Figure 20. Sales of Chery cars, 2004-7.

This suggests that we should expect Chinese firms to enter at the bottom end of the global market for mass consumer goods, initially mainly in the developing world — of which there is already clear evidence [538] — but later moving into the developed world. It will take time for firms like Chery and Geely to establish themselves in Western markets, where standards and tastes are very different from the ‘cheap-end’ advantage presently enjoyed by Chinese firms. Indeed, both have postponed their American launch dates until around 2009 or later. A cautionary tale in this respect is provided by TCL, the Chinese TV manufacturer, which entered into a joint European venture with the French firm Thomson. It made a number of serious miscalculations based on its ignorance of the European market and announced in 2006 that it would close its European operations. [539] But TCL is an exception: Chinese electrical appliance firms have overwhelmingly chosen to establish their overseas manufacturing subsidiaries in developing rather than developed countries. There is a certain parallel, in this context, between Chinese firms initially targeting the developing world and the earlier experience of Japan and Korea. Japanese companies, for example, first dominated the then relatively poor local East Asian markets and only later began to make serious inroads into Western markets. In Europe and the United States, furthermore, both Japan and South Korea started at the cheap end of the market then steadily worked their way up. The same will be broadly true of China, except it will probably prioritize the developing world even more strongly. Chinese exports to Africa, the Middle East, Asia and South America have recently been growing far more rapidly than those to the United States. China sent more than 31 per cent of its exports to the US in 2000 but that figure had dropped to just over 22 per cent by early 2007 and is now 18 per cent. [540]

Although China is already making significant progress in low- and medium-technology industries such as white goods and motor vehicles, it is also intent, in the longer term, on becoming a major player in a high-tech industry like aerospace. China will shortly begin production of its own regional passenger jet, [541] while Airbus has announced its intention of shifting some of its manufacturing capacity to China. [542] Possibly as a way of leapfrogging the development process, the main Chinese aerospace group was reported in 2007 to be considering investing in, or bidding for, six of Airbus’s European plants that had been deemed surplus to requirements, although in the event no offer materialized. [543] Given time, it is inconceivable that China — already the second largest aircraft market in the world [544] — will not become a major aircraft producer in its own right. The fact that it is steadily developing its space programme — it conducted a successful manned space flight in 2003, launched a lunar orbiter in 2007 and plans to launch its own space station in 2020 — indicates that China is intent on acquiring highly sophisticated technical competence in the aerospace field. [545]

Looking into the future, therefore, one can anticipate a number of broad trends regarding the development of Chinese companies. We will continue to see the slow but steady emergence of Chinese multinationals in areas which play to their domestic comparative advantage, such as white and electrical appliances, motorcycles, trucks and cars. [546] We can expect Chinese brands to emerge in fields such as sports equipment (for example Li-Ning) [547] — linked to China ’s growing strength as a sporting nation — and Chinese medicine. We are likely to see Chinese firms become major competitors in high-tech areas such as aerospace (AVIC 1), telecommunications (China Mobile and Huawei), computers (Lenovo) [548] and perhaps in renewable energy (for example, Suntech Power Holdings). China ’s banks, construction companies and oil companies are already rapidly emerging as global giants, helped by the scale of the Chinese market and the resources at their disposal. In 2007 the boom on the Shanghai Stock Exchange saw PetroChina briefly overtake Exxon as the world’s largest company. By the end of 2007 China possessed three of the world’s five largest companies, by value though not by sales, namely PetroChina, the Industrial and Commercial Bank of China (ICBC) and China Mobile. [549] We can also anticipate some of the big Chinese firms seeking to expand overseas by taking over foreign firms. There have already been examples of this with Lenovo acquiring IBM Computers and the Chinese oil giant CNPC unsuccessfully seeking to buy the US oil firm Unilocal; awash with cash and eager to shortcut their expansion, it is not difficult to imagine this happening on a much wider scale. An obvious area is commodities, with Chinalco’s stake in Rio Tinto, the Anglo-Australian mining group, an example. [550] With many Western companies suffering from a serious shortage of cash as a result of the credit crunch, the takeover opportunities for cash-rich Chinese companies, the oil companies in particular, are likely to be considerable, with Western political opposition weakened by the recession. [551] Meanwhile the establishment of the China Investment Corporation, armed with funds of $200 billion, of which some $80 billion is for external investment, could give China growing potential leverage over those foreign companies in which it decides to invest. [552] Finally, we should not forget the increasing importance of Chinese subcontractors as ‘systems integrator’ firms in the global supply chain of many foreign multinationals, a development which might, in the long term at least, prove to have a wider strategic significance for these multinationals in terms of their management, research capability and even ownership. [553]

Crucial to the creation of international firms is overseas direct investment. One forecast has suggested that as early as 201 °China ’s outward direct investment will overtake foreign direct inward investment. It is estimated that overseas investment in 2008 was over $50 billion, a huge increase compared with 2002; official figures indicate that in 2006 60 % went to Asia, 16 % to Latin America, 7 % each to North America and Africa, 6 % to Europe and roughly 4 % to Australasia. [554] (See Figure 21.)