Upwardly mobile

Many businessmen lay claim to being the first to invest in China after it reopened its door to foreign investment in the late 1970s.

But Thailand’s richest tycoon Dhanin Chearavanont probably has one of the most convincing cases. In 1979 Dhanin’s Charoen Pokphand, or CP Group, teamed up with US-based Continental Grain Group to produce animal feed in Shenzhen. And Dhanin won “Foreign Investor Certificate No. 001” for setting up the first foreign joint venture in Shenzhen’s special economic zone. By 1982 he would also get the “No. 001” licences in Zhuhai and Shantou too.

Dhanin’s agribusiness grew quickly , enjoying a virtual monopoly at the time. (His local rival New Hope was a cash-strapped startup in 1982.) By 2012, CP had built more than 100 feed mills in China, covering all but two provinces. The Thai conglomerate today has 200,000 hectares dedicated to agribusiness, making it the biggest foreign leaser of Chinese land.

Being first brought advantages. “Because we were the only one investing in the country, the government gave us full support. They wanted to make sure we were successful,” Dhanin told China Economic Weekly in an interview three years ago. The magazine had ranked the ethnic Chinese tycoon as China’s fourth most important business leader, and top as a foreign investor.

Since 2008, Dhanin has been chairman of the China Overseas Chinese Entrepreneurs Association, a Beijing-endorsed trade group that promotes foreign investment into China. He has also been busy working his Chinese ties. Last week CP agreed to sell an 18% stake in its telecom and broadcasting unit True Group to China Mobile for $880 million in the first foreign investment in Thailand since the military coup last month.

The investment by China’s leading telecom carrier looks like a much-needed vote of confidence. Observers also say the deal could strengthen Beijing’s ties with one of the few countries in Southeast Asia with which it has no territorial disputes.

Why does China Mobile want the True stake?

Unlike some of its previous acquisitions, China Mobile hasn’t offered a reason why it is buying into the Thai market. In a brief announcement to shareholders, the telco said only that it will be exploring “extensive and long-term cooperation” with True.

Going global has become a clichéd strategy for China’s state-controlled giants. But China Mobile hasn’t been deal-hungry, despite sitting on more than $70 billion in cash. In fact, it has completed just two takeovers offshore. The first was a buyout of China Resources Peoples, one of six mobile telecom operators in Hong Kong, in 2005. And back in 2007, it took over Pakistan’s PakTel for $460 million. That firm was later rebranded as Zong and currently accounts for a little under a fifth of Pakistan’s 133 million mobile phone users. But the contribution from overseas revenues is so insignificant (i.e. less than 5%) that China Mobile has never provided a segmental breakdown.

There have been unsuccessful forays too. For example, an attempt to buy part of Far EasTone Telecom in 2009 ran into political resistance in Taiwan when Taipei refused to ease ownership curbs. Also in 2013, China Mobile had to pull out of a bid with Britain’s Vodafone for a new licence in Myanmar.

With a subscriber base of 29 million, True is Thailand’s only fully integrated telecom firm. It is also the leading pay TV operator and runs the country’s largest broadband network.

Even so, Forbes expects the deal to be of little consequence for China Mobile, especially in the short term, as it already enjoys the world’s biggest customer base of 785 million subscribers.

“It is somewhat surprising that China Mobile chose to invest at such a time,” the magazine writes, pointing to the political situation in Thailand. Separately a financial columnist at Hong Kong’s Apple Daily questions if the deal was the result of a “pure commercial decision”, and whether it might even have been put together “against China Mobile’s own wishes”.

Even Hong Kong Commercial Daily, a pro-Beijing newspaper, concurs. “It is puzzling to see China Mobile investing in a debt-laden telecom firm that only occupies the third position in a mobile market that is already 140% saturated,” it suggests. “Rather than underlining the growth prospects of the telecom market in Thailand, the deal actually reflects Dhanin Chearavanont’s powerful China connections.”

How well-connected is he?

“It has never been a secret that Dhanin Chearavanont has a longstanding and close relationship with the Chinese government,” China Economic Weekly claims. The magazine (run by the People’s Daily) notes that CP has invested at least $6 billion in China over the years and that the conglomerate’s operations have spawned 213 units and employ more than 80,000 people. Besides being one of the biggest animal feed producers, CP has pharmacies, supermarkets, a real estate portfolio and a motorcycle business. Annual China revenues are over Rmb50 billion ($8 billion).

Many Chinese grew familiar with CP – which goes by the Chinese name “Chia Tai” in the country – after Chia Tai Hour was first aired on state broadcaster CCTV in 1989. The one-hour variety show is the only CCTV programme named after a foreign firm. Still aired weekly, Chia Tai Hour is also CCTV’s longest -running non-news programme.

CP is able to ride on such privileges, says China Economic Weekly, because Dhanin has won Beijing’s trust, committing to China during “difficult times when foreign investors were fleeing or hesitating”.

Dhanin demonstrated his resolve during his own most troubled moment. As the 1998 financial crisis engulfed Asia, CP sold its Lotus supermarket chain in Thailand to Britain’s Tesco. But that didn’t stop CP going ahead with the opening of the first Lotus supermarket in Shanghai. The result? CP now runs more than 75 Lotus Supercentres in China, making it one of the biggest players in the supermarket business.

