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Chinese Business Sets Sights on Europe
International Herald Tribune, September 26, 2006

GENEVA China 's shareholders and CEOs are growing restless. Keen to expand faster and further than even the phenomenally successful local market allows, they are setting their sights on Europe . The continent offers strong infrastructure, relatively stable politics and opportunities to buy cutting-edge technology, well-known brands and ready distribution channels for China 's cheap goods.

But it would help if Europeans weren't so complicated.

Such was the consensus at the China Europe Business Meeting this week of 250 European and Chinese business leaders in the lakeside setting of Geneva .

Whereas not long ago Western companies had to undergo culture shock, management training and plenty of consulting in order to do business in China, the tables are beginning to turn as China's industrialists and financial institutions see in Europe a source of old world prestige and quality.

In 2004, China invested some US$40 billion (€31 billion) abroad, according to the U.N. Conference on Trade and Development. But high labor costs, troublesome unions, centuries of tradition and miles of red tape are proving formidable obstacles.

"Whenever we go into a new environment, we need to get used to the situation. Many Chinese companies coming to Europe aren't even aware of the local laws," said Ren Hongbin, president of China National Machinery Industry Corp.

"Chinese companies have a long way to go when it comes to investing in Europe , particularly managers," Ren said.

According to Philippe Meyer of the Geneva Chamber of Commerce, China Inc. needs to take care not to make the same mistakes many Japanese companies made in the 1980s — chiefly a failure to understand local conditions properly and poor communication with non-Japanese staff.

Television and cell phone maker TCL Corp. is one Chinese company that has experienced widely publicized difficulties in its European dealings. Last May, it bought out French communications company Alcatel SA's 45 percent stake in a handset joint venture after heavy losses partly blamed on high labor related costs in Europe .

By contrast, when Hong Kong 's Johnson Electric Trading Ltd. purchased Saia-Burgess Electronics Holding AG for 700 million Swiss francs last year, it was seen as a white knight saving the Murten, Switzerland , based electronic products company from a far lower bid by Sumida Corp. of Japan .

Bit part investments remain an option too. Last week, China 's national pension fund reaffirmed its plans to direct some of its overseas investments to Europe .

"Overseas investment is an important way to expand investment channels of the National Social Security Fund and it will help diversify investment risks, "Xiang Huaicheng, chairman of National Council for Social Security Fund, said in May after rules on foreign investments were eased.

According to Xiang, the fund's assets totaled more than 230 billion yuan (US$29 billion; €22.7 billion) at the end of August.

In the medium to long term, Europeans are going to have to adapt to China 's business interest. Along with mainland tourists coming over to visit the continent in increasing numbers, the sight of Chinese executives touring European factories and research and development sites will become commonplace, business leaders at the meeting agreed.

"Let's face it, Chinese companies have money," Wenchai Chen, president of Taiwan's VIA Technologies Inc. and co-chair of the conference, told The Associated Press. His company deals extensively with mainland partners and sees its economic future tied to China however political arrangements develop with Taiwan .

"Coming to Europe , buying some European companies, makes sense. They can even afford to make some mistakes. But they aren't big enough to take on social responsibilities," he said.

Guaranteeing high-cost jobs for European workers while cheap labor is readily available at home isn't a reasonable demand to make of Chinese investors, said Wenchai. "Local people need to be realistic about what they can expect."

This advice will be little consolation to the workers of Britain 's auto manufacturer MG Rover, which last year was broken up and partly sold to Nanjing Automobile Group, leaving most of the 6,000 employees at the Longbridge plant near Birmingham jobless.

If the trickle of investment becomes a flood, and combines with Europe 's stagnant job market to create a sense that China is snapping up bargains at the expense of workers, the issue could rise up the political agenda, warns Carl Hohenthal, a partner at corporate communications firm Brunswick Group.

"There might be political movements in future that could be difficult for the mergers and acquisitions business to handle," Hohenthal said. But courting China will not be a matter of choice, he added. "We (in Europe ) are in deep trouble if we don't cooperate with China . If Europe is too difficult to handle, China may leave us out."

European governments aren't alone in posing potential difficulties to China 's investors. Washington's intervention to stop state-owned oil company CNOOC's takeover of California-based UNOCAL Corp. last year tainted previously good U.S.-Chinese business relations.

According to Ronnie Chan, chairman of Hong Kong property developers Hang Lung, the current U.S. administration is too ideological for some investors.

" Europe is a little bit more sophisticated, and has an advantage in this regard over the United States ," he said.

Hainan Airlines Co. Ltd. Chairman Chen Feng said avoiding political issues was key to China 's trade with Europe .

"In general, European companies are very welcoming to foreign investors," he said. "But if there is no chance of working here, we will go back to China .

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