Chinese Character

Cattle drive

Ning Gaoning’s arrival at Sinochem could signal a global M&A blitz

ning gaoning

Ning: has executed around 150 M&A deals during his career

The influence of John Pierpont Morgan is still felt today. The American financier dominated the corporate world during his time, and was a key player in deals that created General Electric, US Steel and AT&T.

Acclaimed Chinese author Wang Fuxue says that Ning Gaoning has much in common with the American banker, which is why he titled Ning’s biography China’s Morgan. As a career bureaucrat for Chinese state firms, Ning is nowhere near rich enough to bail out the Chinese stock market (as Morgan had done for Wall Street in 1907). Yet according to Wang, Ning is a more prolific dealmaker: since 1999 he has been responsible for at least 150 M&A transactions, all inked during his tenures with state-owned giants China Resources and COFCO.

While Morgan escaped military service during the American Civil War by paying $300 to a substitute to fight for him, Ning started his career as an artilleryman for the People’s Liberation Army.

He was born in 1958 in Shandong, his parents both doctors. This means his ‘revolutionary pedigree’ isn’t quite as privileged as the princelings whose fathers helped found the People’s Republic of China. “If you trace back probably you can’t find many [important] people with my surname,” Ning also told Time Weekly in an interview (his English name is Frank).

Like many of his generation, Ning was sent to the countryside for cadre education at the age of 17 and then joined the PLA. In the army Ning was soon showing signs of the attributes that would make him an astute state-owned enterprise boss. For example, he was good at figures and remembers that he was always being assigned to calculate artillery trajectories. Yet when the universities reopened in 1978 Ning wanted to study Chinese literature and become a writer. He didn’t score marks high enough and unwillingly he was assigned to study economics at the University of Shandong, where he came to love the subject (other notable old boys include Ma Jiantang, former director of the National Bureau of Statistics and Jiang Jiemin, the disgraced former boss of CNPC, who like Ning is a Shandong native).

The new student made sure to toe the line (“Ning has read the entire four-volume Das Kapital three times,” Wang reveals in China’s Morgan) but he also had a stroke of luck when he graduated in 1983. The Fulbright Programme had just expanded to China and Ning was one of the first batch of students picked to study in the US. In 1986 he received an MBA from the University of Pittsburgh, making him one of the earliest business school graduates in the country. A 28 year-old, Ning joined China Resources, then an obscure state-controlled enterprise based in Hong Kong.

At the time not many haigui (or sea turtles, i.e. students who return to China after studying abroad) were choosing to work for the Chinese government and Ning could have made much more money had he joined a foreign investment bank. “Different people have different styles. Perhaps because I am a Shandong native I like to walk on the same path until sunset,” Ning said of his loyalty to China Resources.

One of Ning’s earliest tasks was to restructure a failing textile firm owned by the group. He turned around the unit via a real estate project. That same company would later grow into today’s China Resources Beer (CR Beer), a blue chip brewer which controls China’s biggest beer brand.

Within the China Resources Group, Ning was considered a high flyer. He was fast-tracked to be a general manager, and when he was appointed the group’s chairman in 1999 he was still only 41.

According to China’s Morgan, one of the reasons for Ning’s stellar rise was his ability to engender loyalty. Take Huang Tieying, a long-serving China Resources official under Ning. In 1989 Huang was on a business trip with Ning to Italy to discuss a textile deal. A fresh graduate, Huang forgot to bring a shirt and he turned up to the meeting with a T-shirt and a tie under his suit. Ning didn’t give Huang a dressing down, letting him go into the meeting thinking his attire was perfectly fine.

“I can’t stop laughing every time when I think of how I ‘pioneered’ the fashion trend in Italy,” Huang told reporters later. “I forever appreciate Gaoning for not taking away my confidence and pride at the first hurdle of my career.”

After 18 years and more than a hundred M&A deals, Ning had transformed China Resources from a trading firm to a mammoth property-to-beverages conglomerate. At its peak the group boasted three companies in Hong Kong’s benchmark blue-chip index. It was also Ning’s dealmaking that made China Resources the single biggest shareholder in real estate majors Vanke and Huayuan Property. The founder of the latter, Ren Zhiqiang (see WiC162), used to refer to Ning as “my mentor”, despite Ren being seven years older.

Buying everything in sight is not always the answer for long-term growth, mind you. Plenty of observers have criticised China Resources for being too diversified. For example, CR Beer only became what it is today – a business focused entirely on booze – six months ago after selling the rest of its assets (including a retail joint venture with Tesco, see WiC279) to its parent firm.

