GE’s New Plan in China

The management team of US-based General Electric Company (GE) was cheered up by the newly-found opportunity in China.

In November 2009 the chilly wind swept Beijing, but it didn’t freeze the hearts of GE CEO and Chairman Jeffrey Immelt and his team. Only in three days, GE became the company with a harvest in China after the US president Barack Obama’s first visit in this country.

On November 15 and 17, GE respectively signed the cooperation agreements with Aviation Industry Corporation of China, Shenhua Group Corporation Limited, China South Locomotive & Rolling Stock Corporation Limited and the Chinese Ministry of Railway. Their cooperation was directed at the infrastructures of aviation, energy and transportation.

One day later, GE also unveiled a series of cooperation projects with Guangdong, including working with local research institutes in Guangzhou, building its first localized purchasing center in China and launching the headquarters of South China.

Notable was the change of GE’s business in China from product export to capital and technology export. Except for the contract signed with the Ministry of Railway, the other four contracts all had the clauses that GE has the willing to set up joint ventures in China.

Focus of the Focus

For GE, the energy infrastructures are the bases of its global business structure. In Immelt’s opinion, the aforementioned agreements shared one feature – they can all bring about fast development, applications of green technologies and high-tech innovations. “Both the extended partnership in aviation, energy and transportation and the technological cooperation will bring new business opportunities for GE in China.”

The year of 2009 was the fourth year in which GE had cooperation with China South Locomotive & Rolling Stock Corporation Limited. Early in October 2005, GE started the strategic cooperation with CSR Qishuyan Locomotive & Rolling Stock Technology Research Institute Co., Ltd (CSR Qishuyan).

The coming joint venture will bring the partners closer to each other. With the total investment of 90 million US dollars, the joint venture’s shares are halved by the two sides. Its main role is to develop and produce GE Evolution series diesels for locomotives, to provide relevant services and to export the products to the emerging markets.

Tim Schweikert, president and CEO of GE Drivertrain Technology (China), said that the leading place of CSR Qishuyan in the locomotive manufacturing industry in China, combined with the advanced development ability of GE Drivertrain Technology and its rich experience in global markets, makes it possible to have new advantages generated from their cooperation.

In addition, the two parties are facing a historical opportunity brought by the fast development of the Chinese railway. In 2009 and 2010, the Chinese government has or will put 90 billion US dollars in the railway construction. Apart from this, 15 billion US dollars will be put in purchasing the locomotives in the next two years.

Then CSR Qishuyan and GE may be greeted by the opportunities from the US market. It is known that the US government will put 13 billion US dollars in the construction of high-speed railways and the acceleration of trains in the next 5 years. GE and the Ministry of Railway of China have already begun to eye on the American high-speed railway market in the future. The two parties have got to look for the opportunities of taking part in the construction of the high-speed railways on which the trains can drive at 350 km/h in the USA.

The cooperation agreement with Shenhua Group Limited reflects the latest development of GE in the Chine clean coal industry. According to the agreement, the cooperation between the two companies will focus on expanding the applications of coal gasification in the Chinese industry, including the research on the new technologies of clean coal. The main aim is to improve the efficiency and performance of the integrated gasification combined cycle (IGCC) in commercial and industrial applications. They will also work together to develop the programs of carbon capturing and storage technology.

Bad news was that GE was not the only foreign company eyeing on the Chinese market. France-based Total and some other energy giants are also talking with the Chinese domestic-funded companies including Shenhua Group Limited, hoping to find opportunities in this country with great potential. Compared with those multinationals, GE’s cooperation with Shenhua Group Limited is supported by the US Trade Development Administration, which has promised to give capital support for a GE’s IGCC power plant in China for spreading this technology.

Strategic Adjustment

Among GE’s four pillar businesses, finance, healthcare and media have not got rid of the recession, leaving the energy infrastructure to be the only growing business.

According to an insider from GE, when the company initially sought the cooperation with CSR Qishuyan, they can not jump out of the old pattern of “trading the technology for the market”.

At that time their cooperation followed these rules: GE Drivertrain Technology signed the strategic agreement with the Chinese Ministry of Railway to sell the components for 300 Evolution locomotives to CSR Qishuyan, which was responsible for assembling these trains. Now CSR Qishuyan has already produced more than 100 locomotives and they have all been put into use.

With the time passing by, Immelt and his team recognized that it is more profitable for GE to build partnership with the leading enterprises in China which enables them to make use of each other’s advantages to take part in the global competition.

The insider mentioned above said that the joint venture built by GE and CSR Qishuyan will simultaneously possess the technological advantages of GE in locomotive manufacturing industry and the benefits of the made-in-China. In that way, more added value of GE’s technology can be realized.

The insider also said that GE has reached an agreement with Aviation Industry Corporation of China to set up a joint venture specialized in the electronic devices for aviation. This is also a reflection of the changes of GE’s development plan in China. Through the establishment of the joint venture, GE can develop the new kinds of electronic products for aviation and take part in the competition in the international aviation market. This is much better than the previous method in which GE only provided engines for airplanes.

The changes of GE’s market strategies tally with the internationalization strategies of its Chinese partners. Zhu Hongren, general engineer of the Ministry of Industry and Information Technology, said that the Chinese companies are looking for broader cooperation with GE in engine system, mechanic system, industrial products and the other fields. 

Zhang Xinguo, vice general manager of Aviation Industry Corporation of China, pointed out that the way of building the business pattern for Chinese big planes through joint ventures is suitable for developing the overseas market. In the future, the made-in-China big planes will try to earn their positions in the international civil aircraft industry.

All of these will provide the preemptive opportunities for GE in the future.