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China's market is opening up to foreign companies faster than changes in rules and regulations may suggest, according to Steve Schneider, chairman and chief executive officer of GE China, a unit of the US industrial and financial conglomerate the General Electric Company.
The bureaucratic machinery is often seen to be moving too slowly in certain areas of market opening in accordance with China's commitments to the World Trade Organization (WTO). But "the WTO commitment is a culture, the willingness to open to the outside," Schneider says. "It's the spirit that counts, "he says. That spirit is prevalent in many provinces, cities and counties throughout the country, he says.
Such openness has been manifested in many areas in many different ways of which "transparency "is considered to be among the most notable by Schneider. He explains that there has been a significant increase in the level of "transparency" in the way business is done in China. This "transparency of process" has helped greatly in minimizing the uncertainties and risks in operations as simple as moving goods from one location in China to another, Schneider says.
Undoubtedly, China has taken concrete action in opening its market to foreign participation, especially in the industrial, trade, energy and distribution sectors, Schneider says. The opening of the financial markets is, understandably, taking a bit longer as the Chinese banking sector is working hard to solve bad debt problems.
So far, "we feel pretty good about the progress China has made in honoring its commitments to the WTO and we anticipate that it will continue to concentrate on market opening," Schneider says. As a major foreign investor in China, GE has established 36 businesses in China, ranging from aircraft engines, power systems, plastics, medical equipment and transportation, to lighting and home appliances.
Schneider says that the "WTO spirit" has also affected the thinking of GE and many other foreign investors about the China market. In the past, most foreign companies only had a short-term view as they were interested in selling their products to China. They only cared about sales figures, while making no commitment to the market.
As a result, these foreign companies only made limited investments in setting up rudimentary sales channels and distribution networks, usually in joint ventures with Chinese enterprises. Longer-term investments in after-sales service and product development were seldom included as part of the market strategy.
"We used to think about China in a rather opportunistic way," Schneider concedes.
This is changing. Some of the largest foreign companies in China are beginning to make long-term investments in customer service, research and development and, more importantly, in training local staff. GE, for instance, is placing great emphasis on "localization" and has established a research center in Shanghai, Schneider says. In addition, it is expanding its operation network in China "to be closer to our customers," he says.
Looking ahead, Schneider says the company's strategy for 2004 is to build on and expedite the development in the past couple of years when it has greatly expanded its presence in China through joint ventures and new acquisitions.
"China's entry into the WTO and its commitment to market opening is providing a better environment for our growth," said Schneider.
In January 2003, GE's power systems unit made its first investment in China with the establishment of a US$14 million joint venture with Shenyang Blower Works to provide repair and maintenance services for oil and gas equipment, and manufacture parts and components.
GE Power Systems also took over a majority ownership of Kvaerner Power Equipment Co Ltd (Kvaerner Hangfa) of Hangzhou, one of the leading suppliers of hydropower generation equipment in China. It is the largest acquisition for GE Power Systems in China.
The company won US$900 million in contracts to supply gas turbine systems to five Chinese power producers. GE won the bidding for that contract in a consortium with Harbin Power Equipment, which is licensed by GE to assemble the turbines under a technology transfer arrangement. In addition, GE has reached a joint venture agreement with Chenyang Liming Aero-Engine for the technology transfer and production of a special type of gas turbines.
Later that year, GE won US$3 billion plane engine orders from Beijing just on the eve of China's Premier Wen Jiabao's visit to the United States. Meanwhile, the company is eagerly waiting for government approval to conduct financial, mainly equipment leasing, business in China. But the long wait does not seem to have fazed Schneider, who has remained hopeful.
"Many people have suggested that the opening (of China's financial sector) should be faster," he says. "But we don't agree because we understand that if the government is moving too fast with the opening, the market can hardly handle the impact."
Despite the slow pace of the opening, GE has already gained a foothold in China's financial market through its involvement in the disposal of non-performing loans.
"We are here at the right pace, and we are patient," Schneider says. "It is the long-term commitment not the one-time investment."
(China Daily January 15, 2004)
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