Thursday, February 25, 2010

Hummer rejection: It's all right there in the policy

The recent failure of a Chinese company to buy the Hummer brand from GM highlights an interesting aspect of business-government relations in China.

Nearly every news article on this failed transaction has contained quotes from people at China's Ministry of Commerce stating that Sichuan Tengzhong, the intended purchaser of Hummer, never even submitted an application. An article in today's Wall Street Journal contains a similar quote, and also includes the NDRC, China's main economic planner, in the mix:
On Wednesday, Assistant Commerce Minister Wang Chao said his ministry never received an application from Tengzhong, echoing other comments from the ministry in recent months. An official in the foreign affairs department of the NDRC said the commission also hasn't received any application.

"It looks like no one took responsibility" for the deal inside the bureaucracy, said the person. But since Tengzhong's application "was never formally received" by regulators, "it's not going to be formally rejected."
Seriously? Are we to believe that Sichuan Tengzhong was so absent-minded that they neglected even to fill out the paperwork?

Of course not. We can be certain that representatives of Tengzhong have been living in Beijing for at least the past eight months, doing their best to gain approval for this deal. But since there does not exist a clear set of criteria as to how such an approval decision would be made, discussions had to be conducted on an informal basis.

Though I am privy to no confidential information, I can imagine most of the discussions could be summarized as follows:

Tengzhong: If we apply to you for approval, will you approve it?

Random representative of any number of agencies: Hmmm, that would be, um ... difficult.

Throughout the past year, as I conducted interviews among various auto industry related people, I was continually amazed that no one seemed to have a full picture as to how approvals for business deals should work. Those who appeared confident in their answers often provided me with information that conflicted with what I had heard from others.

It finally occurred to me that I was trying to shoehorn China into my own expectation of how a government should work, and that the lack of clarity in the rules isn't necessarily a bad thing. Of course, it isn't necessarily a good thing either.

Still, as I pointed out in my previous post on Hummer, the deal was unworkable from the Chinese perspective because it did not conform to central government policy. What Tengzhong's representatives were essentially doing in Beijing was asking the Ministry of Commerce, NDRC, et al, to approve their attempt to violate Central Government policy.

China's Central Government may lose the occasional battle, but it ultimately gets what it wants. If you want to know what the Central Government wants, the best place to start is their policies.