- The Foundry: Conservative Policy News from The Heritage Foundation - http://blog.heritage.org -

China Humming A Sweet Tune

Posted By Derek Scissors, Ph.D. On June 2, 2009 @ 5:25 pm In International | Comments Disabled

A brand new Hummer is poised for sale at a GM and Hummer dealership in Denver on March 30, 2009.

As rumored for several weeks, a Chinese company is buying at least one piece of General Motors. GM will sell its Hummer brand to Sichuan Tengzhong Heavy Industrial Machinery for an as yet undisclosed sum, probably $200–$300 million. [1]

There are multiple dimensions to the proposed acquisition, covering both commerce and national security. One immediate response might be along the lines of “America just shouldn’t sell a brand name like Hummer to the Chinese.” This would be misguided interference in the free market and, not coincidentally, something we correctly accuse China of doing. [2]

Another quick thought might be to wonder whether there is advanced technology involved. After all, Hummer evolved from military vehicles. With few details of the deal available [3], it is not clear what, if any, production facilities or technology are being transferred. It may be that only brand and marketing assets are involved.

If technology is being transferred, the U.S. has a system of reviewing foreign investment to ensure important technology is protected – the Committee on Foreign Investment in the United States, or CFIUS. [4] A situation like this cries out for CFIUS evaluation, so that facts can be laid out publically and guesswork is unnecessary. This has less to do with involvement of a Chinese company than with Hummer’s military roots.

The purely commercial aspect of the deal is murky which, unfortunately, is standard for Chinese investment overseas [5].

Sichuan Tengzhong’s interest in Hummer is not too surprising – many Chinese industrial groups aggressively seek new products outside their core operations. The firm’s claim that it is privately owned obscures acquisitions of former state-owned assets over the past few years, acquisitions which could not have occurred unless Sichuan Tengzhong had close ties to the Sichuan provincial government. [6] That brings up the usual question of where financing for Chinese investment comes from, in particular whether it comes from state banks [7].

If there are other companies interested in Hummer, they may complain the Chinese government, through its banks, is unfairly subsidizing Sichuan Tengzhong’s bid, as has happened elsewhere [8]. On the other end of the spectrum, Beijing could refuse Sichuan Tengzhong’s application to buy Hummer, something it has done in other cases [7], due to losses suffered by Chinese firms in foreign acquisitions.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2009/06/02/china-humming-a-sweet-tune/

URLs in this post:

[1] probably $200–$300 million.: http://www.nytimes.com/2009/06/03/business/03auto.html?ref=global-home

[2] something we correctly accuse China of doing.: http://english.caijing.com.cn/2009-04-03/110133297.html

[3] With few details of the deal available: http://www.automedia.com/Hummer_History/res20040501hh/1

[4] the Committee on Foreign Investment in the United States, or CFIUS.: http://www.treas.gov/offices/international-affairs/cfius/

[5] standard for Chinese investment overseas: http://www.heritage.org/Research/AsiaandthePacific/bg2237.cfm

[6] Sichuan Tengzhong had close ties to the Sichuan provincial government.: http://www.sctengzhong.com:8080/tengzhong/weben/gytz.jsp

[7] Chinese investment comes from, in particular whether it comes from state banks: http://www.heritage.org/Research/AsiaandthePacific/wp052609a.cfm

[8] as has happened elsewhere: http://www.telegraph.co.uk/finance/newsbysector/industry/mining/5061925/Chinalco-secures-financing-for-Rio-deal.html

Copyright © 2011 The Heritage Foundation. All rights reserved.