GE sees new Silk Road a stroke of luck for its business

The US industrial giant is partnering with Chinese peers to optimise resources to develop opportunities that would be complex due to the economic and political risks involved

PUBLISHED : Saturday, 20 May, 2017, 8:33am
UPDATED : Monday, 22 May, 2017, 3:48pm

In China’s drive for a new economic order, General Electric (GE) sees the new Silk Road as a stroke of good fortune that bolsters the company’s move to profit from China’s outbound investments on the emerging markets along the route.

The US company believes the timing could not have been better. After reaping high margins from delivering sophisticated technologies and advanced manufacturing techniques to the mainland market for more than 30 years, the rise of domestic companies that acquired and assimilated foreign technologies had turned foreign investors from being front runners to equal competitors.

Rachel Duan Xiaoying, chief executive of GE’s China business, says Beijing’s efforts to exert its weight on global trade and geopolitics pair well with their experience in finance, infrastructure and power projects. The US industrial giant comes fully prepared to partnering with mainland financial juggernauts, infrastructure builders, power producers to tap the business potential along the routes, she stressed.

“GE has already had operating teams and business network in 63 of the 65 countries along the routes,” Duan told the South China Morning Post. “The partnership with Chinese companies via the Belt and Road Initiative will certainly be elevated to an international level.”

The initiative, which connects a belt of overland corridors and sea routes, aims to boost financial and trade ties for nations that lie along the routes.

Beijing, on its part, has been unsparing in selling the plan as a cooperative enterprise to the world. While the central government has pledged US$52.5 billion to the Silk Road Fund, Chinese companies and banks have ploughed in much more, into multibillion dollar projects in markets along the route. These markets have a combined economic output of US$21 trillion, accounting for 30 per cent of the world’s total.

Duan, who became the first Chinese to head GE’s China operations in late 2014, is tasked with an overhaul of the company’s businesses in the world’s second-largest economy when profound shifts were taking place amid a painstaking transition from an investment-driven model into a new economic structure buoyed by consumer spending.

The partnership with Chinese companies via the Belt and Road Initiative will certainly be elevated to an international level
Rachel Duan, GE

In China, GE has restructured its Chinese research and business development functions aiming to adapt to the fast-changing market conditions where foreign businesses increasingly face stiff competition from home-grown rivals following the scrapping of former preferential land and taxation policies.

“A correct reading of the government’s policymaking is of great significance to company’s business growth in China,” Duan said. “We studied closely the 13th Five-year Plan (2016-2020) to get the drift of the government’s directions to map out our own growth strategy in this market.”

The new Silk Road plan – officially known as the Belt and Road Initiative and introduced by Chinese President Xi Jinping in 2013 – is the core of China’s global strategy in the 13th Five-year Plan.

Xi Jinping’s ‘One Belt, One Road’ strategy is showing the way to a new world order

GE was among the first gargantuan US businesses to deliver a vote of confidence in the plan. This was despite fears of trade tensions between China and the US after President Donald Trump took office in January, whose potential policies would curb America’s corporate investment in the eastern economic powerhouse.

A correct reading of the government’s policymaking is of great significance to company’s business growth in China
Rachel Duan, GE

“Along the ‘belt’ and ‘road,’ it is important to combine the resources and strength to develop businesses owing to the complexity of the projects arising from the high economic and political risks,” said Duan, also a vice president of GE and a member of the company’s highest level management committee.

“Doing it alone under the EPC (engineering procurement construction) model is not advisable.”

As such, GE has found partners in Chines state firms in areas that the company plans to initially focus on – power supply projects: providing equipment, technologies, advisory services and financing to support the constructions of electric power generating facilities and distribution systems.

With the state-owned Power Construction Corporation of China, GE is looking at building power plants and grids in African nations such as Nigeria and Kenya.

It has also formed partnerships with the mainland’s US$54.5 billion Silk Road infrastructure fund and state-owned China Export and Credit Insurance to offer financing services to replenish power plant constructions.

“Worldwide, since 1 billion people have no access to electric power yet, the scale of business is huge,” said Duan.

“We want to share the profits with the Chinese EPC companies and diversify risks among us in the whole process of building.”

GE’s strategy for Belt and Road provides a vivid snapshot of a twist in the annals of foreign business development in China.

Despite facing stronger competition in China, their experience, business know-how and footprints outside the mainland remain valuable assets for Chinese companies that look to globalise their operations amid increasing financial and manufacturing might.

“Asset allocation around the globe is an irreversible trend for Chinese businesses,” said Zhang Zhiqian, deputy head of China Jianyin Investment’s research institute. “They need experience to do investment at the proper time, with an appropriate approach.”

Asset allocation around the globe is an irreversible trend for Chinese businesses
Zhang Zhiqian, China Jianyin Investment

GE’s businesses in China encompass power, health care, aviation and intelligent environment.

Last year, the company announced that it will expand its digital business on the mainland with the launch of a “digital foundry” in Shanghai, in line with the mainland’s Internet Plus strategy.

GE said it would form a tie-up with Huawei Technologies to develop smart machines as digital transformation in China ushered in a huge Internet of Things market that is expected to reach US$166 billion by 2020, according to GE vice chairman John Rice.

General Electric to expand its digital businesses in China

Internet of Things is the network of physical devices embedded with electronics, software, sensors and network connectivity that enable the objects to collect and exchange data.

GE is also a major supplier to China first large commercial jet C919. It provides engines and avionics systems to the narrow-bodied aircraft assembled by Commercial Aircraft Corporation of China.

Duan said GE would deepen its tie-up with Chinese manufacturers and suppliers to pursue expanded businesses in the fast-growing aviation market after a successful maiden flight of C919 early this month.

Comac is co-developing a wide-bodied aircraft with Russia’s United Aircraft Corporation (UAC) that is expected to have a first flight in 2022 with deliveries beginning as early as 2025.

“We are bullish about the China market,” said Duan. “It will be a market where we will continue to report dynamic growth.”

Duan said GE forecast orders from the Chinese market to top US$10 billion by 2020, which requires a double-digit annualised growth over the next three years.