The mountain comes to Mohammed

They say you can’t bring the mountain to Mohammed. Yet every so often there are particular events in time which remind us that anything can happen in a changing world.

Not so long ago the landscape for equipment orders looked very different to today. In his keynote presentation at Power-Gen Europe in Barcelona in May, Philippe Joubert, Executive Vice President of Alstom, highlighted the shift in power equipment orders from the US to Asia and in particular, China. Looking at the time period 1998 – 2002, 46 per cent of turbine orders came from North America. Asia (excluding China) represented 12 per cent while China accounted for 16 per cent. Between 2003 and 2008, Joubert projected that Asia excluding China would increase to 29 per cent and China to 32 per cent.

Also not so long ago, it was widely understood that to make headway in China, foreign companies had to form joint ventures and/or at least agree to technology transfer in order to be considered for contracts. With all roads seeming to lead to China, international companies had no choice but to comply. Yet two announcements both reported on the same day last month (June 2004) indicate that times are changing.

Caterpillar said it is considering stakes in several state-owned Chinese construction equipment companies that could lead to full acquisitions. The group already has four joint ventures in excavators, tractors, castings and small diesel engines.

Meanwhile, Harbin Power Equipment, China’s largest producer of generators has begun talks with GE, Alstom and Mitsubishi Industries on selling an equity stake to bolster the Chinese company’s access to advanced technology and management techniques.

According to reports, GE had been trying to secure a 51 per cent stake in Harbin Power, the largest state-owned company in the northeast province of Heilongjiang. But while the provincial government supports the acquisition, there may be some resistance to the deal. In a report in the Financial Times, Gu Huanmin, assistant governor of Heilongjiang said: “The provincial government supports the acquisition of a stake but the leading group of the company is not so keen on selling that much.”

Harbin would not say how much it was willing to sell. Yet any talk of foreign players buying majority stakes in state-owned Chinese companies would have been largely unheard of until last year when the prime minister of the new government, Wen Jiabao gave them his blessing. For China this was a big step forward and one which was an absolute necessity.

China has a huge and growing labour force and unemployment is a major political challenge. The country therefore has to aim for high long term GDP growth to combat unemployment. At the 16th Party Congress in November 2002, the government set the objective of quadrupling its year 2000 GDP/capita by 2020. This requires a yearly growth rate of 7 per cent.

China’s accession to the WTO calls for the government to reduce its involvement in business. The opening of the service sector will provide jobs for the growing workforce. The sale of stakes in state-owned enterprises to foreign investors will also help to fund heavy social welfare obligations. So it seems that the mountain must now come to Mohammed as China is forced to look to foreign investment.

And speaking of another mountain; last month the French government won a vital parliamentary vote to prepare the French state-owned giant, Electricité de France, for privatization.

The European Commission has been pushing France to remove the automatic state guarantee of EDF’s borrowing implicit in its present legal status ahead of the next phase of market liberalization. On July 1, France will undergo its most significant liberalization since the market was opened in 1999. This next phase will allow 70 per cent of the market to choose supplier compared to the current 37 per cent.

The French government has had to navigate a rocky road in bringing this mountain to Mohammed. A wave of strikes by trade unions in May was the sixth to have disrupted France in the past three months. But the appetite for such actions is waning. A poll for French newspaper Le Figaro showed that 70 per cent of French people favoured the introduction of greater competition in the energy market. Meanwhile, EDF said that only 12 per cent of its workers in France went on strike on June 29 compared with 41 per cent on May 21.

And so the French, like the Chinese, finally concede that times change and that sometimes mountains must move in the name of progress.

Junior Isles, Publisher & Editorial Director

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