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The Sunday Times: The top 10 Chinese firms that will challenge the West

China’s companies are building huge financial muscle and expanding abroad. Michael Sheridan picks out 10 that are likely to make an impact on the global economy and challenge western firms

March 9, 2008

The Chinese are coming; everybody knows that. From troubled Wall Street banks to derelict mines in Africa, the reviving effect of Chinese capital is changing the terms of trade. Some even talk of a historic shift in influence towards Asia and away from a tired, slow-growing West.

But as Chinese companies begin to strike out from their huge domestic base, which firms will wield most financial power – and who is at their helm?

On a strictly unscientific basis, The Sunday Times has selected 10 of the Chinese companies most likely to make an impact on the global economy. Three criteria influenced our choice – financial muscle, the backing of the state and politically astute executives.

There are already fears about sovereign wealth funds and questions about how their investments might affect the national security and economic interests of other countries. China’s own fund, which is on our list, has caused concern in the United States. China’s top executives, many of them former revolutionaries in suits, respond by saying that business is just that – business.

Yet most of China’s giant firms remain ultimately answerable to the state council, or cabinet, either formally or through a network of state shareholdings. As Chinese firms edge into hostile bids and controversial acquisitions, that political factor cannot be ignored.

China’s economy is still a hybrid of state enterprise and the private sector. Statistics are rarely uniform, and some state firms do not even publish accounts.

There are plenty of Chinese companies not on our list that are making waves abroad. Some are creatures of cronyism, others are energetically competitive.

Huawei Technologies is a telecoms giant with tentacles inside the Chinese military establishment and a history of scruple-free sales in the Middle East and legal disputes over alleged technology theft.

Shenzhen Beike Biotechnology, by contrast, is a start-up with a young team that does state-backed research using stem cells, unbothered by the ethical restrictions prevalent in some western countries.

Chery Automobiles is progressing from a firm seen as a copycat car maker to one that is hiring designers to innovate and compete with new models.

Light industrial companies such as Suntech Power, which develops solar power units, will look to conquer markets with low-cost, simple designs.

But our top 10 all meet the basic criteria of resources, state endorsement and politically safe senior management. In that sense, our choice rewards privilege and penalises raw entrepreneurialism. That does not imply approval: it merely reflects the reality in China, where the government retains the power to approve or veto investment overseas.

Industrial and Commercial Bank of China
Chairman: Jiang Jianqing

ICBC has expanded overseas since raising more than $21 billion (£10.4 billion) in 2006 when it was floated in Hong Kong and Shanghai – at the time the world’s largest stock-market flotation.

The bank is in the vanguard of China’s push into Africa. Last year it spent more than $5 billion to become the lead shareholder in Standard Bank of South Africa. It also bought the Hong Kong branch network of Fortis Bank, made investments in Indonesia and plans to open in Sydney and Dubai.

ICBC’s chairman, Jiang Jianqing, was born in 1953 in Shanghai and now leads a financial behemoth that employs 351,000 staff at 16,000 domestic branches.

Jiang is a classic political survivor. He was sent to do labour reform in the countryside during the Cultural Revolution in the early 1970s and took a lowly cashier’s job when he was allowed to return to Shanghai. He worked his way through university to achieve a doctorate, later entering the bank’s senior management.

Jiang was among the managers who oversaw the bank’s restructuring of bad debts that at one time amounted to more than 30% of assets. Now his aim is to expand ICBC’s overseas activities from the present 3% to 10% of its business.

“In the past when Chinese people were not well off, we relied on grain,” he said. “Now we eat beef and drink milk. It is similar in banking.”

China Development Bank
Chairman: Chen Yuan

THE China Development Bank is a bastion of central planning in a changing financial landscape. Its managers are directly responsible to the state council, the Chinese cabinet. It is a large bond issuer and has financed some of the biggest government projects of recent years, including the controversial Three Gorges Dam, the Shanghai Expo and venues for this summer’s Olympic Games. So far, it is making cautious moves overseas but bankers say it has the muscle to become a big investor, backed by a safe loan book because so much of its lending is to Chinese state entities. It invested £1.4 billion in Barclays last year.

