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Chinese business needs local partners

Cape Town - Although the rise of Chinese state oil companies offshore is impressive, they are neither almighty nor all-knowing, and offer local companies opportunities to partner in business with the Chinese in Africa.

Adi Karev, audit group Deloitte's global leader for the oil and gas industry, said that one cannot work in the oil industry today without noting where, with what, with whom and how long the Chinese have been doing business on the continent.

The Chinese involvement in the African oil industry is dominated by four state oil companies. They are able to buy anything they want because they have financial support from the Chinese government. They do however have weaknesses and do not necessarily know how to operate their acquired assets efficiently, said Karev.

At a breakfast function held by Deloitte and the South African Oil and Gas Alliance - a body wishing to promote South Africa as a service centre for the growing African oil industry - Karev said while Western companies are driven by the profit motive, Chinese state oil companies' driving force derives from their obligation to execute the precepts of the Chinese government's five-year economic plan.

China started its 12th five-year plan this year. The plan prescribes to the Chinese state oil companies what they have to do, but not how or where they have to do it.

Karev, who is based in Hong Kong, explains that if he asks his friends in the Chinese oil companies why they make a certain strategic move, they reply: "Because it's in the five-year plan."

In the 11th five-year plan Chinese oil companies were, for instance, asked to buy up foreign oil assets and Chinese motor companies were ordered to learn more about Western technology. One of the largest Chinese banks bought the retail division of one of America's bankrupt banks to learn how Western retail banking works and bring these lessons back to China.

The 12th five-year plan gives Chinese companies offshore specific instructions to balance their economic growth targets with sustainability and social responsibility.

Chief executives of state oil companies are political appointments. Before such appointments they first have to attend a six-month course with the Communist Party, and it is a precondition that a chief executive should have a good reputation as a party member.

Karev said the offices of the Chinese oil companies CNOOC, Sinopec and CNPC are collectively situated at a Beijing crossroads. The government recently decided to move CNOOC chief executive to Sinopec, and CNPC's chief executive was transferred to CNPC. Karev said CNOOC focuses on deep-sea exploration while Sinopec concentrates more on refining and fuel distribution. Over the next five years he expects Sinopec to conclude more transactions in the exploration and development sector because its new chief executive brings relevant experience from CNOOC. The strength of the former head of CNPC was, in turn, the boosting of operating efficiency, and Karev expects that to become the new focal point at CNOOC as the CNPC boss moves in there.

According to Karev, Chinese companies seldom have uniform international standards. They keep to the standards of the assets they acquire. If a foreign company is taken over the Chinese will rarely effect drastic changes. If a Chinese chief executive is appointed, he will first attempt to learn by observing. China has a dearth of business leaders with global experience. Top Chinese managers who wish to work overseas will not take their family along, or take a holiday. "While you as a Westerner take your leave, the Chinese will rather return to Beijing and carry on working."

Karev reckons that, until China has sufficient business leaders with foreign experience, its companies will struggle to integrate fully with local companies.

Another aspect of the new five-year plan is the charge that Chinese companies must learn how global financial markets work, the better to exploit them for capital requirements.

China also realises that it will have to work hard to change its image of being merely a low-cost manufacturer.

According to Karev, China has a challenge to persuade its consumers that its own products are of better quality than foreign imports. Chinese motorists still prefer foreign models to their own, which represent only 5% of the domestic Chinese automobile market.  

 - Sake24

For more business news in Afrikaans, go to Sake24.com.

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