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Powerful words

Jeff Immelt caught out when negative China comments hit media…

Powerful words

When in Rome: does Immelt regret his candid remarks about China?

Forget the carbonara and the cappuccino. Next time Jeff Immelt is in Rome, a little more circumspection will be on the menu.

“I really worry about China. I am not sure that in the end they want any of us to win, or any of us to be successful,” the Financial Times reported the General Electric chairman and CEO as saying to a group of Italian businessmen 10 days ago.

GE protested that Immelt was quoted out of context, at a dinner in which the wider debate was a lot more positive. But the damage was still done, in terms of the media firestorm (journalists were present when Immelt made his remarks). And his candour is being seized upon as further evidence that international firms are getting a raw deal in China.

A surprise to hear GE is griping…

Yes, not least as Immelt told reporters last year that he didn’t think anyone had “played China better than GE has”.

Back then, he didn’t stint on his praise for the country’s leadership either. “Man, these guys are good” was the assessment of Beijing’s industrial planning. “They do exactly what they say they will do.”

GE seemed to be doing a lot of the right things too, ticking off most of the boxes for a rewarding China strategy. We have written previously (in WiC48) about the company’s joint ventures, and how it has partnered with state firms in high-growth sectors. We reported too on its readiness to transfer IP to its new China ventures, something that many foreign companies have been reluctant to do.

And GE has done more: locating one of its four global research centres in Shanghai, acting as a major sponsor for the 2008 Beijing Olympics, and coming through with funding for the US Pavilion at the Expo currently convened in Shanghai. It has also sponsored training programmes for at least 200 senior Chinese executives picked out by the Communist Party’s Central Organisation Department, says Bloomberg.

No one can say it isn’t making an effort.

So what is Immelt cross about?

No specific complaints seem to have emerged from the dinner in Rome. That makes for less immediate embarrassment, but it also means that he has been assumed to be echoing complaints made by others: things like China’s innovation policies, its government procurement regulations and intellectual property rights protection, or its market access rules. They’re all deliberately skewed to stymie international companies, say the critics.

It’s the kind of context that also had fellow corporate titan Steve Ballmer expressing exasperation recently (WiC66). China is a huge potential market, the Microsoft CEO admitted. But, increasingly, the better opportunities look to be elsewhere.

In Rome, Immelt appeared to say something similar, that GE would also be looking at other markets, especially those that don’t want to be “colonised by the Chinese”. It was an unfortunate turn of phrase, given Chinese sensitivity to any mention of foreign occupation.

Of course, Immelt may just be frustrated. A report in the Wall Street Journal this week suggests that not all of the joint ventures are going to plan. One of its key partners, aviation giant AVIC, has reserved the right to cooperate with GE rival Honeywell, which also wants a piece of the action in the development of the C919, China’s new “jumbo” aircraft.

Comac, responsible for the C919 and a subsidiary of AVIC, has also selected United Technologies on a jetplane power generation contract, ahead of GE and other bidders.

Then there is the local competion, the Journal says. Domestic wind turbine manufacturers have been growing rapidly, on the back of state investment in the sector. The uptick in competition has seen GE’s share of the turbine market in China actually fall last year, down to 12.4% from 18.5%

That’s not the news that Immelt wants to hear, since forecasting two years ago that GE would double its China sales to $10 billion by 2010. With revenues reaching $5.3 billion last year, it looks like he will struggle to make his numbers – a prickly topic following investor anger at two missed GE earnings targets in 2008.

On the other hand, last year was far from stellar for most multinationals. And GE’s China sales still grew on the year before, even as total revenues for the company globally fell on 2008.

This has the China Daily asking quite what the company expects. Sure, the newspaper understands that business leaders are under constant pressure. But “biting the hand that feeds you” is not the best way to react, it warns.

Perhaps it reflects what’s at stake?

For Immelt, getting it right in countries like China and India is crucial to supercharging the share price.

And in areas such as healthcare, renewable energy and aerospace, GE must feel it is on the cusp of a rare opportunity. GE produces many of the goods that China now needs. Mark Nobom, president and chief executive in China, calls it a “perfect alignment” of the company’s capabilities and China’s development priorities.

But GE bosses will be wondering how long that moment is going to last. China is so fast-changing, Immelt has admitted, that it gives him headaches. Keeping up with what is going on is like “riding a wild horse”.

Another headache is that local partners are driving a much harder bargain. And the Wall Street Journal says it was less surprised by Immelt’s outburst in Rome in light of comments he made during a trip to Shanghai last month. Getting to a negotiated position in which both sides make money was tough, the GE boss had complained. “The hardest thing to do in China is get a win-win relationship.”

But little sympathy for Jeff in China itself…

Little can be said to convince GE’s critics in China’s internet chatrooms.

The overwhelming majority sees Immelt’s views as further evidence of foreign carping. Few accept that Western firms suffer from discrimination. In fact, most claim the opposite. The view is that Western firms have got used to preferential treatment (and limited local competition). Now the tables are turning. Years of favourable tax and investment regulations are steadily being withdrawn. New Chinese companies are establishing the expertise to offer the goods and services that were once beyond them.

The government has doted on foreign capital as if it was a grandson, offers one online contributor. But those days are now long gone.

Meanwhile, for GE’s China-born managers, Immelt’s comments will probably rankle all the more. Someone as experienced as GE’s boss should be well aware that criticising the Chinese government in the press has no upside – you won’t change its policy. But it also carries potentially a major downside – especially for General Electric’s relationships with its state-owned partners.

Immelt, more than anyone, should have figured out that the head of a multinational has a diplomatic role in China. And like all diplomats, they are not supposed to say what they really think. Especially not in front of journalists.

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