China flexes its muscles with £1.2bn Volvo deal

As four Rio Tinto execs are jailed on bribery charges, China's biggest carmaker snaps up Volvo.

Last Updated: 17 Jan 2013

A new home for Volvo, the ailing Swedish car brand that Ford has been trying to flog since 2008: it’s just been bought for £1.2bn by Geely, China’s biggest independent carmaker. This has got to count as a good deal for the loss-making Volvo: it’ll keep its Swedish HQ, but it’ll now have ready access to the world’s biggest car market. It’s also a bold move by Geely, one of a number of Chinese industrial giants starting to look outside its home territory. Once again, it’s a reminder of how significant China’s huge domestic market has become to the international business world – although as the case of those four Rio Tinto execs shows, it won't be easy for Western firms to compete with national champions…

Geely will pay Ford $1.8bn to take the wheel at Volvo. That’s a big loss for Ford, which bought Volvo for $6.5bn just over a decade ago – but since the Swedish carmaker has been losing money since 2005, and Ford is still knee-deep in debt, the US firm didn’t have much choice but to cut its losses. Geely is a pretty big business in China; it’s due to shift about 400,000 cars in China this year and employs some 12,000 people. But as its chairman Li Shufu said today, this deal represents rather a milestone: it currently sells virtually no cars outside its home country, but buying the famous Volvo brand gives it an instant presence in European markets.

It’s hard not to see this as another example of an eastern power shift in the global economy; in the coming years, we’re likely to see more and more big Chinese companies active on a global stage. Equally, the Chinese domestic market is becoming increasingly significant to big companies. Take cars: 13m of them were sold in China last year, almost half as many again as the previous year. As domestic consumption rises, it’s going to become the most important market for a lot of international exporters, with some serious money to be made.

But it won’t be easy for foreign firms. Today, four Rio Tinto execs were given jail terms of up to 14 years on bribery charges. The company seems eager not to offend the government: it’s promptly fired them, for breaching company rules. On the other hand, it’s been unable to comment on the industrial espionage charges – since the trial was in a closed court and they haven’t seen any of the evidence. In other words, we’ve no idea how bad their transgressions were. And there’s some suggestion that China has a rather different idea of what constitutes an industrial secret than we do in the West...

In today's bulletin:

Tories aim for business vote with NI pledge
CBI boss Lambert falls with Mandelson over 'dotty' bank watchdog
China flexes its muscles with Volvo deal
The Parent Project: Officially Too Fat to Fly
MT Expert's Ten Top Tips: Prepare for possible changes in Westminster

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