Playing Chess with the Chinese

Last week, I suggested that Shanghai Automotive Industry Corporation might be the most likely GM buyer, if it came to that.

So if GM goes bankrupt in January, as may happen, it may well have to sell itself off (unless the government guarantees the same kind of financing that it is refusing now). And I believe one company is one of the most likely–and indeed sensible–buyers: Shanghai Automotive Industry Corporation, or SAIC, the Chinese company with which GM partners to do business in that country. 

Apparently, the Chinese thought so too.

Chinese carmakers SAIC and Dongfeng have plans to acquire GM and Chrysler, China’s 21st Century Business Herald reports today. [A National Enquirer the paper is not. It is one of China’s leading business newspapers, with a daily readership over three million.] The paper cites a senior official of China’s Ministry of Industry and Information Technology– the state regulator of China’s auto industry– who dropped the hint that “the auto manufacturing giants in China, such as Shanghai Automotive Industry Corporation (SAIC) and Dongfeng Motor Corporation, have the capability and intention to buy some assets of the two crisis-plagued American automakers.” These hints are very often followed with quick action in the Middle Kingdom. The hints were dropped just a few days after the same Chinese government gave its auto makers the go-ahead to invest abroad. And why would they do that?

A take-over of a large  overseas auto maker would fit perfectly into China’s plans. As reported before, China has realized that its export chances are slim without unfettered access to foreign technology. The brand cachet of Chinese cars abroad is, shall we say, challenged. The Chinese could easily export Made-in-China VWs, Toyotas, Buicks. If their joint venture partner would let them. The solution: Buy the joint venture partner. Especially, when he’s in deep trouble.

How’s that bridge loan looking now, Richard Shelby? You want your Japanese manufacturers to be competing against cars assembled in China?

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59 replies
  1. DeadLast says:

    I seem to remember from a couple of months ago, a radio news report that said George W. Bush was abroad trying to sell American businesses. I guess I was supposed to have taken that literally.

    I wonder if the Chinese beleive we will sell them the rope?

  2. JohnJ says:

    Some ex-Bosnians I work with believe that China will get all the technology they can into the country, then nationalize al la the Arabs and oil. This fits with their history. (This, in the context that my company now builds all kinds of very high technology like servers in Chinese factories. Our customers are smart enough to keep the newest stuff here for a while).

    I now don’t think they will have to; they’ll just buy it all with our own money.

    Let us not forget China is still a 100% communist country that is playing the capitalist game against us.

    • jdmckay says:

      China will get all the technology they can into the country, then nationalize al la the Arabs and oil. This fits with their history.

      (…)

      I now don’t think they will have to; they’ll just buy it all with our own money.

      (…)

      Let us not forget China is still a 100% communist country that is playing the capitalist game against us.

      I don’t think that’s an accurate accounting of things. If this attitude takes hold here, we’re even more fucked because such cries have no recourse to change current conditions and, in fact, blame Chinese for what is 100% our own homegrown black hole… nobody to blame but ourselves.

      Quick explanation:

      * Work/labor we offshored there greatly accelerated in late ’90’s. We had opportunities to set international standards on labor/conditions/work hrs etc., and repub congress ignored them entirely w/”anti capitalism” type rehtoric. (NOTE: Pelosi was among voices advocating this stuff @ the time).

      * Chinese labor received pennies on the $$. And it wasn’t just prison labor: NIKE workers in 2000 couldn’t buy a pair of shoes they made w/entire year’s salary. Similar poverty pay across the board. Yet under these conditions, these workers still saved while US citizens and treasury consumed everything in sight.

      * When Chinese Treasury had enough to begin domestic financed development, they did in big way. Accellerating at breakneck speed since early 2000’s, they’ve done so in huge fashion across all sectors: tech, energy development, infrastructure, education & more. Again, all fueled by $$ they saved working @ near slave wages.

