Acquisitions of Chinese State‐Owned Enterprises by Multinational Corporations: Driving Forces, Barriers and Implications for HRM
| Date | 01 March 2006 |
| DOI | http://doi.org/10.1111/j.1467-8551.2006.00481.x |
| Author | Fang Lee Cooke |
| Published date | 01 March 2006 |
Acquisitions of Chinese State-Owned
Enterprises by Multinational Corporations:
Driving Forces, Barriers and Implications
for HRM
Fang Lee Cooke
Manchester Business School, The University of Manchester, Booth Street West Manchester M15 6PB, UK
Email: fang.l.cooke@manchester.ac.uk
This article explores the driving forces for, barriers to, and trends and patterns of
acquisition of Chinese state-owned enterprises (SOEs) by foreign investment and its
implications for HRM and the experience of work for the workers. It questions the level
of objectives alignment between the Chinese side and the FDI during the acquisition of
Chinese SOEs. Issues related to the Chinese managerial skills and behaviour in
acquisition negotiation are discussed as well as the policy making, administrative and
practical role of the local government. The article argues that FDI’s acquisition of
Chinese firms creates unique management issues which require further research,
particularly in the area of HRM, in order to establish the likely similarities and
differences between acquisitions in other countries and those taking place in China and
the implications of this for the globalizing businesses.
Introduction
China has been one of the two largest foreign
direct investment (FDI) recipient countries in the
world in recent years (International Statistics
Yearbook, 2004). This is largely because of two
factors: investment incentives offered by the
Chinese government and the country’s abundant
availability of cheap labour. It has been argued
that the strong emphasis on foreign investment
and foreign trade has been one of the key factors,
if not the key factor, in the unprecedented growth
of the Chinese economy in recent years. Attract-
ing FDI has been an important part of China’s
open-door economic policy since 1978 and this
proactive policy has led to the rapid increase of
FDIs in China in the last 25 years (see Table 1
and 2).
During the 1980s, the main route of FDIs
entering the Chinese economy was through joint
ventures (JVs) with Chinese state-owned enter-
prises (SOEs). Into the twenty-first century,
cross-border acquisition remains the main invest-
ment mechanism for foreign investment entering
the China market with an increasing level of
freedom. This trend is being accelerated by
China’s accession to the World Trade Organiza-
tion (WTO) and the introduction of a number of
laws and guidelines by the Chinese government in
2003 that are aimed to promote merger and
acquisition (M&A) activities from foreign invest-
ment. It was reported that 16% of the M&A fund
(about US$ 3.84 billion) in first three quarters of
2003 in China came from FDIs (Jin and Nie,
2004) and that M&A activities in China have
been increasing by 20% annually in recent years
(China Business, 2005). This new development is
in line with the international trend in the last two
decades in which, it is noted, the level of M&A
activities has increased considerably (Evans,
Pucik and Barsoux, 2002; Hubbard, 1999) in
response to a range of political, economic, social
British Journal of Management, Vol. 17, S105–S121 (2006)
DOI: 10.1111/j.1467-8551.2006.00481.x
r2006 British Academy of Management
and technological pressures and opportunities, with
cross-border M&As particularly noticeable (Boxall
and Purcell, 2003). It must be pointed out at the
outset of this article that acquisitions, instead of
mergers, remain the main pattern of Sino-foreign
alliances, and therefore the discussion in this article
Table 1. Utilization of foreign capital between 1979–2003 (end-of-year figures), US$ m(Figures in 100 million USD)
Year Total Foreign loans FDIs Other foreign
investments
No. of projects Value No. of projects Value No. of projects Value
Total amount of contracted foreign capital
1979–1984 3,365 287.69 117 169.78 3,248 103.93 13.98
1985 3,145 98.67 72 35.34 3,073 59.31 4.02
1989 5,909 114.79 130 51.85 5,779 56.00 6.94
1990 7,371 120.86 98 50.99 7,273 56.96 3.91
1995 37,184 1,032.05 173 121.88 37,011 912.82 6.35
1996 24,673 816.10 117 79.62 24,556 732.77 3.71
1997 21,138 610.58 137 58.72 21,001 510.04 41.82
1998 19,850 632.01 51 83.85 19,799 521.02 27.14
1999 17,022 520.09 104 83.60 16,918 412.23 24.26
2000 22,347 711.30 22,347 463.80 87.50
2001 26,140 719.76 26,140 691.95 27.81
2002 34,171 847.51 34,171 827.68 19.82
2003 41,081 1,169.01 41,081 1,150.70 18.32
Total amount of foreign capital actually utilized
1979–1984 171.43 130.41 30.60 10.42
1985 44.62 25.06 16.58 2.98
1989 100.59 62.86 33.92 3.81
1990 102.89 65.34 34.87 2.68
1995 481.33 103.27 375.21 2.85
1996 548.04 126.69 417.25 4.10
1997 644.08 120.21 452.57 71.30
1998 585.57 110.00 454.63 20.94
1999 526.59 102.12 403.19 21.28
2000 593.56 100.00 407.15 86.41
2001 496.72 468.78 27.94
2002 550.11 527.43 22.68
2003 561.40 535.05 26.35
1979–2003 6,795.58 1,471.57 4,997.60 326.41
Sources: adapted from China Statistics Yearbook, 2004, p. 731.
Table 2. Examples of utilization of foreign capital and foreign investment (end-of-year figures), US$ m
Item 2000 2002 2003
No. of
projects
Contract
value
Used
value
No. of
projects
Contract
value
Used
value
No. of
projects
Contract
value
Used
value
Total 22,347 71,130 59,356 34,171 84,751 55,011 41,081 116,901 56,140
Foreign direct investments 22,347 62,380 40,715 34,171 82,768 52,743 41,081 115,070 53,505
Joint ventures enterprises 8,378 19,648 10,380 18,502 10,380 14,992 12,521 25,506 15,392
Cooperative operation enterprises 1,757 8,117 1,595 6,217 1,595 5,058 1,547 7,479 3,836
Foreign investment enterprises 12,196 34,309 22,173 57,255 22,173 31,725 26,943 81,609 33,384
Foreign investment share enterprises 8 194 19 739 19 697 37 389 328
Cooperative development 8 112 4 55 4 272 8 86 32
Others – – – – – – 25 – 531
Other foreign investments – 8,751 8,641 – 1,982 2,268 – 1,832 2,635
Sale share – 6,931 – – – – – 42 275
International lease – 24 – 130 – 131 – 129 129
Compensation trade – 12 – – – 4 – – 7
Processing and assembly – 1,784 – 1,852 – 2,133 – 1,661 2,525
Sources: adapted from China Statistics Yearbook, 2002, 2003 and 2004.
S106 F. L. Cooke
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