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Why China is the ultimate multinational company

02 March 2007 Gareth Stokes

With some $1.3 trillion in foreign reserves, China is set to become a player in the global resources market. Buying multinational resource companies could be just one of Chinas strategies to achieve their objective of becoming the largest economy in the w

Speaking as a guest of Futuregrowth Asset Management, Clem Sunter likened China to a gigantic multinational company with a politburo acting as its board of directors. This politburo makes decisions in a businesslike fashion and relies on millions of hardworking employees, the Chinese citizens, to implement such decisions.

The art of the deal

Years ago, Chinese generals were obsessed with 'the art of war', as evidenced by Sun Tzu's book of the same title. Today, they are obsessed with the art of the deal.

This deal-making skill has enabled China to secure a large percentage of African oil production - with Angola, Nigeria and Sudan amongst the country's top five suppliers.

Sunter believes that China's incursions into Africa cannot be likened to colonialism. Their actions should rather be viewed as commercial ventures in which China sources raw materials to carry its 1.3 billion people through a new age industrial revolution.

If Africa wishes to benefit from Chinas attentions, they should demand adequate compensation for the resources they give up. The most common concession is for China to commit to infrastructure projects. This should become the de facto standard for resource sharing agreements between China and Africa in coming years.

Keeping things simple

When completing a scenario analysis, Sunter relates discussions to a game. Questions asked include: What is your game today? What are the rules of the game? What is the meaning of winning the game?

Sunter recently completed a scenario analysis session with some of China's top business people, students and members of the communist party. The answers he received here have helped him piece together this insightful commentary on China.

China plays by three rules. The first is that connections are all important - you are who you know. The second is the 'one child rule' which sought to control the burgeoning population. And the third rule is known as 'Chinese baseball'. This rule states that 'rules will change as required'.

When asked the meaning of winning the game, all the attendees at this scenario analysis exercise were in agreement. China wins the game when it becomes the biggest economy in the world in 2040.

Advice to South African investors

Many analysts have suggested that the recent fall in global markets relates to concerns over China's GDP. In reality, the fall has more to do with concerns about the state of the US economy. Recent economic commentary coupled with the fact that new house sales fell by more than 17% year on year in January triggered fears of an imminent US recession.

If this were to occur, China would battle to maintain the near 10% GDP growth it has achieved in recent years. The result was a significant fall in the value of Chinese stocks which forced a chain reaction on world markets.

Sunter said investors should consider markets where China is a customer, not a competitor. "The global business scenario has changed and South African companies can no longer afford to only look to the West and internally for business opportunities," he said. "The game is to keep up with the Chinese and find markets there as well as partnerships."

Editor's thoughts:
China remains a superpower. Do you think the South African government will be able to structure resource deals with China in the appropriate manner? Send you thoughts to
gareth@fanews.co.za.

 

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