Long term relationships may also explains CP’s confidence when it comes to buying sizable Chinese assets. In 2013, it bought a $9.4 billion, 15.57% stake in Ping An Insurance from HSBC, with reports that the acquisition was financed by a loan from state lender China Development Bank. CP was also among the shortlisted bidders when Li Ka-shing, Hong Kong’s richest man and the biggest foreign investor in Britain, put supermarket chain ParknShop up for sale last year. Bloomberg has suggested that CP was teaming up with Woolworths in a bid that could have exceeded $4 billion. (Li eventually sold a 25% stake in Watsons, the holding firm for ParknShop, to Singapore’s Temasek instead.)

This time around Dhanin has reversed the investment flow, bringing capital back from China into Thailand. In doing so, he has pulled off a coup: reducing the large debt burden at True and putting it on a sounder footing as it looks for regional growth. Generally analysts haven’t been too excited about the likely impact for China Mobile, which is facing stiff competition from two rival mobile carriers at home, as well as mobile messaging services such as WeChat that are eating into its revenues.

Competition in the Chinese market is expected to get more intense too with the introduction of Mobile Virtual Network Operators (MVNOs) that have been given out to cash-rich rivals such as Alibaba.

So is Dhanin China’s man in Bangkok?

That is the question that the Wall Street Journal asked last week, suggesting Dhanin might be China’s favourite Thai billionaire.

CP’s tie-up with China Mobile seems to have had a beneficial impact on Sino-Thai relations. A few days after it was announced, a delegation of Thai military commanders visited China for talks on regional security. Pleased with the telco’s vote of confidence, the junta claimed to have China’s support. In contrast, Western countries, including old ally the US, have reproached the coup leaders and called for a speedy return to democracy.

Dhanin’s past dealings had already led to meetings between the Beijing leadership and some of Thailand’s most powerful politicians. In October 2002, when CP unveiled its Super Brand Mall in Shanghai, General Prem Tinsulanonda attended the inauguration ceremony with Dhanin. The retired officer served as Thailand’s prime minister from 1980 to 1988 and remains an influential figure as the head of the Privy Council of the Thai king. The Global Times has also reported that Prem was a “long-time principal consultant” of CP (athough the company denied the report last year following its Ping An investment).

But it doesn’t mean that Dhanin is tilting Bangkok entirely in Beijing’s direction. Coup leader General Prayuth Chan-ocha, for example, seems to be stalling on two mega infrastructure contracts that China badly wants to win: the construction of a canal through the Kra Isthmus, and high-speed train projects linking the seaway to southern China.

“A lot of people ask me to do a lot of things using the powers I have, without listening to criticism. Kra canal, for example. Someone urged me to order that the project proceed since it will benefit the country, but it needs to be considered that such a project may be considered as ‘separating’ the country,” the Bangkok Post quoted Prayuth as saying this week.

The waterway is designed to pass through the thinnest point in the Kra Isthmus, offering a way of bypassing the Strait of Malacca, and saving fuel and journey time on one of China’s key supply lines.

For the high-speed train projects, which China has offered to build in a barter deal for Thai rice, the coup leader sounds equally sceptical.

“There are several offers from foreign countries which sounded favourable on the surface. But there is no such thing as a free lunch,” Prayuth claims. “They offer to fund the entire project with their own money but then they request 50 years of concessions and two kilometres of space on each side to serve their business.”

So what can Beijing expect from Thailand’s new leaders?

The South Metropolis Daily reckons China isn’t losing too much sleep about who is in power in Bangkok. “No matter if it is the red shirts [supporters of deposed Prime Minister Thaksin Shinawatra] or the yellow shirts in power, or even the junta, the different political camps in Thailand have all been friendly to China,” the newspaper claims. “Some cooperation such as the rail-for-rice programme could be delayed but it won’t affect the nature of China’s Thailand relationship.”.

Zhou Fangye at the Chinese Academy of Social Sciences expects even closer ties between the two countries because of the coup in Bangkok. “Thailand needs to bring in a lot of external resources to push for economic reforms that could sooth the conflicting interests of the opposition camps. In east Asia China is the only one who can provide such resources in abundance,” he told the Oriental Morning Post.

Economic ties may draw Bangkok closer to Beijing, although some Chinese critics expect Thailand to remain a “distant ally”. An op-ed featured in the Yangcheng Evening News notes that Thailand was the only southeast Asian country to avoid being colonised by Western countries and that the reason was that it acted as a buffer between larger colonial powers as they vied for influence. Thailand will stick to this positioning now that geopolitical tensions are escalating in the region between China and the US, the newspaper suggests, as well as with Japan, Vietnam and the Philippines.

Perhaps that means more of a bridge-building role for CP Group too, which has a mission to become “the Kitchen of the World”, Dhanin told Forbes last year.

Currently CP produces 54,000 tonnes of eggs every year in China. Prudence suggests that it shouldn’t put them all into one basket.

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