      * Chinese investment here… treasuries, F&F bonds etc. all done by rules of the game that US set. It was these purchases (also Japan/Russia etc.) that financed our spending/consuming/housing binge. Again, that sure as hell isn’t their fault, it’s ours.

      * Their contracts w/GM (and other) auto makers explicitly defined roles and ownership from beginning: in short, GM was given huge training role w/understood minority ownership in those early Chinese auto efforts. It was spelled out from beginning: GM etc. was being paid to teach them how to do it, not to get majority piece of the pie infinitum. They avoided the subsequent nationalization stuff ME oil producers had to go through right up front.

      * Chinese have been buying huge volumes of US tech companies on open market for years now, though it’s gone largely unnoticed. From their quickly improving Space program, to world class manufacturing & whole lot of other stuff, they bought this stuff right here in USA fair & square.

      * Perhaps most ominous, their holdings (much larger that what McCain said on stump… at minimum $2.2t and likely twice that) are all obligations we have to them, fair and square. Aside from fact we’re flat ass broke, just servicing debt on these things is mammoth obligation, let alone actually paying it back: eg. our economy has been sold off for short term profit while US was snoring.

      Given rules of the global economy, China has not only played by the rules but been far less predatory than we (IMF) have been. That they have the cash to buy GM… well, that’s how this stuff works people. It’s the religion WS, repubs, Bill Clinton and all the rest have been preaching for some time now. And if you read Asian financial pages, I can assure you they have approximately -0- sympathy for our predicament. Chinese return on investment for their massive US Treasuries is negative… they’ve lost money.

      Given conditions under which we prospered and spent while they lived barely minimally and saved, not much to argue w/there AFAIC.

      I China calls in their Treasuries alone (not to mention F&F) we are immediately in default… we don’t have it to pay. We will, officially be a 3rd world country.

      And lest it’s out of view, the US Auto mfg purchase by China scenario has also been going on in finance: Singapore, Malaysia, China have huge stakes in a number of our financial institutions, all done along the way to current mess as these guys tried to keep their fuckups quiet by selling a bit more of their sole. The GM scenario Marcy describes only the latest episode, and not much different than the previous.

  3. emptywheel says:

    I think the proper description is that China is a millenial autocratic empire currently pretending to be a communist country practicing capitalism.

    But the emphasis should still be on autocratic empire.

    • JimWhite says:

      millenial autocratic empire

      Under Bush, the US has been an aspiring autocratic empire. We’re not nearly as good at this as those with millenia of experience.

    • bell says:

      indeed.. perhaps you have an appropriate updated description of what the US is similar to jim whites as well?

      • klynn says:

        Under Bush, I would say the description is based on, “Had your chance and muffed it.”

        “muffed it empire”

    • JohnJ says:

      Perfect; thank you!

      While “communist” has a shock effect, it never felt right in this case. I have been looking for a better description for a while.

      Of course, to most of the people I currently work with “millenial autocratic empire currently pretending to be a communist country practicing capitalism” would be lost, since English is a second language.

      I gotta remember to who reads this stuff here!

    • TobyWollin says:

      Marcy – isn’t ‘Job One’ for the Chinese making sure all of those 918 million ‘working age’ adults are employed? Isn’t there a huge concern for them about instability due to lack of work/wages?

      • emptywheel says:

        Absolutely. But that’s one of the reasons why a GM or Chrysler purchase woudl be so useful to the Chinese–it would move them closer to the positoin where they could assemble US brand cars in China and import them to the US–which would give them a little more ability to raise wages.

        • TobyWollin says:

          I’m no historian, but it seems to me that particularly for the Chinese – keeping all those people occupied and under control is just a huge part of the government psyche, whether it was run by the emperors, Mao, or whoever. Keeping the place from going down in flames requires keeping people employed, fed and housed.

  4. BooRadley says:

    ew, I just got off the phone with Shelby’s DC office. The woman I talked to was very skilled. I gave her the title of your post, she googled it, got it right away. I asked her point blank, is Sen. Shelby trying to put Alabama automakers out of business? She appeared to get it. You let the Chinese snarf up GM, it’s a threat to auto worker jobs in AL.