Chen Yuan is a member of the Communist party aristocracy, son of the veteran leader Chen Yun, the chief economic planner under Mao Tse-tung. His father, a Shanghai typesetter turned revolutionary, ended up opposing the fast pace of reform, but his son has embraced it.

Chen, born in Shanghai in 1945, has worked his way through the state’s financial institutions since graduating from Qinhua University, rising to become a vice-governor of the central bank.

Western bankers say he is keen to adopt best practices from abroad, bringing in international auditing firms to advise his bank and consulting Paul Volcker, former chairman of the US Federal Reserve.

When China Development Bank makes an investment, it is with approval from the highest levels in Chinese politics.

Ping An Insurance
Chairman: Ma Mingzhe

TAKING its brand name from a Chinese phrase meaning “safe and sound”, Ping An is at the centre of a political and economic furore over its plans to raise up to $17 billion in a stock-market flotation to fund overseas acquisitions. Britain’s Prudential is rumoured to be among its potential targets.

Shareholders voted to approve the offering last week. But with the Shanghai stock market some 30% off its recent highs, there has been political pressure on the firm to scale back its flotation. Officials fear too many listings will depress the market. The offer has been supported by HSBC, which has a 17% stake in Ping An.

Ping An projects a market-friendly image, but it has refused to give shareholders any details of its investment plans. And China’s securities regulator has publicly warned that it will act against companies that “hurt the market”.

The man at the centre of the row, Ma Mingzhe, is a seasoned infighter who engineered the emergence of Ping An as an independent insurer from its earlier domination by the Chinese state banks, which were its principal shareholders.

Ma is a long-time Communist party member, born in 1955, with a doctorate and decades of experience navigating the politics of the Chinese financial system. He opened the doors of Ping An to foreign investors, seeing the involvement of HSBC, Morgan Stanley and Goldman Sachs as crucial to the firm’s future. It was one of the earliest companies to launch a successful float on a huge scale in Hong Kong.

“I am confident we can transform China Ping An into global Ping An,” Ma said last week.

Citic Securities
Chairman: Wang Dongming

THIS broker is already flexing its muscles on Wall Street with reports that it is negotiating to get a stake of almost 10% in Bear Stearns, the troubled American investment bank, under the terms of a $1 billion stake swap agreed last October. The credit crisis has pushed down Bear Stearns’ share price by 30% since the autumn and the Chinese now want more for their money.

Financiers in Beijing say it is an example of Chinese regulators and officials intervening in commercial negotiations to head off widely voiced complaints that China’s neophyte investors are spending too much on overpriced assets in foreign markers.

But Citic is no novice. It is China’s top brokerage by assets, listed on the Shanghai market in 2003, and has acted as underwriter in leading flotations, including those of Bank of China and Air China.

Chairman Wang Dongming is no pushover, either. Born in 1951, he worked his way up the securities industry before winning the top job at Citic, where he delighted retail investors by getting the stock price up from 6 yuan to 98.5 yuan in 15 months. He is a seasoned infighter in the complex web of relationships between China’s market authorities and a handful of big players who have made fortunes out of what many analysts see as a gigantic stock bubble.

Wang is now negotiating to strike a balance between Chinese regulators, who must approve the Bear Stearns deal for value, and American regulators, who could subject it to intense scrutiny.

China Mobile
Chairman: Wang Jianzhou

THIS is a company that likes to stun with statistics. China Mobile has 376m domestic subscribers – more than the population of the United States. It signed up a record 7m users in January alone, making it the world’s biggest mobile-phone operator.

But a long-awaited reshuffle in the Chinese telecoms industry may take senior management’s eye off plans for overseas expansion while the enormous domestic market gears up for the next generation of mobile services. China Mobile is likely to emerge with its domination enhanced. It is keen to look abroad, though its investment so far has been limited to the acquisition of the Pakistani operator Paktel in May 2007.

