's companies are thus mere tools of an expansionist policy propagated by Beijing's leadership. More subtle are the fears that, because it is impossible to untangle the ownership of most Chinese companies, foreigners cannot be sure to whom they are selling. When the ultimate authority could be the Communist state, that is a worry.
Currently, only about a third of China's economy is still directly controlled by the government through state-owned enterprises, concentrated in key sectors like defence and utilities.The government always retains the ultimate ownership. After deregulating the telecom market, frightened by the growth of new services and a price war, the Chinese government recently forced the bosses of these firms to take each other's jobs to discourage competition, to the amazement of some independent directors. In the power industry, some foreign investors quit in disgust due to rampant infighting within the Chinese sate, causing power shortages. Overseas investors have been equally befuddled in the media sector, where joint-ventures promised over the past two years are suddenly off the agenda. The media regulator, SARFT, is fighting MII, the telecoms regulator, to prevent the big telecoms operators from launching competing internet TV services. Battles between competing branches of central government are overlaid by struggles between central government and local officials, who want to protect jobs in their own backyard. In a country with a saying “the hills are high and the emperor is far away”, edicts from Beijing are routinely ignored.
Yasheng Huang, a professor at MIT, says that the results can be disastrous: “Government shareholders may be passive at first, but once a company succeeds, they interfere. Countless Chinese firms have been driven to bankruptcy or failed to grow big because local governments decided to exercise their legal claims on ownership.International fears about the expansion of Chinese firms are often compounded by the murkiness of their ownership. Fears that Chinese firms are acting as the commercial arm of an expansionist state are belied by a more complicated and disorderly reality. The real reason to fear China's overseas expansion is quite different. Because Chinese firms have grown up in an irrational and chaotic business environment, they may export some very bad habits –like driving prices down, misallocating capital and over-diversifying, that is genuinely something to fear The Economist miust be saluted for writing such an interesting, relevant and what appears to be a very factual assesment of the business environemnt in china.

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