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Geely-Volvo deal helps China go global
By Ren Jie (chinadaily.com.cn)
Updated: 2010-08-11 11:58
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Dr. Meng Qingxuan, the Chief Economist of China Investment Consulting Corporation and Research Fellow with Stanford University, believes that the Geely's Volvo bid is one of the most important events in Chinese business as it provides a pattern for China's private enterprises to go global.
Zhejiang Geely Holding Group completed the acquisition of the Volvo car brand from Ford Motor Co on August 2, the biggest overseas acquisition yet by a Chinese automaker.
Geely said in a statement the funds for the deal were raised from Chinese institutions, internal resources and also from the international capital markets. A Reuters' report said the Chinese automaker has lined up total financing of $2.7 billion to back its Volvo buy.
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The combination between production and finance is not only the merge of a financial institution and an enterprise, but also an integration between productivity and capitalization, according to the model developed by Meng. Businesses can achieve a non-linear growth via capitalized expansion methods, that could not be fulfilled by strengthening production capacity.
Meng believed that merger and acquisition would supply a non-linear way for businesses' internationalization and expansion as enterprises could elude risks at the start up stage.
Besides Geely, a lot of Chinese firms have taken the strategy of combination of production and finance in their expansion road. China Mobile has inked a deal to buy a 20 percent stake in the Shanghai Pudong Development Bank for 39.8 billion yuan ($5.83 billion) in March of this year, which was considered as typical model of the leading pattern.