The company’s chief, Wang Jianzhou, was born in 1948 and graduated in engineering from Zhejiang University in east China. He was one of an elite sent to study business administration in Hong Kong. His first posts were in the provincial telecoms bureaucracy and he is seen as the epitome of a successful player inside the complex public/private entities of Chinese business life.

Wang emerged as chief executive of China Unicom, the smaller rival to China Mobile, but joined the bigger firm in 2004. Since then China Mobile has eaten away at the market share of its competitors, leading one analyst to describe it as an “enlarging monopoly”.

Sinosteel Group
President: Huang Tianwen

THE nation’s largest steel and iron-ore trading firm is locked in a high-profile bid for Australia’s Midwest Corp, which last week rejected its $1 billion takeover proposal. The Chinese bid for the mine developer is another sign of Beijing’s drive to secure commodities in an era of soaring prices, and Sinosteel is one of its most out-ward-looking companies.

The state-owned company is a privileged importer of iron ore, which it sells to steel mills. But it has broadened out to invest in chrome projects in Africa and ore and steel in India. It is also focused on securing strategic commodities: the company reportedly signed a memorandum of understanding last month with a Canadian uranium miner, Ditem Explorations, and has a joint venture to extract the metal in Australia. Its clout in the raw-materials markets will be enhanced by a recent supply cooperation deal with Baosteel, the largest steelmaker in China.

Huang Tianwen took over in 2003 with a mandate from the Communist party leadership to restructure Sinosteel and turn it into an engine of industrial power. He fired more than 1,000 workers and closed 48 subsidiaries, winning him the accolade of “an excellent manager” from the state media. His international profile has risen after he accompanied President Hu Jintao and Premier Wen Jia-bao on official visits abroad.

In many respects Sinosteel remains an old-style, opaque state firm: its website recently reported that revenues rose 83% and profits “jumped a lot” but gave no figures.

And Huang is a party insider entrusted – literally – with forging China’s industrial policy. “We will work to bring together the strengths of a steelmaker and a steel-industry service provider,” he said of the Sinosteel-Baosteel tie-up. Foreign commodities traders will ignore him at their peril.

PetroChina
Chairman: Jiang Jiemin

GIGANTIC, controversial, global in ambition, Petro China has attracted the highest-profile foreign investor, Warren Buffett, and the worst publicity of any leading Chinese company because of the involvement of its parent company in Sudan. Buffett sold his shares last year, saying the stock was fully valued, but activists saw it as a victory over amoral Chinese commercial interests.

Petro China is the largest of China’s three main oil companies. It is an integrated oil and gas firm with activities all the way from exploration to retail. Its hunger for resources has led it into some of the toughest markets on earth and it says it has the second-biggest proven reserves after Exxon Mobil.

The company has just pulled back from a $400m bid to buy Nigerian offshore oil blocks from Shell to add to its assets in Africa. In 2005 it paid more than $4 billion to acquire Kaza-khstan’s third-largest petroleum firm.

It has said it “will focus on internationalisation” and is destined to be a formidable competitor for the traditional barons of the energy industry as the battle intensifies for control of the world’s strategic resources. Last year its market value briefly topped $1 trillion.

Petro China’s boss, Jiang Jiemin, has 30 years of experience in the Chinese oil and gas industry but he is also a bureaucratic politician whose career is a template for the ambitious state-sector executive. As he rose through the local petroleum administration, he was also appointed to a succession of Communist party committee posts and provincial government jobs.

Born in 1950, he is a native of China’s northeast, where the oil industry first flourished under Mao. Imperious and remote, he has faced unusual public criticism from small investors after PetroChina’s share price fell sharply – due in part to the government’s control of retail fuel prices.

Since neither public opinion nor shareholder activism has the slightest impact on such state-appointed executives, he is likely to continue as the trusted instrument of China’s determined expansion of its energy empire overseas.

China Investment Corporation
Chairman: Lou Jiwei

THE China Investment Corporation is the country’s high-profile sovereign investment fund, entrusted with an initial $200 billion from the state coffers. It is run by bureaucrats from the central bank and economic ministries, all appointed by the Communist party, although Chinese leaders maintain it can take independent commercial decisions.

