By Yuxin He
Yuxin He is a corporate analyst for Dragonomics Advisory and is a guest contributor to Dragonbeat blog this week.
Five years ago, a little-known electronics firm in Guangdong province – TCL – briefly became the world’s biggest television maker.
Countless consultants announced the coming of age of China’s global consumer-electronics champions, following Japanese firms like Sony and Panasonic in the 1970s, and Korean contenders like Samsung and LG in the 1990s.
Whatever happened to it?
TCL exploded onto the global stage when it took over the TV-making operations of French conglomerate Thomson. Shortly afterwards, it bought the mobile phone handset business of French telecommunications equipment maker Alcatel.
But the two high-profile acquisitions proved disastrous: losses from the enlarged TV and handset operations exceeded Rmb4bn in the first three years after the Thomson and Alcatel acquisitions – nearly triple TCL’s combined profit in the three years immediately before the acquisitions.
TCL’s European TV operations are now in liquidation; its North American business still strives to break even; and its handset gambit has shrivelled, leaving the firm as a contract manufacturer for low-end Alcatel phones sold in emerging markets.
Not only did the acquisitions destroy the firm’s global ambitions – they eroded its position in its home market as well.
TCL’s tale of disaster helps us to understand both China’s crazy-quilt corporate landscape, and the challenges Chinese companies face as they try to internationalise. Three broad lessons emerge.
Dragonbeat is off this week, but will return with some thoughts on Tuesday October 27.
By Will Freeman
Will Freeman is a staff member of Dragonomics Advisory and is a guest contributor to Dragonbeat blog this week.
China’s rare earth miners, if you believe a flurry of recent newspaper articles, have the world’s producers of high-tech equipment by the short and curlies.
A draft plan by China’s Ministry of Industry and Information Technology (MIIT) to ban exports of certain rare-earth metals has fuelled fears of an impending global shortage of high-tech products reliant on these metals.
Although MIIT now assures that no such ban will be enforced, high-tech producers remain nervous. Rare-earth metals are used to make vital components in wind turbines, electric cars and a host of electronics appliances.
Our advice: don’t panic.
By Michael Komesaroff
Michael Komesaroff is principal of Urandaline Investments , a consultancy specialising in China’s capital intensive industries, and a guest contributor to Dragonbeat blog this week.
China’s metals industry has an unenviable reputation for being technologically backward and highly polluting. In particular, the perception remains that China’s steel industry is dominated by thousands of small, antiquated mills producing low-quality construction steel at a high environmental cost.
Yet, while this description remains true of parts of the industry, it does not hold for the growing number of modern steel mills that operate at efficiencies close to their best international competitors.
By Rosealea Yao and Tom Miller
Rosealea Yao is Dragonomics’ research manager and a guest contributor to Dragonbeat blog this week
Just how expensive are Chinese homes?
The standard measure of housing affordability compares average house prices with average household incomes. In developed country markets, prices are generally considered expensive if they exceed four times average annual household income.
The house-price-to-income ratio in most Chinese cities has been well above eight for years, and reaches an eye-watering 14 in the priciest cities. The cost of housing in China looks scarily high.
Yet China’s housing market continues to roar upwards. Despite the government’s best efforts to cool the property fever in 2007, the market adjustment that followed in 2008 now appears but a blip: house sales in the first half of 2009 matched the frenzied buying of 2007, and prices look set to follow.
By Tom Miller
China is rightly proud of being the home of tea, the world’s most popular drink. Celebratory cups of cha were sipped when China recently regained from India its historical position as the world’s pre-eminent tea producer and consumer after a 100-year hiatus.
But the country’s failure to produce a single internationally recognised tea brand is a source of frustration for cheerleaders of the native Camellia sinensis leaf.
Both at home and abroad, Chinese tea brands struggle to compete with foreign competitors. In China, Unilever’s Lipton brand has a market-leading share three times that of its closest local rival.
“Why is Lipton more powerful than 70,000 Chinese tea companies?” lamented a recent article in a Beijing newspaper.
By Will Freeman and Tom Miller
For years, China’s domestic carmakers have languished in their foreign competitors’ slipstream. Strip out the legion of blue trucks and white minivans that crisscross the hinterland, and Volkswagen, GM, Toyota and Honda are the vehicles of choice on the country’s 3.8m km of highway.
But sales of Chinese brands are accelerating: four out of every 10 cars bought in China in the first half of 2009 were domestic brands, led by BYD, Chery and Geely.
Dragonbeat is off this week, but will return with some thoughts on Tuesday September 8.
Dragonbeat is on a trip through the tea plantations of northern Hunan and will be off for two weeks, but will return with some thoughts on Tuesday August 11.
By Tom Miller
And lo, did Beijing wave its magic wand, and there was much rejoicing!
China’s economy grew 7.9 per cent faster in the second quarter of this year than it did during the same period last year. That means GDP expanded by 7.1 per cent in the first half and is now set to hit the government’s magic 8 per cent target for the year.
Beijing’s massive fiscal and monetary stimulus appears a roaring success. The combination of central government deficit spending and a tsunami of bank loans mean that the total amount of extra cash pumped into the economy above a business-as-usual scenario could be in the order of US$1,000bn this year alone.
But paying for stimulus projects is putting strain on local finances. Only around 30 per cent of the stimulus cash will come from central coffers, with the rest provided by local governments and companies, largely paid for by bank loans and bond issuances.