Tuesday, May 25, 2010

West readjusts to China’s strong hand - Financial Times

West readjusts to China’s strong hand
By Patti Waldmeir in Shanghai
Financial Times, May 25 2010

Jacob Wallenberg’s family controls a big chunk of the Swedish economy and is one of the oldest foreign investors in post-cultural revolution China. So when he intimates that doing business there is not substantially harder than it ever was, it may be time to take the complaints of the US and European Union chambers of commerce in Beijing with a pinch of salt.

Mr Wallenberg, chairman of Investor, the Wallenberg family holding company, told the Financial Times at the Shanghai World Expo it was natural that China’s self-esteem (some would say arrogance) had been boosted by its emergence almost unscathed from the global financial crisis and by its growing political influence worldwide.

That means China has become a tough competitor for the west – which has not been used to fighting for its profits in the middle kingdom.

“I hear companies complain about IP [intellectual property] rights and other things, and I am sure there is a foundation for such complaints. But it has to be seen in the overall context,” he says.

That context – though Mr Wallenberg is too polite to say so – is that the west has no choice but to come to China, and little choice but to do so on China’s terms. The financial crisis dealt China a strong hand, and that may take some getting used to.

Joined at the hip
France and Italy are an old and temperamental couple who never cease bickering but can hardly do without each other. They have many cultural traits in common.

President Nicolas Sarkozy is married to a glamorous Italian former star model. Silvio Berlusconi, the Italian prime minister with a penchant for crooning, knows by heart the entire songbook of one of France’s most popular singers, the late Charles Trenet.

But when it comes to business, the Italians often feel that the relationship is all too slanted in favour of the French. With a few notable exceptions – such as the Franco-Italian STMicroelectronics semiconductor group, which the two countries wisely chose to base on neutral ground in Geneva – the French have undoubtedly taken the upper hand.

France’s luxury conglomerates have snapped up some of Italy’s leading brands – PPR with Gucci and LVMH with Fendi. French banks have been expanding in Italy with BNP Paribas acquiring BNL and Crédit Agricole developing an extensive network of its own while owning a stake in Intesa Sanpaolo, Italy’s largest retail lender. French business predator Vincent Bolloré is deputy chairman of Italy’s largest insurer, Generali. The list goes on.

Another characteristic of Franco-Italian business relations is that they are never smooth and always provoke very public rows frothed up by Italy’s media. Not that France has such good relations with its other big European partners, especially Germany. These can be just as tense – even tenser at times, as has been the case over the controversial European bail-out for Greece – but they are never quite as theatrical.

At present, there are two hot issues agitating the Franco-Italian partners. Last week the chief financial officer of Air France-KLM – which acquired a 25 per cent stake last year in Alitalia as part of the latter’s rescue – suggested that his group intended at some stage to increase its stake in the Italian flag-carrier. Although he stressed that there were no concrete plans, his remarks sent the Italians rushing out in spots.

Alitalia, which seems to be recovering in part thanks to its partnership with the Franco-Dutch carrier and the SkyTeam alliance, was certainly not for sale, nor would it be taken over by the French for a “plate of lentils”, declared the airline’s chairman, Roberto Colaninno.

Another row is pitting Italy’s leading defence group, Finmeccanica, against the French state naval group DCNS over their efforts to collaborate in heavyweight torpedoes to equip submarines, including a batch of new ones that the French have sold to the Brazilians.

The Italians want majority control of the joint venture given that they hold the key technology for these so-called Black Shark torpedoes. The French are resisting and infuriating the Italians, who threaten to pull out of the collaboration.

In the end, however, the two sides are likely to kiss and make up. The simple fact is that the two countries are joined at the hip. For France, according to the Bank of International Settlements, holds as much as a third of Italy’s public debt – the equivalent of $510bn out of a total of $1,400bn. This also represents about 20 per cent of French gross domestic product and creates a somewhat profound bond between the two countries. The ultimate question, of course, is who in this case holds the upper hand – the debtor or the creditor?

Copyright The Financial Times Limited 2010

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