Chinese Racism Still a Problem for Corporate MNCs in China

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Op-Ed Commentary: Chris Devonshire-Ellis

Sept. 3 – With news that management from India’s Apollo Tyres is “not welcome” in China following the proposed takeover of the Cooper Tires Shandong joint venture by India’s Apollo Group, the factoring in of China’s increasingly shrill commentary surrounding foreign investors is starting to cause waves of concern.

The Cooper M&A deal – in which the American parent is the subject of a US$2.5 billion takeover by Apollo – has had a spanner thrown into the works by the local Chinese labor union, which has called on the local JV workers to carry on disruptive actions to prevent the deal from going through. With the local labor union boss Liang Yiting claiming the union was “not consulted” and that new India management would “not be welcome,” the union has sanctioned its 5,000 workers to bar American management from their own premises, refused to implement IT changes required to align the plant with Apollo’s systems, and destroyed or denied access to company records. This is despite the fact that the Chinese partner owns less than a 50 percent stake in the company.

“We oppose this purchase also because Apollo is an Indian company,” Liang said, according to the Wall Street Journal. “If it was Michelin, we might have agreed.” Apollo is in fact an MNC itself, operating four plants in India, two in Zimbabwe, one in South Africa, and another in Holland. Its offer for Cooper is at a 43 percent premium on Cooper’s NYSE listed share price.

While claims that the Chinese union was “not consulted” are one matter, the statement that the Indian company is “not welcome” is entirely another, and a result of bellicose Chinese posturing dating back to the early 1960s. It has to be remembered that China and India only shared a common border from the date of the Chinese occupation of Tibet, and previous Indian border and political influence and discussions were with the Court of the Dalai Lama in Lhasa as a capital city, not with Beijing. Upon the Dalai Lama’s fleeing Tibet, the Chinese have assumed historic control of an area never previously under communist rule. From Buddhism to Marxism in the space of just a few months, India’s political landscape along its long northern and eastern border had changed irrevocably.

Although China and India originally got on well under the unified socialist thought processes that were common in their day, Chinese claims to parts of India that had not previously been disputed under Tibetan dialogue began to manifest themselves. This resulted in the 1961 border war and, since then, suspicions have festered. On the Chinese part, that has meant now six decades of ordinary Chinese being told Indians are poor, backward and dirty. These messages have become ingrained upon the average Chinese psyche to an extent where the likes of multi-billion cross border M&A deals can only proceed with racist overtones if they involve average Chinese executives assessing corporate Indian capabilities.

Liang has probably had his nose put out of joint by being excluded from the M&A discussions between Ohio, the home of Cooper, and Gurgaon, where Apollo is headquartered. Yet with 5,000 employees Liang regards as assets, his vehemence can be problematic. The message to both Apollo and Cooper is that the Chinese are backwards when it comes to understanding the global nature of M&A deals in the private sector. Long fed inappropriate propaganda, the likes of Liang can foster state-sponsored insolence. Solving that issue requires education, and the Liangs of this world would do well to be given a crash course in contemporary Indian business capabilities.

It remains an irony of this charade that in actual fact, the number of global MNCs that India possesses in the private sector far outweigh those of China, whose MNCs are dominated by the government. Yet when it comes to the global isolation and rhetoric that Liang has been exposed to, corporate India (and indeed other nations as well) need to factor in corrective educational measures when involved in deals that involve inheriting large numbers of Chinese workers as a potential asset.

Chris Devonshire-Ellis is the Founding Partner of Dezan Shira & Associates – a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.

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