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Privately on the rise

October 26, 2012

The fresh crop of leaders expected to take their place in the world post the 18th National Congress of the Chinese Communist Party, which starts in Beijing on November 8th, will inherit a China not only riddled with a slowing economy, corruption and myriad social problems but also one that is in the vast throes of corporate progress. As the new leaders walk stoic down the Great Hall of the People, they might just smell change in the air.

A rapidly progressing, globalizing and drastically transforming China, has brought with it not only social and political alterations, but is also quickly changing the way one does business in China. Corporate structures are aligning themselves more to western working principals while still maintaining Chinese characteristics  employees are seeing higher pay scales and private companies once a rare gem in the Middle Kingdom’s treasury are now beginning to shine.

Last year, about 45 percent of China’s outbound direct investment in the non-financial sector came from non-State-owned enterprises. Though State Owned Enterprises still account for about 90 percent of China’s cumulative ODI by the end of 2011, the proportion by private investors will continue expanding as the government supports investors seeking overseas projects, Shi Ziming, commercial counselor at the Department of Outward Investment and Economic Cooperation of the Ministry of Commerce told China Daily.

The government has already made its intentions of boosting the private sector in the 12th Five Year Plan (2011-15), which emphasizes the need for private enterprises to scale up through global expansion.

Over the years, a majority of business and trade delegations that have visited India have come through the official route as a dikat from Beijing to explore new neighboring markets. Now, fueled by a new zest for profits, greater expansion and exploiting new markets, an increasing number of private firms are sowing their seeds in India.  Flush with funds, with a zeal to tap into the Indian market, a nation where they value the deep historical and cultural ties, private companies are making their mark in India.

Over the last three months, Inchin Closer has been privy to two large conglomerates that have shown a keen interest in India and are willing to make massive investments into India’s infrastructure and machinery sectors. These companies, don’t want to have anything to do with Beijing, headed and fully owned by entrepreneurs who have made it solely on their own, these companies are raring to expand into India.

Other examples of Chinese private companies spreading their wings include –  heavy machinery firm Sany Heavy Industrial Co Ltd. Earlier this year the Chinese company bought a 90 percent stake in German concrete pump manufacturer Putzmeister for 324 million euros (US$407 million).

Private companies are also the idea partners for international firms to tie-up with as they then come from the same work culture and have the same goals. In June 2010, Fosun International Ltd, a privately owned Chinese conglomerate, acquired a 7.1 percent stake in Club Med, a French holiday resort operator. By the end of 2010, Club Med opened its first resort in China at Yabuli in Heilongjiang province with assistance from Fosun.

Private companies will and continue to dominate the Indian landscape, while government-owned companies are relegated second-hand treatment. However,  in China the opposite was always true. Until now when sprouts of this new transformation are beginning to take place. Funded by private equity from the west, but mostly from Hong Kong and Singapore where most of them already have offices, private Chinese companies are gaining strength in the Chinese economic landscape.

The alteration, is as a result changing the way employees are recruited, what is demanded of them, how operations are managed and the way decisions are made. China is slowly but surely becoming more professional, profit driven and aggressive. Working for a profit motive has never been the apparent ethic of a Chinese company, yet private firms seek better bottom lines. The transformation yet, doesn’t mean that China will lose her Confucian character, but it will definitely mean that people will earn more,  compete more aggressively and improve operational inefficiencies, all traits of a capitalist order.

The growing number of private firms, either started by entrepreneurs or bought out by private equity, will definitely also add to the pressure burden of the new political leaders. A changing corporate landscape will mean that Chinese leaders who have always dealt with the public sector, worked for public good and been privy to massive reserves for funds, will have to learn to adapt to a new breed of executives. This might be a huge challenge.

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