M&A

Breaking point

Giant glassmaker claims China is losing its edge

Cao-Dewang-w

Fuyao’s Cao Dewang

Before it became the world’s biggest automotive glass maker, Fuyao Glass was a lossmaking factory in Fujian province. The turnaround began when it started exporting to the United States, helped by Fuyao boss Cao Dewang’s good connections with American carmakers.

A couple of decades on and Cao made a name for himself back home for being fiercely patriotic. So much so that he returned his Green Card to the American embassy in 2005 (Southern Metropolis Weekly says Cao obtained the card in the first place in 1994 claiming uncontroversially “the Americans are very democratic”).

Such loyalty to his motherland even prompted Cao into rare criticism of Li Ka-shing, when Hong Kong’s richest man began shifting his assets away from Greater China to Europe. “Li has set a bad example,” Cao told Southern Metropolis Weekly in 2013. “Many real estate bosses could follow his lead and run away. China is your motherland. You should live and die for your own country.”

More recently, Cao seems to have changed his mind, joining the growing group of industrialists who have been moving parts of their businesses out of China.

A number of multinational giants such as Coca-Cola have cut back on their investments in the country lately. That has stoked concerns that operating in China has lost some of its appeal, especially as American president-elect Donald Trump is pledging to attract manufacturers to the US (see WiC348).

For Chinese firms many of the motivations are different. And at first glance, Cao would seem a prime candidate to promote homegrown activity, which is probably why Beijing News opted to interview him on the subject last month.

But his verdict was something of a shock, since Cao instead told the newspaper that manufacturers are finding life increasingly difficult in China, and that the US is looking like an increasingly attractive place to invest. “Overall taxation for manufacturers in China is 35% higher than that in the US,” he estimated.

“I just want to remind the government and businessmen and let everybody be aware of the risks, telling them to be careful of the country’s weakening cost advantages,” the 70 year-old added, defending Fuyao’s decision to invest $1 billion in the US in 2014 to take over a former General Motors factory in Ohio.

Cao’s remarks were a bombshell in local media, in part because he is such a respected tycoon (we first featured him in WiC20 shortly after he was awarded the Ernst & Young World Entrepreneur of the Year Award).

The phrase “Cao Dewang has escaped” has thus become a hot topic on social media platforms as angrier netizens have demanded that the government “not let Cao Dewang run away” – ironically reminiscent of the type of rhetoric doled out to Li Ka-shing in 2015 (see WiC297).

But some media outlets have opted to defend Cao. CBN noted that people have overreacted to his comments, and that Cao has long advocated cutting the tax burden for the manufacturing sector.

Nanfang Daily warned that the Chinese should also face the reality that the country is no longer “the world’s factory” and even the People’s Daily weighed in with an editorial speaking up for Cao. “People should distinguish between outbound investment and capital flight,” the newspaper said. “What Cao has touched on is a constraint of China’s economic transition, which needs to be resolved through continuing reforms.”

Meanwhile, Foxconn, arguably the biggest manufacturing employer operating in China over the past 20 years, has come up with a timely vote of confidence. The consumer electronics assembler announced last week that it plans to invest $8.8 billion in a Guangzhou plant to produce television screens. That would be the Taiwanese firm’s biggest investment in China in a decade.

“Chinese local authorities are showing a high level of efficiency and more sincerity compared with their US counterparts when it comes to attracting foreign investment,” Foxconn boss Terry Gou said by way of explanation.


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