    • GulfCoastPirate says:

      Not to be off topic but I just finished going through some of those posts in your AG thread. I know I haven’t been around much lately but when did the Borg arrive? Couldn’t you folks have shot off flares or something as a warning?

        • GulfCoastPirate says:

          Yea, I know you do but be careful, it’s addicting.

          What did that one person say; we should wait 200 days before evaluating Obama? What I want to know is why. Did AIPAC have an election also? I can’t see where there are going to be any changes. Rahm handling the door. Hillary as SOS. Potentially a Republican at Defense, maybe even Gates. These aren’t people who will dismantle the empire and without doing that it makes no difference who Obama appoints elsewhere since there will be no money to do anything anyway. Especially after the Chinese use up all their surplus buying the automakers (and who knows what else). Who is Obama going to borrow from to keep all the wars going?

        • randiego says:

          i am Locutus of Borg. I attract them. Yeah, I know, hard to believe….. (I do egg them on a little bit)

          The Borg went a little apeshit yesterday

  5. Hmmm says:

    Would it be better for the Chinese to acquire the Big 3 corporations before, or after they file for bankruptcy? Naively it would seem doing it promptly after a Chapter 11 filing would make for a cheaper overall price, and the companies would still be intact (more so than under a Chapter 7 filing). So perhaps an optimal outcome from the China POV.

    Followup: Who in the USG is helping steer things towards a Chapter 11 denouement, and if there are any such actors, do they have China connections?

  6. Hmmm says:

    Post by Propagandee on Jane’s thread:

    I wonder if Shelby et al have considered the national security implications of not having a US owned manufacturing base to retool in the event of war as the auto factories did in WW2.

  7. klynn says:

    EW,

    Thanks for this post.

    I noted a blog here and spotlighted a few comments. One addressed the long term problem of our R & D ending up in foreign hands. It’s a great comment.

  8. randiego says:

    I have to say – EW’s “Auto Industry” threads have been a great education. In talking to friends, it’s amazing how many people are willing to let the whole thing burn. It’s clear that people don’t understand what is at stake.

  9. klynn says:

    bmaz,

    Thanks for your help. I got everything fixed and managed to get my second Oxdown up in three days.

    You might enjoy the links. It’s great the NYT’s has some smart readership. I linked to the Oxdown @ 34.

    • klynn says:

      It could be China.

      It could be Russia. Russia is flooded with cash and would love to make cash off of our “tanking”.

      Could be Venezuela via Russia.

      It could be Israel.

      But it IS national security nonetheless.

  10. bell says:

    the stock market at present is suggesting the auto companies get no financial support… ge with its ge capital arm doesn’t look all that healthy either..

  11. bobschacht says:

    Oh, the stupid! It burns!

    Bush visited China in November, 2005– the famous trip where he tried to walk off the stage only to find the door locked. The Chinese must have been delighted to deal with such a relative simpleton, who knew so little about governing.

    …reflecting the White House’s policy of cautious engagement, Mr Bush’s lectures about human rights were mixed with entreaties to his Chinese counterpart, Hu Jintao, for greater economic cooperation.

    Yeah, like maybe “You finance my war and I’ll give you an auto company”? Well, not in so many words, of course. I wonder what “greater economic cooperation” meant to him? and what it meant to the Chinese?

    But the visit earned promises by China to curb the huge trade imbalance and an announcement that it will buy 70 Boeing jets worth $4bn (£2.3bn). . . .
    The leaders attempted to ease tensions surrounding the US trade deficit with China, which is set to hit $200bn. While making no specific promises, Mr Hu said China would cooperate to reduce the surplus, as well as gradually loosening its control over the renminbi currency.

    How’d that work out, Mr. President?

    Bob in HI

  12. LabDancer says:

    This could be a “reply” but there are too many before me to pick from.

