<b>Ajit Ranade:</b> A cat that catches mice

China's treatment of General Electric and the BJP illustrates Deng's pragmatic philosophy

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Ajit Ranade New Delhi
Last Updated : Jan 20 2013 | 1:43 AM IST

Which country is the biggest foreign investor in the United States? It is a tricky question, and don’t look for FDI data. The answer is China. With almost a trillion dollars invested in US government securities, the Chinese have become the largest foreign stakeholders in the US economy even though this may not be in FDI terms. This is just one more aspect of the strange embrace of the world’s two largest economies. Their relationship is one of dependence and also of suspicion. The US needs China to fund its deficits, while China needs the US to keep its employment and industrial growth engine chugging. The US accuses China of currency manipulation, and China flexes its muscle in the Pacific Ocean. Neither of them can push matters to the brink, but there is constant attempt to outsmart and outmanoeuvre each other.

Until a few years ago, the pitch was becoming more and more strident. And then the financial crisis happened. The great crash of Wall Street exposed American vulnerabilities. And in China, the growing unrest, agitations for wages, spiralling inflation and growing income inequality caused attention to be diverted away from America confrontation.

It was President Hu Jintao who coined the word “harmonisation”, to de-emphasise growth, and emphasise redistribution. He articulated a strategy to take development inland away from coastal China. Under him there were also some token gestures of currency revaluation, to deflect global criticism.

In that continuing spirit, the recent visit of President Hu to Washington seems to be an attempt to steer bilateral relations to a more pragmatic level. In that sense, it was a historic visit, metaphorically like “China going to Nixon”, as described by Paul Krugman.

Pragmatism is, of course, old hat to the Chinese. It was Deng Xiaoping who said that “it does not matter what colour is the cat, so long as it catches mice”. Deng uttered those words in 1961, long before it became the guiding force for economic reforms that he unleashed in 1978. The case of the pragmatic China is best illustrated by its reaction to Jeff Immelt, Chairman of General Electric (GE).

But first some background. GE is a giant American global conglomerate, ranked by Forbes as the second-largest company in the world. It has a turnover of more than $150 billion and it operates in 100 countries. GE Capital, its financial services arm, is sometimes called the largest bank which is not a bank. GE, founded in 1892, was part of the original Dow Jones Industrial Index, and is the only company which is still in the index. Its leadership pipeline is legendary, and it has provided CEOs to a variety of high-profile corporations. Its Chairman Jack Welch, who reigned for 20 years and whose leadership is now part of MBA textbooks, was named “Manager of the Century” by Fortune magazine. Chairman Jeff Immelt stepped into Welch’s large shoes ten years ago. Under Immelt, GE has become even more global, and has reinvented itself as a company where “imagination is at work”, and the thrust is on green initiatives, called by GE as “eco-imagination”.

GE moved into China well before the world took notice of the juggernaut. Since GE is into everything from lightbulbs to plastics, and medical imaging to jet engines, it had every reason to be present in China. Immelt wanted China to contribute at least $10 billion to GE’s revenues by 2010. But things were not going so well. GE wasn’t as profitable in China. It felt thwarted by restrictive laws and regulatory policies of China.

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Back in July, the normally unflappable and eminently diplomatic Immelt blew up against China. The Financial Times reported that he accused China of being hostile to foreign companies. He said that China did not want any foreign company to win, and that GE was facing its toughest conditions of the past 25 years in that country.

Immelt’s frustration might have arisen from the fact that Chinese policies require that foreign companies disclose their technology, patents and other trade secrets. Else they are not given permission to operate, or bag government contracts. Given the huge appetite of potential orders from China, most western companies cannot resist.

But then those patents leak out, and copycat companies become your low-cost competitors of tomorrow. This happens not just with Apple products, but also with cars, trucks, turbines, railway coaches, everything. It is not clear how much of this is actual theft of intellectual property, and how much is legal under Chinese law. If GE had to gripe publicly, one can only imagine the plight of smaller foreign companies operating in China.

This July confrontation could easily have escalated into something nasty. (Remember Google?) But here is the pragmatic twist in the tale. Mr Hu had come to Washington with a large shopping list, that included GE and Boeing. GE signed several deals worth $4 billion, and about 5,000 American jobs, in energy, rail and aviation. It signed up a joint venture deal to build a Chinese aircraft, and another for coal gassification, both crucial technologies. Was GE surrendering to China? Was it giving away its technology to its future competitor? Of course not, said Immelt, who was confident that this partnership would lead to world dominance! For his part, President Hu and his colleagues chose to ignore Immelt’s very public diatribe from July.

The pragmatism bug seems to have bitten President Obama as well. He too was at the receiving end of Immelt’s public bile earlier, having been accused of souring the mood in the economy, and being anti-business. Mr Obama has followed the Chinese pragmatic way and appointed Jeff Immelt as the chairman of the Economic Recovery Advisory Board. This sends a very pro-business signal, which is pragmatic. But it also speaks of the maturity of the American political process, for Immelt’s forthright comments, both against China and Mr Obama, weren’t entirely unjustified.

As President Hu finished his historic visit to Washington, back in Beijing, the pragmatic Communist Party of China Central Committee was welcoming the first-ever historic visit of the president of the BJP to China. The CPCCC needs the BJP support on inducing Indian IT, financial services, English tutors and Bollywood to embrace China. Disagreement about Arunachal, Pakistan’s nukes or even Tibet will not dampen the pragmatism fever in the Middle Kingdom.

The author is chief economist, Aditya Birla Group. The views expressed are personal

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Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper

First Published: Jan 25 2011 | 12:49 AM IST

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