Promise the Sky and You Risk Being Blown Away: Unwise Chinese Firm Investment Promises

Dr. Jean-Marc F. Blanchard's picture

It has become de rigeur for Chinese companies investing overseas to make all kinds of promises to defuse host community anxieties, to smooth the deal approval process, and to win government investment incentives. For instance, in 2010, when Chinese bus maker BYD Motors, Inc. entered California (USA), it won almost $40 million in government contracts, subsidies, and tax credits in return for various job creation and benefit promises. In 2012, when China National Offshore Oil Company (CNOOC) bought Canadian firm Nexen for more than US $15 billion, it promised “‘no reduction in manpower’” and to keep senior executives to secure government approval of the deal. Now, news headlines show a Chinese company once again making similar promises. Specifically, Chinese appliance firm Midea, as part of its nearly $5 billion bid for German robotics firm Kuka, is guaranteeing to keep the current headquarters and maintain factories and staff for roughly eight years. Yet macroeconomic and firm-level business realities, among other factors, can make it difficult for Chinese firms to honor such promises. For instance, according to some reports, BYD has created few of the expected jobs. And, various factors led Nexen to lay off several hundred employees within two years after its acquisition by CNOOC. The BYD and Nexen episodes have led to a black eye not only for the Chinese firms in question, but also Chinese firms more generally. One wonders, therefore, about the wisdom of Chinese companies routinely giving job, benefit, and headquarters guarantees given the bad image and distrust that follow if they fail to live up to such promises. A wiser strategy might be guarantees by Chinese companies to treat laid-off workers and managers in a generous way and to do all they can to minimize the pain on local communities in the event of a restructuring.