New unobtrusive extension from China Inc

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D.EEPGLINT, A CHINESE Face recognition company, was one of 14 companies sanctioned July 9th for alleged links to human rights abuses in China’s westernmost region, Xinjiang. It is also a globally recognized leader in its field and has raised money from Sequoia Capital and other major American investment firms. The founders of DeepGlint, who studied at Stanford and Brown Universities in the USA, now have to discuss a decoupling from the western economic sphere with their foreign donors. Many Chinese companies have been forced to have similar discussions.

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China Inc seems to be falling by the wayside. In America, President Joe Biden has picked up where Donald Trump left off and has put restrictions on Chinese companies. Last year, Congress passed a bill that could eventually force Chinese companies to delist from American exchanges, hurting nearly $ 2 trillion in market value. Huawei, banned from America, is having trouble getting its 5th for saleG Telecom kit elsewhere in the west. ByteDance was almost forced to part with its cherished short video app, TikTok, because Americans feared the Chinese regime could access the personal data of global users. Tencent, another internet giant, is said to be haggling with American regulators worried about its 40% stake in Epic Games, the developer of Fortnite.

All over the world, fair or not, Chinese companies are viewed as instruments of the Communist Party. British Prime Minister Boris Johnson said on July 7 that the government would be looking into the Chinese takeover of Newport Wafer Fab, the country’s largest chip maker, for national security reasons. Australia’s Defense Ministry could terminate a 99-year lease with a private Chinese company for a major port. Completed overseas takeovers by Chinese companies shrank from around 200 billion

It is not the first time that a wave of Chinese corporate expansion has met with a frosty response. When commodity giants like such CNOOC, an oil company, began buying foreign exchange reserves and its competitors fueled fears of resource colonialism in the 1990s. In the 2010s, Chinese industrialists’ aggressive hunt for Western rivals from chemicals (ChemChina’s acquisition of Syngenta) to automobiles (Geelys from Volvo) reminded some worried rich world governments of the 1980s conquests of Japan. At the same time, the Chinese acquisitions of trophy facilities like the Waldorf Astoria Hotel (by Anbang, a conglomerate) enabled other Westerners to dismiss China Inc as dubious or shady (a suspicion raised by the subsequent breakdown of Anbang and some similar groups following fraud allegations).

Now, as innovative Chinese tech companies have taken over Wall Street, China’s increasingly authoritarian regime is curbing even its global champions. President Xi Jinping seems anxious to decouple them from the western capital markets and control their data. Tencent and Alibaba, an e-commerce giant, have combined lost $ 340 billion in market value since the raid began late last year. Days after its $ 67 billion IPO in New York, Didi discovered that its ride-hailing app had been banned by Chinese data regulators. ByteDance has made plans to go public in New York.

Speak quietly and carry a small check

All of this looks like a treacherous climate for Chinese companies. Take a closer look, however, and a new generation of businesses will not only adapt, they will thrive. Many have spent years expanding their global business and are now making as much money outside of China as they are inside of China. Some are tracking smaller investments under the radar. And to reverse a decade-old trend of copying Western intellectual property (IP), some have become technology powerhouses themselves, selling advanced products around the world.

The size of China Inc is impressive. China was the world’s largest investor in 2020. Foreign direct investment (FDI) of Chinese companies reached US $ 133 billion, which is only slightly lower than in 2019 despite the headwinds (see chart 1). The country has around 3,400 multinational companies, almost as many as America and Western Europe combined, estimates the consulting firm Bain. Around 360 large publicly traded Chinese corporations report foreign income. These amounted to around $ 700 billion in 2020, compared to 250 large companies that made a total of $ 400 billion in 2012, according to data from Bloomberg (see Figure 2). In 2020, Chinese venture capitalists invested an estimated $ 3.2 billion in American startups in 249 transactions, the second-largest year in value terms on record, according to research firm Rhodium Group. Analysts at CB According to evidence, the participation of Chinese investors in American venture deals in the last quarter was the highest since at least 2016.