Before that, a slew of M&A dealings had seen CR Beer (previously known as China Resources Enterprise) venture unsuccessfully into textiles, energy and supermarkets.

In 2005 Ning was picked to run the country’s biggest grain trader COFCO. He took the same dealmaking ethos to his new firm.

“In 11 years Ning has completed more than 50 acquisitions which turned COFCO into a mammoth,” the China Economic Weekly notes. “Ning is a true M&A maniac.”

In July 2009 COFCO set up a joint venture (in which the state firm holds a 70% stake) with private equity firm Hopu. The JV then bought a controlling stake in scandal-hit dairy company Mengniu, rescuing one of the most famous homegrown brands from going under. China Entrepreneur, a magazine, has described it as a textbook study of how an SOE successfully took over a private sector competitor.

More recently COFCO’s shopping list has included vineyards in France and Chile, the Dutch grain trader Nidera and Noble Group’s agricultural trading unit.

The acquisition spree has seen COFCO’s assets expand from Rmb60 billion in 2005 to more than Rmb467 billion last year.

“We are not expanding recklessly,” Ning has said, in defence of his strategy. “We want to integrate our business vertically, creating a complete value chain going from the farms to Chinese dining tables.”

COFCO now has more than 336 subsidiaries – many newly acquired – in more than 140 countries. “Many side effects of COFCO’s acquisitive strategy have been emerging,” opines China Economic Weekly, adding that eight of its listed units – with the exception of Mengniu – reported a loss last year or a slowdown in net profit. “Many questions now beckon: should COFCO have entered some highly competitive industries [such as winemaking] in the first place? Are some of the acquisitions worthwhile? How is it going to control its risks?”

Ning isn’t going to have to address these questions, though. Late last month he was appointed by Sasac, the body that controls China’s top SOEs, to head another state giant Sinochem, which is also a diversified conglomerate with businesses spanning chemicals, agricultural products and real estate. Its assets are smaller than COFCO’s (at Rmb355 billion as of 2014) but it looks set to up its foreign purchases too, with the Global Times reporting that the central government will help Sinochem “acquire more quality global companies”.

In fact, Sinochem and its domestic rival ChemChina are already two of the most acquisitive state firms in the global market.

Last year ChemChina tabled a $7.8 billion takeover bid for Italian tyre maker Pirelli, the biggest investment by a Chinese firm in Italy to date (see WiC275). The state firm also agreed earlier this month on a $1 billion bid for machinery maker KlaussMaffei. Again, this would be the largest purchase of a German company by a Chinese investor.

Western media has also been reporting that ChemChina has launched a $45 billion bid for Switzerland’s Syngenta, the world’s largest pesticide provider. Last week Syngenta’s board is reported to have asked for a formal agreement with the Chinese by early next month. If successful, the deal would stand out as China’s biggest ever outward M&A deal, although Bloomberg says that a competing bid for Syngenta will be made by American seed producer Monsanto.

ChemChina’s chairman Ren Jianxin is another dealmaking specialist. In 1984 he left the Party’s youth league in the Ministry of Chemical Industries to form Bluestar, China’s first professional chemical cleaning firm.

During the next 20 years Ren launched more than 100 M&A deals of his own. The most significant of these came in 2004 when Bluestar was merged with the Ministry of Chemical Industries to create what is now ChemChina.

The China Daily describes Ren as “the undisputed king of M&A in this field”. However, with Ning’s arrival in the same industry he now has a dealmaking rival par excellence. Sinochem boasts a more prestigious background than ChemChina. It was formed as early as 1950 as the China National Import Corporation, serving effectively as the Ministry of Trade and monopolising the country’s imports (China had little to export at the time). It carried out its overseas buying mainly through outlets in Hong Kong, such as China Resources. The state firm was restructured and renamed Sinochem only in 2003.

ChemChina’s businesses skew towards traditional chemicals and advanced materials, while Sinochem focuses more on agrochemicals such as fertilisers.

However, the duo have crossed paths in recent years, especially in their overseas dealings. The central government is looking to improve China’s food security by growing its own champions to rival the likes of Monsanto and Dupont. Sinochem and ChemChina, China Economic Weekly notes, have been spearheading these initiatives.

If ChemChina’s $45 billion bid for Syngenta is an indication of things to come, Sinochem may soon be on the M&A trail under Ning.

Ning is said to like referring to himself as a “cattle herder” who works for the central government. The implication is that the SOEs are the cattle and that he’s in charge of the corral. And if Ning stays true to form, the herd could soon grow a great deal larger and include more foreign breeds.

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