What not to learn from China

What not to learn from China
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First Published: Tue, Jun 16 2009. 09 54 PM IST
Updated: Tue, Jun 16 2009. 09 54 PM IST
Hell hath no fury like China scorned. If there’s one new lesson learnt last week from the failed Rio Tinto-Chinalco deal, it’s that Chinese officials don’t like being snubbed. But that’s only because they still haven’t internalized the old lesson of their botched overseas ventures: An authoritarian state’s global commerce will be always confused with naked nationalism.
Earlier this month, UK-Australian mining company Rio Tinto walked away from a $19.5 billion investment offered by the Aluminum Corp. of China (Chinalco)—a state-owned entity.
China’s newspapers are vitriolic; and as organs of Communist Party propaganda, they only reflect officialdom’s views. The Beijing Times wrote, “Rio Tinto is just like an unfaithful woman”. Xinhua, the official news agency, wrote last week of Rio’s “perfidy”, arising out of “possible political prejudice”.
Political prejudice is right, but can hardly be blamed. Australia’s regulators were wary of this marriage: It’s hard to completely rule out protectionist sentiment Down Under, but the suitor was far from perfect. First, there’s no guarantee that a company majority owned by China’s Communist government won’t bring political interference to management decisions.
Second, China itself is interested in what it calls “national champions”, companies that may or may not add to shareholder value, but certainly boost national prestige. Third, Chinalco’s bid for a mining company cannot be separated from the country’s thirst for natural resources. In this quest, Beijing has allied itself with African dictators and imported mass labour into that continent. These factors have hurt China’s previous foreign bids, most famously that of a US oil company in 2005.
India’s foreign deals, though, haven’t faced similar obstacles. It’s not as if Indian companies aren’t interested in politically sensitive industries in, say, the US: Yet Essar’s 2007 purchase of Minnesota Steel or Tata’s Jaguar buy barely raised political eyebrows. There’s no problem with the foreign flow of capital, as long as it’s transparent and with no political strings attached.
Rio Tinto is a reminder of the strength India can play on as it builds more goodwill across Africa and Asia. It’s also a reminder that getting too jingoistic over business deals—as India often did in the heyday of its global deals, and as China is doing now—doesn’t help.
What can help India over China in the global business arena? Tell us at views@livemint.com
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First Published: Tue, Jun 16 2009. 09 54 PM IST
More Topics: Ourviews | Rio Tinto | Chinalco | Tata Jaguar | Views |