Monday, June 29, 2009

The Blurry Line Between Public and Private

According to my original plans, I should be touring a factory right now. Unfortunately, I'm a bit under the weather, so I have a few moments to post an interesting story about someone else's factory visit. (No, I don't have H1N1 "swine" flu.)

A few weeks ago, Chinese Premier, Wen Jiabao paid a visit to Geely's automotive factory in Hunan Province. Despite the fact that Geely is not a state-owned enterprise, this visit is not all that surprising. State leaders all over the world pay visits to privately owned businesses from time to time.

Standing behind Wen's right shoulder is Li Shufu, founder, Chairman and controlling shareholder of Geely.

What makes Wen's visit interesting, however, is the fact that Wen's government itself directly and indirectly owns or controls several competing auto manufacturers. Wen also had some interesting things to say while there:

Today I am speaking about the future direction of Geely's development. I am also asking Geely to submit a special report to the State Council again after six months. I will once again give instructions to continue to support Geely's industrial development.* (emphasis added)
So apparently, at some point in the past, Geely has submitted a "special report" to the State Council (China's "cabinet"), and from the sound of this story, Wen is offering Geely a chance to re-submit this report for consideration. I hesitate to read too much into this, but it does sound to me as if Geely's first report may not have been acceptable.

An automobile analyst with whom I have met here in Shanghai tells me that this "report" is a development plan that charts the strategic direction of the company. The fact that China's government has identified the auto industry as a "pillar" industry over which it intends to continue to exercise heavy influence, plus the fact that Geely is solidly among China's top ten auto manufacturers are reason enough for the government's concern. Despite the fact that Geely is nominally "private", its strategic plans will have to be approved in Beijing.

The surprise for me here is that Beijing is taking a visible lead in the plans of a private firm. I would not have been surprised to learn that the local government of Zhejiang Province, where Geely's headquarters are located, exercises this level of influence, but I am surprised that Beijing is taking such an interest.

In fact, this challenges what I thought I knew about the level of government influence in this industry. My previous impression had been that the central government was only involved at a strategic level with the handful of firms that it directly owns (FAW and Dongfeng), and that all other auto firms were more heavily influenced by local government.

In addition to its apparent role in Geely's strategic direction, the central government also has perks to offer. In the story referenced above, the final sentence says "
年初,中央各大新闻媒体也纷纷对吉利的成功经验作了报道。" ("At the beginning of the year, all of the major central news media outlets made reports on Geely's successful experience.")

This confirms what an executive of one of China's major auto firms personally told me a few weeks ago. "The Central Government offers a kind of support that no local government in China can offer. The Central Government is the only government that controls national level media -- local government only control local media -- and many favorable news stories about a car company can have a big influence on consumer perceptions."

Of course, this brings up questions for which I have no answer. For example, how does the central government choose which auto companies it wants to support? Is there a quality about the company (not necessarily related to the quality of its products) that draws government support? Or do auto companies have to proactively seek this kind of government support? And if so, what does it take to win them over?

* I'm a little unsure as to my translation of 批示 in this context, so please feel free to offer an alternative translation in the comments.

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