Private companies: not free of government control - Paul Gillis

Paul Gillis

The Hangzhou government raised eyebrows as it announced last week it would send 100 officials to private companies to check on them. Professor Paul Gillis at Peking University’s Guanghua School of Management did not see that much news, he tells Bloomberg.

Bloomberg:

Government agencies may also be heightening their monitoring of the vast private sector at a time the Chinese economy is decelerating — raising the prospect of destabilizing job cuts as enterprises try to protect bottom lines. 

Alibaba is hosting its annual investors’ conference this week in Hangzhou against the backdrop of a worsening outlook for the country. 

“They might be checking whether the [Chinese] Communist Party [CCP] units are working effectively within the companies,” said Paul Gillis, a professor at Peking University’s Guanghua School of Management. 

“While China legitimized capitalism, the level of government influence was never intended to disappear. Occasionally private entrepreneurs forget about this and are reminded of it,” Gillis added. 

Zhejiang is considered the cradle of modern Chinese private enterprise, home to a generation of self-made billionaires from Alibaba’s Jack Ma (馬雲) and Geely founder Li Shufu (李書福) to Wahaha’s Zong Qinghou (宗慶后).

More in Bloomberg.

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Danone looses US$25 million per month on Wahaha

I had almost forgotten about the classic case between the French food company Danone and its Chinese partner Wahaha. Der Spiegel gives a decent overview of the case and summarizes the damage:

Danone is losing about $25 million a month because of the quarrel. Its stock has suffered, losing 15 percent of its value since February, both as a result of these losses and of the uncertainty the severity of the dispute has created in the markets.

(h/t to Jan van de Bergh)

The Wahaha-background

Forbes has an insightful interview with professor Wu Xiaobo of Peking University on the trouble between China's most succesful beverage maker Wahaha and their French joint venture partner Danone.
Wu wrote a book about Wahaha and has a 16-year long friendship with the major representative Zong Qinghou, who is at the middle of the dispute. His verdicts about his friend is harsh:

“Both sides are making errors,” says Wu. ... In the end, though, Zong may come out the big loser in a dispute that is becoming a test of the government’s commitment to the rule of law involving foreign businesses.
“Zong already has no future in Chinese business circles,” says Wu, who is also the author of a book about Wahaha, “Extreme Marketing,” and has known Zong personally for 16 years. “Zong is trading the credibility and social responsibility he should have as businessman for a little extra money” in negotiations with Danone, Wu says.

Who owns your brandname?

An interesting twist in the struggle between Danone and Wahaha, fortunately closely followed by AllRoadsleadtoChina. After some legal setbacks, Wahaha has played an interesting card. Wahaha's Zong's says that the Wahaha brandname was never transferred to Danone, so they cannot complain about him using it.

If this Is proven true, and the arbitrator’s find for wahaha… Well, needless to say we have a whole different ballgame… And danone is going to wish they paid zong the premium he was asking for.

The story is becoming more fascinating by the day. My bet is on Wahaha: not only are they in the best position to win this power struggle, they might have some strong legal arguments too.

Workers unite against Danone

Ok, not time to go really deep into the Wahaha-Danone argument, apart from this picture showing workers who support Wahaha against Danone. A nice example of "social unrest" of a special case.
As you might have noticed by now, the question who is right or who is wrong is increasingly irrelevant. The question is "who get's it right?" It is not Danone yet, and we might have seen that coming.