China to the US economy - lifeboat or tugboat? (photo: Randal Rayborn)

A number of recent headline stories out of China about joint ventures and acquisitions involving American companies didn’t seem to get much attention in the US media, yet these stories indicate that the current economic recovery will remain jobless for some time. Is China a lifeboat for US firms, or the tugboat pulling the entire wounded US economy back to shore?

The biggest news came out of the automotive industry, where Beijing Automotive announced its intention to acquire all or part of Saab from General Motors which also announced a joint venture with Shanghai Automotive to sell small cars to India. Ford Motor Company also made headlines in China, as Geely Holding Corp. discussed details of its 100% purchase of Volvo from Ford.

As the Big Three automakers try to shed unprofitable divisions and consolidate operations, look for more acquisitions and joint ventures with China. “Saab is attractive for its brand and its technology”, Beijing Auto president Wang Dazong said of the proposed acquisition, adding that a lack of “technology depth” is one of Beijing Auto’s weaknesses. Chinese firms recognize how much technological improvement they can achieve through acquisition, and they have the cash to go shopping now that the marketplace offers them bargain prices.

Healthier US firms have not been idle in the Chinese marketplace, either. IBM signed a range of cooperation agreements with China’s ENN Group, including a joint venture for new energy development. Pharmaceutical giant Pfizer announced plans to set up a new research and development center in Wuhan, Hubei province, in central China with a goal of acquiring less expensive talent to support Pfizer’s global R&D projects. Fast food company Burger King announced that it was opening six more outlets in Beijing. (At the same time, news reports indicate that fast food outlets in many American cities have implemented hiring freezes – an unprecedented situation.)

Observers can be forgiven for wondering if US Government stimulus dollars are simply going straight to Asia to be put to work. Throughout the crisis, American firms seem to have retained their enthusiasm for investments in Asia – particularly China – but inside the United States private sector investment and job growth have ground to a halt. In some ways the jobless recovery was an entirely predictable result of the information technology boom at the beginning of the decade. Many of the new systems and processes implemented during that boom made middle management positions redundant some years ago, it just took a sharp recession to kick off the actual downsizing. Those middle management jobs will not be coming back. Large- and medium-sized companies have learned to run leaner, and in an economic environment filled with political risk they recognize that aside from a small core of highly intelligent and creative “idea people”, employees are now liabilities.

The US Government has picked its favorites, and the Administration’s policies give us insight into what the next couple of years of “recovery” are going to look like: Big Business goes to the government, Medium-sized Business goes to Asia, and Small Business goes under. Those few small businesses wise and determined enough to swim to the China lifeboat have the best chance of surviving the apparent deflationary depression the American economy is headed into.