The Chinese presence is as deep as it is broad. In the past year, more than 100 of the listed companies generated at least 30% of their sales outside of China; 27 earned 70% or more. All in all, China’s top ten overseas earners posted about $ 350 billion in overseas sales. This sum has grown by an average of 10% per year since 2005, says Bain, twice as fast as in America, Europe or Japan. Tencent’s overseas sales have grown at an annual rate of 40% for nearly a decade and now account for 7% of its huge sales.

The first pillar of China Inc.’s new global strategy is wise localization. Most of the Chinese in the past FDI consisted of asset purchases. In the past year, however, a lot of income from foreign business was reinvested. Hisense, a consumer electronics maker, plans to triple its overseas sales from $ 7.9 billion in 2020 to $ 23.5 billion in 2025, half of the projected total, says Marketing Director Candy Pang. That would leave a lot of money for foreign factories, research and development, and marketing (including sponsoring the 2022 World Cup in Qatar).

Chinese companies have also retained the foreign leadership of their subsidiaries. Despite its recent merger with another government-backed giant, ChemChina has allowed its overseas assets to operate as a global corporation. Pirelli, which was bought for 7.1 billion euros in 2015, is still making tires in Italy. Syngenta, which it paid $ 43 billion a year later, has a Swiss headquarters, a largely foreign management team, and a nine-member board of directors with just two Chinese civil servants. Similarly, Geely has allowed foreigners to run Volvo and Haier, an equipment maker, kept most of them GE Appliances’ Top Brass after taking over the American company. “You can belong to China without having a board that is dominated by China,” says a manager of a Chinese multinational.

The second pillar of China Inc.’s new globalization strategy is to avoid mega-deals in favor of smaller ones. The speculative wave of overseas investment between 2015 and 2017 swallowed $ 425 billion in assets and caused a stir among foreign and Chinese regulators alike. In contrast, of the 235 outbound transactions so far this year, only three have been valued at more than $ 1 billion.

The master of mini dealmaking is Tencent. It has made at least 85 cross-border investments since early 2019, according to Refinitiv, a data provider. Many of these are small stakes made as part of a larger consortium of investors that includes prominent non-Chinese private equity groups. That year, for example, Tencent bought a 4% stake in Rakuten, a Japanese Internet giant, for about $ 600 million – nearly $ 700 billion worth of change for a giant. It has also continued to invest in America, with at least 12 deals in the past two and a half years, including the purchase of a $ 150 million stake in Reddit, an American online platform that hosts popular discussion forums.

Chinese companies are making their global presence felt one last time. Instead of rushing to foreign countries to buy up technology or copy Western copies IP“They’ll sell their own,” says Bagrin Angelov of CICC, a Beijing-based investment bank. Because Chinese subsidies to manufacturers of electric cars and batteries require them to own part of the core IP, Companies like BYD, CATL, Gangfeng and S.Volt hurried to develop it. In doing so, they are now targeting export markets. BYD and S.Volt establishes factories in Europe. So is CATL, which also announced plans to build a $ 5 billion facility in Indonesia in December.

BeiDou, China’s government answer to America’s Geographic positioning system Satellite navigation system, used by more than 100 countries in 2020, so EY, a counseling center. Chinese telecommunications services cover more than 170 countries with a population of 3 billion people. Regardless of American sanctions, Huawei remains a popular choice for 5G Networks also in parts of Europe. Horizon Robotics, which develops self-driving systems, counts Volkswagen and Bosch from Germany among its partners.

And new Chinese stars keep rising. Few fashionistas are likely to know that Shein, a fast-fashion darling of the hip TikTok set, is Chinese. The company has the top shopping app in 50 countries – including America, where it was downloaded on more iPhones than Amazon in June. OneConnect, a financial technology platform from Ping An, a major insurer, sells a range of digital banking products designed for China to banks and other companies across Asia and beyond. It recently developed an artificial intelligence fraud prevention system for a Sri Lankan lender.

These subtle corporate conquerors could still be hindered – by the heavy hand of the communist rulers of China or America and their allies, who will inevitably keep an ever closer eye on Chinese trade attacks. The emerging Chinese multinationals would then have to adapt again. They have shown that they are more than capable of this.

This article appeared in the business section of the print edition under the heading “Inconspicuous Expansion”



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