Its main investments are in the domestic banking sector but it has taken two big stakes overseas. It spent $5 billion to acquire 9.9% of Morgan Stanley and put $3 billion into the American private-equity firm Blackstone. Both investments have performed poorly thanks to America’s sub-prime mortgage crisis.

Closer to home, however, the corporation’s managers are believed to have made a modest profit on Chinese railway shares traded in Hong Kong.

The fund is sensitive to political scrutiny in foreign markets and strident criticism on the internet from Chinese investors who are ready to pounce on its errors. But with China sitting on reserves of $1.4 trillion, it has enough firepower to outlast poor market conditions.

Suave, smooth and groomed for the CIC roadshows, chairman Lou Jiwei is a product of the new Chinese elite. Born in east China’s Zhejiang province in 1950, he attended the prestigious Qinghua university and moved effortlessly upward in the ranks of the bureaucracy. He was a member of the key financial group inside the state council (cabinet) office at a crucial period in the 1980s, ran macro-economic reform at provincial and state levels and rose to be vice-minister of finance.

Last year, visiting London to promote the fund, Lou told his audience: “Our primary goal is to make investments in financial products in order to increase the long-term yield on our foreign currency reserves.” The message was that political and strategic acquisitions are out: indeed, Li Yong, the present vice-minister of finance, has said the fund will avoid airlines, oil companies and telecommunications.

Lenovo
Yang Yuanqing

WHEN Lenovo bought the personal computer division of IBM it became the symbol of China’s debut among global brands, with the deal turning an American icon into a Chinese asset at a cost of $1.7 billion.

China made a strategic choice when it authorised Lenovo to bid for IBM. The Chinese have long sought to build technology transfer into their dealings with western multinationals. Now they were acquiring the source of the technology itself.

Since the acquisition, Lenovo has set up a well-staffed innovation centre in Beijing and it is pouring cash into research and development. For China, it is all about building national champions to compete with the world’s best – and Lenovo is clearly one of them.

But Lenovo has remained a management conundrum after that historic purchase. Ultimately, its largest single shareholder is still the Chinese state. Its executives are divided between America, Europe and China, it proclaims a globalised corporate culture and its brand, to many consumers, has no Chinese connection at all.

But Lenovo and its Chinese bosses are viewed with suspicion by some American national security analysts. China is wedded to cyberwar-fare, devoting an unknown sum to research and development for future electronic conflicts. Lenovo’s charismatic founder, Liu Chuanzhi, was a product of the Xian military telecommunications engineering institute.

But “business is businesss” declared his successor as chairman, Yang Yuanqing, 43, talking to The Times last summer. Yang is the business-friendly face of Chinese investment, a fan of globalisation and a manager who talks the talk of every MBA course. He sees Lenovo as a pioneering Chinese company, transforming itself into an international entity with a rainbow workforce and a product that sells itself with universal utility and appeal.

He makes a convincing case that management takes its own decisions and that Lenovo is far from being an arm of the state. He is, no doubt, sincere.

China State Grid Corporation
President: Liu Zhenya

THE State Grid Corporation is a player to watch by virtue of its gigantic home base and practically unlimited resources.

Its first overseas venture was in the Philippines, where it joined a consortium that has just won a 25-year concession to run the national grid, beating the local conglomerate, San Miguel. The regulator in Manila said the privatisation was conducted with “utmost transparency and judiciousness”.

At home, the corporation is the largest electric power provider to 1.3 billion people, operating power stations and transmission lines across the nation.

For the moment, Liu Zhenya, its president since 2004, has been forced into fire-fighting outrage at home after the worst snowstorms in half a century crippled power lines, blacked out cities and brought the electrified railways to a standstill.

A provincial engineering graduate from Shandong, northeast China, Liu was born in 1952. He has spent his career in the state power administration and appears every inch the characteristic Chinese official. But there is clearly more to this cunning veteran of administrative politics than mere diligence. Analysts say the State Grid will be looking abroad to export its engineering expertise and low-cost basic maintenance model: expensive competitors should watch out.

http://business.timesonline.co.uk/tol/business/economics/article3510632.ece

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