Vodafone-Mannesmann - Lesson for China

["ÁÎ×Ó¹â HenryC.K.Liu ¹ù¤l¥ú" <hliu@xxxxxxxxxxxxxxxxxx>]

Happy New Dragon Year to all, espeically to Chinese oficials dealing
with WTO issues.

You may have been following the Vodafone-Mannesmann merger, history's
biggest deal - a US$183 billion take over.  Hong Kong is intimately
involved with this European deal baecause Li Kashing's Hutchison Whampoa
sold its stake in Orange, an UK mobile phone operator, to Manesmann for
10.3% of the latter, prealizing a paper profit of over US$1 billlion.
The V-M merger produced 9.4 billion euros in paper profit for Hutchison
in 3 months.
That profit did not prevent Hutchison from cutting wages of its
employees in HK.
The irony is that now Vodafone must sell Organge to meet UK regulations.

The V-M deal of US$183 billion is greater the China's current foreign
reserves holdings.

But that is not the real lesson for China.  With WTO accession, China is
required to open its communication markets and its equity markets to
global capital.

Now Mannesmann is not just an average German company.  It is a
century-old steel pipe maker (not unlike China's SOEs) based in
Dusseldorf, a declining center of the German industrial renaissance of
the post war period, that has reinvented itself as a newly prosperous
center og high tech and sevices.  Mannesmann moved Dusseldorf beyond its
history, courageously embraced change, created new jobs based on fast
growing technology by ignoring national borders to tap into foreign
markets.  Now its move to acquire Orange in the UK has backfired and
caused its own takeover by UK's Vodafone.

Vodafone was formed only 18 years ago in a infant mobile phone
business.  Never before has a  European company managed a cross border,
cross cultural takeover of such a scale, and pay for it with with paper
shares that belongs to a company largely unknown outside of Britian a
few years earlier.
Now the newly merged company will be run from London, with little
interest in the welfare of Dusseldorf, and all decisions will be made on
maximizing global profits and eliminating internal inefficiency.  This
means that the new management will be ruthless in closing down the older
Manesmann operations in steel pipes and auto components which may be
more profitably produced in other locations such as Asia.  What is more,
unlike mergers of a decade ago in the US in which inefficient companies
were punished, Mannesmann represented a success story that was taken
over for its promising future.

The lesson for China is clear.
WTO opening of Chinese markets, together with misplaced Chinese hope on
mergers and acquisition, with foreign participaion, as a solution to its
SOE problems, will lead to foreign takeover not of the sick and weak
SOEs, but the healthy and growing ones. Corporate decisions of the taken
over companies will be based not on what is good for China, but what is
good for the owning companies based in New York or London.  Some in
China, like Li Kashing, will be clever enough to make a few billions to
reinvest overseas, at the expense of Shanghai, Tianjin, etc, which will
become dumping ground for global economic inefficencies.   China will be
taken over by companies issuing shares, the high value of which will be
based on their ability to enter Chinese markets.
Buy up China with China's future.  All welcome.

Happy New Foreign Dragon Year.

Henry C.K. Liu