Courting China, Wilbur Ross-Style

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

Wilbur L. Ross Jr., the leveraged buyout and corporate restructuring icon, said he is optimistic for the future of the West’s role in what he takes to be an increasingly transparent Chinese business environment.

Mr. Ross was one panelist among an array of Chinese and American notables gathered Wednesday at the Credit-Suisse First Boston’s “U.S.-China Executive Summit.” He was among the first American investors to stake out a foothold in China, drawing upon a wealth of experience in manufacturing-intensive industries by building automobile parts factories in Guangdong back when in 1997.

Wilbur Ross is most recognized for his deft touch — or aggressive, heavyhanded restructuring — with existing American businesses. But he has adopted a different approach in China, tending towards joint ventures rather than majority equity shares. He has taken this nominally less risky approach because in comparison to America, “China does not yet really have … the rule of law.”

This undesirable feature (as far as investors are concerned) is now on the retreat as the state-owned businesses are weaned out of an increasingly privatized Chinese economy.”But,” Mr. Ross cautioned, “there are clearly different components to China, and there is a linkage between their political aspirations and their economic aspirations.”

With this potential complication in mind, Ross strives to create safeguards in his Chinese businesses in the form of high-level local contacts who can help to mitigate the ill-effects of any “peculiarities” that might arise, particularly with regard to intellectual property.

In measured tones, Mr. Ross went on to describe the critical factors driving growth and opportunity in China. A relative lack of critical natural resources — especially oil, natural gas, and food — have created powerful incentives for the Chinese government and businesses to obtain them.

In the past, contractual relationships with energy and food suppliers had satiated the Chinese demand, but this technique is giving way to more acquisitions by both private and public entities (remember the Unocal bid and the recent spate of government deals in Africa).

Referring to the highly fragmented coal industry and its potential to offset some of China’s insatiable appetite for combustible fuels, Mr. Ross was eager to encourage cooperation between the local operators and their technically advanced western suitors.

“China is not blessed with a lot of hydrocarbon reserves,” said Mr. Ross, noting that the “Chinese would be delighted to find a way to supply their own energy needs.”

Mr. Ross summarized his generally optimistic standpoint: “We believe globalization is the single biggest economic factor in the world today,” he said, referring to his private equity firm W.L. Ross & Co, LLC. “We think that it drives consolidation particularly among the more mature industries, manufacturing in this case [and will also] change the outlook for commodities. We think that whatever the consequences may be for the western world, one consequence for the developing countries will be the rising standards of living, and a rising standard of living really means increased consumption of commodities.”

Mr. Ross’s current positions in China indicate that he intends to take that idea and run with it. His projects include textiles and automobile parts, businesses in which he is exploring innovative marketing and licensing techniques to tap into the blossoming Chinese consumer market.


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