Xugong Stays in Chinese Hands

In a face-saving joint announcement, Chinese state-owned enterprise Xuzhou Construction Machinery Corporation (Xugong) and US private equity company the Carlyle Group declared on July 22 that Carlyle would no longer pursue equity in the Chinese giant.

The reason given was the expiry of agreements between the two companies which date back to October 2005. At that time, Carlyle intended spending $375 million to buy an 85% stake in Xugong. The deal was immediately denounced by Chinese Marxist-Leninists on sites like the now banned www.maoflag.net . (I reported on Marxist-Leninist opposition to the Xugong buyout in December 2006 here).

Senior Chinese government figures also saw the need to protect major state enterprises. Li Deshui, former director of the National Bureau of Statistics was applauded widely for saying in early 2006 that China must introduce laws to protect domestic industries from foreign monopolistic domination. His views were endorsed on the China Resurgent Forum website in March where one commentator observed that “the former imperialists are invading China’s economy again.”

Zhang Guobao, vice-Chairman of the National Development and Reform Commission warned on August 28, 2006: “If we casually let multinational companies swallow critical (equipment-making) companies built up over many years, we will lose our equipment-making industry. We could even lose control over the development of our whole industrial and defense system, and over our technological progress.”

Zhang was not being anti-privatisation or anti-restorationist in his views. Contradictions amongst restorationists include those between an emerging national bourgeoisie and an emerging comprador bourgeoisie. The growth of the latter is facilitated by the setting of targets for leaders at all levels in attracting foreign direct investment (FDI). The higher the amount of FDI attracted, the greater is the chance of promotion within the system, a point noted by Yu Yongding, Director and Senior Fellow of the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, in a paper prepared for an international conference on Global Imbalances, Organized by IIE in Washington on 8 February 2007. Hence Zhang’s complaint that “Reform of State-owned enterprises isn’t about just selling them to foreign companies or private companies. Some local governments treat selling company stakes to foreign companies as the main route of reform…Some even go to the extent to sell such stakes only to foreign companies” (Source Shenzhen Daily, 24/10/2006).

So strong was Chinese opposition to the proposed buyout of Xugong that in August 2006, the government announced that overseas investors would need Ministry of Commerce clearance to buy controlling stakes in key industries. Carlyle then revised its bid, opting for a 50% grab which won approval from the Congress of Employees and the local Xuzhou government. However, approval from the higher authorities was still not forthcoming, and a third bid in March 2007 for a 45% stake was made and also subjected to delays in approval.

No doubt the regulatory approval delays were a political response not just to opposition from Chinese Marxist-Leninists and the masses, but also to developments in the US where, on the one hand, there was aggressive support for acquisition of Chinese assets and on the other, a rising tide of anti-Chinese protectionism. On the one hand, for example, Frank Lavin, the US under secretary of commerce, commented on the drawn-out negotiations between Xugong and Carylye that “The controversy shouldn’t be Carlyle-Xugong. I think China needs 100 Carlyle Groups to come in and buy 100 Xugongs.” Fine, but on the other hand the US was busy blocking the Chinese state-owned oil industry corporation CNOOC from acquiring US oil company Unocal. Then on March 30 2007, the US Commerce Department decided to levy new duties on imports from China, “reversing more than two decades of practices”. Nothing like a lesson in hypocrisy from the master imperialists!

Nor was Xugong embroiled only with Carlyle. Back in 1994 it had entered a joint venture with the US Caterpillar Company. Xugong was the minor partner with a 40% stake and was prevented, under the terms of the joint venture agreement, from manufacturing excavators in competition with the joint venture. Caterpillar was required to share advanced technology with Xugong as a reciprocal measure.

Over time, Xugong’s stake in the joint venture had dwindled to 15.87%. Shut out of a growing domestic market for excavators and not receiving much in the way of dividends or access to Caterpillar’s technology, Xugong decided last June to pull out of the joint venture and immediately begin production of its own excavators.

Xugong’s withdrawal from the Caterpillar joint venture and the July decision to terminate discussions with Carlyle on their buyout of Xugong are significant enough indicators for observers to talk of “Growing Resistance to Foreign Ownership in China” as one headline, in the www.seekingalpha.com website put it. The same website noted: “When it comes to foreign takeovers – particularly in countries working toward a capitalistic system where the implementation of macro-economic programs and structural reforms are specifically designed to attract capital inflows – the fact is, the system is often confronted with economic patriotism where the government must find a balance between national interests and commercial interests.”

Left out of this rather neat equation between “national (bourgeois) interests” and “commercial (comprador) interests” are the interests of the working class and the peasant masses.

Chinese Marxist-Leninists have the task of articulating those interests and creating a resurgent communist movement to advance the cause of the proletariat and its system: socialism.