Editorials

Despite the media’s best attempts to whip us up into a frenzy of fear and loathing, the first serious wave of Chinese outbound investment that occurred felt rather distant to most people in the West. While some people were vaguely aware that the ThinkPad laptop had lost its IBM branding and had morphed into something called a Lenovo, most people were relatively unconcerned that the hungry Dragon was acquiring a serious number of mines and oil fields. After all, unless you were working for a company directly impacted, the bearing of these deals on peoples' daily lives was negligible. The most recent wave of M&A, sparked off by the financial crisis, feels distinctly different. As asset prices across all industries remain depressed, savvy Chinese acquirers are picking up distressed companies that have much less choice in who they sell themselves to or partner with. For many, it’s work with the Chinese or fold altogether.

One senses that the mood is starting to become a bit tense. While local and national governments polish off their shiny new Mandarin investment brochures, looking to the East for investments into greenfield and brownfield sites as well as help with new infrastructure projects, some of their citizens feel decidedly less comfortable about the Chinese buying spree, especially when it comes to treasured national brands. While Volvo slipped into bed relatively quietly with Geely, and the Swedes didn’t seem too overtly bothered by the deal, rumblings are afoot elsewhere.

China Brain suspects that the straw (or wheat in this case) that breaks the camel’s back has just been announced. That is, of course the fact that Bright Foods, a behemoth Chinese food company, has set the British breakfast table in its sights – in the form of the brand Weetabix. Apparently one billion pounds is the offer. Dating back to 1932, Weetabix was family owned for 72 years before eventually being snapped up by a private equity firm. Now, one wonders if the fact that this private equity firm is Texan was widely reported in the British press at the time. Or is the fact that a Chinese company is buying a beloved British brand far more newsworthy?

Whatever the case, this is another example of ordinary people really feeling the impact of Chinese companies’ increasing adventurousness on the global stage, as their balance sheets remain strong and loans are relatively easy to come by. But one can see that some of the new deals are ones that the man on the street might object to a little bit more than previous ones that had no noticeable impact on their daily lives. In Britain, a Chinese retailer has picked up the royal tailor Gieves and Hawkes, while just last month in New Zealand, the government approved an application by the Shanghai Pengxin Group to buy 16 dairy farms which are about as close to royalty as you can get in New Zealand.

The wave of deals is expected to strengthen – unlike the last one that fizzled out a little with CNOOC’s failed mega bid for Unocal. In fact, outbound deals have already tripled since 2006. It would appear that Chinese firms have dramatically improved their understanding of PR and corporate relations, giving themselves a much better chance of success. Ultimately though, the key factor is that the companies they are often interested in have very little choice. Expect some uproar and some gnashing of teeth around the British breakfast table, but a stiff upper lip will no doubt prevail, and a begrudging acceptance that this is the shape of things to come. Just think, in New Zealand, you might be able to eat a breakfast entirely produced by Chinese companies…

If you’ve spent the last week focused on continuing machinations behind the closed doors of Zhongnanhai - where if we believe the rumours to be true, the Party has been pulling itself apart at the seams in order to piece itself back together again - you might have missed the biggest news of the month. That was of course, Huawei’s decision to sponsor the Canberra Raiders Rugby League Team.

The decision to hand over a cool US$1.8 million to see their logo adorning the shirts of a fairly unknown team - certainly to anyone outside of Australia  - may have confused you at first. On closer inspection, however, it becomes clear that the move has everything to do with the Australian government’s decision to turn Huawei’s bid to work on the rollout of a national broadband network. Rather than having a hissy fit and storming back to the firm’s mega campus in Shenzhen, they chose instead to sponsor the Raiders.

The reason is simple. Huawei hopes to ingratiate itself with the locals and throw off its image as an instrument of the PLA, something it has repeatedly failed to do despite a string of attempts in the past and which continues to hamper its expansion into developed markets.

Disregarding Huawei Australia CEO’s outlandish claim that “with Huawei’s 140,000 staff, it’s safe to say that the Raiders have just gained 140,000 new fans around the world”, it does look like a canny piece of PR. It’s sending the right message: you turned us down but we’re not going anywhere; in fact we’re so mad about Australia we’re going to sponsor your rather mid rate rugby league team. This week a team, next week the entire League perhaps?

Foreign companies sponsoring sports teams is nothing new of course. As economic power has shifted West to East, we’ve seen a correlated increase in the number of Western teams sponsored by Eastern firms. Just look at the English premiership. The Japanese were at it in the 1980s – JVC sponsored Arsenal, Sharp sponsored Manchester Utd, and er…Crown Paints sponsored Liverpool (woops).  The Koreans adorn the Chelsea shirt in the shape of Samsung, while Arab nations are now well represented via Emirates’ sponsorship of Arsenal and Etihad’s of Manchester City.

But up until now, we haven’t seen too many examples (at least not to China Brain’s knowledge) of Chinese companies sponsoring Western teams. In the same way Chinese demand has raised prices for assets in the past, should we expect to see a similar effect occurring in sports sponsorship?  We wouldn’t be surprised to see representatives of the many teams who are struggling financially in these times of austerity heading over to China. Much in the same way business junkets continue to arrive on a daily basis attempting to flog all and sundry to the Chinese, who’s to say that they won’t succeed where others have failed? It’s just a shame for Glasgow Rangers that Scotland’s oil has run out, otherwise we would be fairly confident of seeing PetroChina’s or CNOOC’s name on the shirt and an easy way out of their insolvency crisis.

Huawei has made a bold first foray into foreign sports and it is once again blazing the trail for Chinese firms overseas. Its first task is to test whether the Raiders will really live up to the company’s vision, which according to its web site is ‘To enrich life through communication’. Anyone who’s shared more than a few drinks with a representative of an Australian Rugby League team will affirm that their communication style can certainly be colourful. Enriching might be stretching it a bit though. Good on yer’ Huawei.