Big deals but tangible results remain elusive in China’s global shopping spree

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By Andy Scott

Years from now, on the streets of Beijing and Shanghai it will not be uncommon to see baguettes and berets. At least, that is what one would be lead to believe after the media onslaught that the China Press, not exactly the most inventive of press corps, gave to French President Nicolas Sarkozy and his Chinese counterpart Hu Jintao after they co-signed a series of “massive” joint state deals.

While Sarkozy, know for his often blunt, to-the-point speech delivered a speech publicly urging the Chinese government to let the yuan rise more swiftly and pay more respect to human rights, China’s displeasure at German Chancellor Angela Merkel’s meeting with the Dalai Lama, as well as political fallout following alleged spying of the German chancellery by the People’s Liberation Army is probably what lead Hu to sign the deal with his French counterpart now rather than with Merkel when she visited China in late August.

This is not the first time a foreign leader has come to China and walked away with huge deals, and Hu likes to use these state visits as a way of showing gratitude and building closer ties with nations that are seen as beneficial to China’s interests. But just what do these deals really mean?

While they provide ample newspaper inches and help to build up popular support among both big corporations (campaign funds) and union laborers (votes), the tangible results of these massive deals are often far less than originally promised.

The deals France and China made include: Alcatel-Lucent signing a US$1.1 billion deal with Chinese mobile carriers; Airbus SAS signing contracts worth US$17 billion to sell 160 passenger jets to Chinese carriers; the SUEZ Group signing a pact with the Tianjin government to provide environmental planning for the city; and Areva signing an US$11.9 billion deal to build two nuclear reactors in Guangdong province.

Impressive deals, impressive numbers, but it remains to be seen just how much of it actually comes to fruition. One needs only to look at the contracted and used FDI figures for the last five years to know that China is big on ceremonies announcing huge deals, joint ventures with big dreams, and large amounts of foreign capital (in a suitcase direct from Hong Kong to the Canton Trade show if you please), however, the actual use of all that money is always far lower.

Contracted vs. used FDI (US$ billion)
2004 2005 2006
Contracted 156.6 193.0 204.7
Used 64.1 63.8 73.5

So while the Chinese press will play up this visit and the French press will hail their conquering hero, no money has changed actually hands, and in all likelihood, it will be a long time before even one of those 160 Airbuses touches down for the first time on the mainland.