Thursday, February 25, 2010

Hummer rejection: It's all right there in the policy

The recent failure of a Chinese company to buy the Hummer brand from GM highlights an interesting aspect of business-government relations in China.

Nearly every news article on this failed transaction has contained quotes from people at China's Ministry of Commerce stating that Sichuan Tengzhong, the intended purchaser of Hummer, never even submitted an application. An article in today's Wall Street Journal contains a similar quote, and also includes the NDRC, China's main economic planner, in the mix:
On Wednesday, Assistant Commerce Minister Wang Chao said his ministry never received an application from Tengzhong, echoing other comments from the ministry in recent months. An official in the foreign affairs department of the NDRC said the commission also hasn't received any application.

"It looks like no one took responsibility" for the deal inside the bureaucracy, said the person. But since Tengzhong's application "was never formally received" by regulators, "it's not going to be formally rejected."
Seriously? Are we to believe that Sichuan Tengzhong was so absent-minded that they neglected even to fill out the paperwork?

Of course not. We can be certain that representatives of Tengzhong have been living in Beijing for at least the past eight months, doing their best to gain approval for this deal. But since there does not exist a clear set of criteria as to how such an approval decision would be made, discussions had to be conducted on an informal basis.

Though I am privy to no confidential information, I can imagine most of the discussions could be summarized as follows:

Tengzhong: If we apply to you for approval, will you approve it?

Random representative of any number of agencies: Hmmm, that would be, um ... difficult.

Throughout the past year, as I conducted interviews among various auto industry related people, I was continually amazed that no one seemed to have a full picture as to how approvals for business deals should work. Those who appeared confident in their answers often provided me with information that conflicted with what I had heard from others.

It finally occurred to me that I was trying to shoehorn China into my own expectation of how a government should work, and that the lack of clarity in the rules isn't necessarily a bad thing. Of course, it isn't necessarily a good thing either.

Still, as I pointed out in my previous post on Hummer, the deal was unworkable from the Chinese perspective because it did not conform to central government policy. What Tengzhong's representatives were essentially doing in Beijing was asking the Ministry of Commerce, NDRC, et al, to approve their attempt to violate Central Government policy.

China's Central Government may lose the occasional battle, but it ultimately gets what it wants. If you want to know what the Central Government wants, the best place to start is their policies.


  1. This has nothing to do with government, or maybe just a little.

    A great publicity stunt for Tengzhong. From marketing point of view, It's a brilliant move. Tengzhong lets its name linger for several months, then asks the government to "disapprove"(kill) the deal for them.

  2. Thanks for your comment, Jack. Though I'm not sure I agree.

    If you had said that an unsuccessful attempt by Geely to buy Volvo were merely a marketing ploy, I think I could agree. Because Geely sells a consumer product, and they want desperately to break into the American auto market, even an unsuccessful run at Volvo would have brought them unprecedented brand recognition -- both inside and outside China.

    Tengzhong, on the other hand, doesn't sell consumer products. They sell heavy equipment. If all Tengzhong wanted was publicity, there would have been far more cost effective ways of doing that. They wouldn't have needed to waste all that time negotiating with General Motors, and they wouldn't have needed to hire a foreign PR firm. In fact, from what I can gather, Tengzhong is already fairly successful and well-known in its market.

    If this was really a publicity stunt, then Tengzhong's management are among the most incompetent. I can't imagine GM wouldn't have eventually figured that out. Then again, maybe they did. :)

  3. Chris Devonshire-Ellis had an interesting take on the issue over at China Briefing, not just the political angle but also an otherwise not reported offshore tax aspect that killed any Plan B:

  4. Thanks for you comment, Anonymous.

    You are right, he makes a very good point about the tax implications. Perhaps it was GM who vetoed the "plan B".


Note: Only a member of this blog may post a comment.