    I don’t think the Chinese would be interested in picking off the whole 2.5, because that would put their auto business in direct comparison with the folks they’re already losing out to, eg. in first place the Japanese, then a number of European builders, and coming up the export arm of the burgeoning Indian low tech personal, nuclear family and routabout auto makers. I think it’s TobyWollin who’s most insistent in asking why the Chinese would buy one or more US builders to build here when keeping the home folks there busy is such a priority, which in turn seems to be what’s driving hyper rational types like fearless leader ew to say It’s the technology, stupid.

    I think that’s part of it, because stealing tech for manufacture for their own home market is one thing, whereas using stolen tech to build things for export can be quite another. But I don’t think that’s the only rationale – rather, I would think that there’s as much significance in the idea of market access

    [despite the current hilarity in picturing that in an economy that now for the first time since just after WWII is experiencing DE-flation!].

    Keep in mind the Toys R Death To US fiasco of last Christmas and the harm the Chinese are bound to know that must have done to a brand that even before that has been historically associated with cheap novelties and knock-offs. One would think that an acceptable transition from that brand into stand alone cred might be “made mostly in the US by mostly US workers per US designs in accordance with US standards”.

    And acquiring control of [though not necessarily all ownership in] ONE of GM or Ford [I fear little old 0.5 Chrysler is not long for this world] doesn’t just provides a more meaningfully comparable competitor, including at a distinctly US price point, but it also puts the larger entity, ‘China Inc’ if you will, in a far better position to overcome Toy R Death To US fiascos, ie to get their OTHER manufactured goods into the US, which even after the current chastening is very likely to be more consumption-inclined than any of the large population formerly Third World giants, if only due to aspiration.

    Finally in this vein, if exporting is one of the main ideas behind China Inc, then allowing its historically best customer to collapse and die doesn’t make sense – – and sense is one of the things the Chinese are strong in, indeed sometimes quite brutally so.

  13. klynn says:

    I have a favor to ask of the EW readers. Catherine Rampell, econ editor of the NYT’s, has been missing some important points of the auto bailout in her posts the last few days and I would like to let her know that.

    I posted an Oxdown addressing that her poking fun in her posts by noting the “car wash” business would not be affected by the auto industry dissolving, was not the snark needed at this time.

    Thankfully her readers have more insight.

    If some could come and visit, it might help make a point about her lack of focus.

    The commentors here at EW’s and the Lake are some of the best I have come across on the net, although some of the commentors on Rampell posts would fit in here wonderfully.

    Thank you for anyone willing to help on this matter.

    • masaccio says:

      A lot of people who post comments on blogs read comments. I suggest you post a comment with a link to your diary, or a link to one of EWs.

  14. pseudonymousinnc says:

    I’m glad EW has been on the case here.

    And I’m sure that Alabama Dick will be whining if a SIAC-owned GM starts importing Chevy Celtas from Brazil and selling them at loss-leader prices, and the noble Southron non-union labour at those home-state plants feels the squeeze. And then a further squeeze comes from Chinese-sourced Chevys. Oh, sure, they’ll keep a few boutique ops in the US to make genwine ‘Vettes, but it’ll be more like Jaguar, Bentley and Aston Martin.

    (The one smart thing Michael Ledeen ever said is that modern China is best appreciated as an example of a ‘mature fascist state’ — i.e. what Franco’s Spain might have looked like with an heir that respected the father, or Mussolini’s Italy without the whole war thing.)

    My top scenario, though, is that Holden gets snarfed by an Asian maker, Vauxhall-Opel gets nabbed by a Euro — possible a Frenchie, or a joint acquisition — and the LAAM and NA ops go to China.

  15. pollyusa says:

    EW

    Rove’s advice to Obama in WSJ. Too funny

    There is also a thorny local controversy. Should the new president replace U.S. Attorney Patrick Fitzgerald, who prosecuted Mr. Obama’s fund-raising patron, Tony Rezko, and is investigating high-profile Democrats?
    Karl Rove WSJ 11/20/08

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