Wang Hongbiao, head of Nanjing Automobile, with a vintage MG model at the plant in Longbridge, England. "We want to protect the British flavor of the brand," he said.
MG, the legendary British brand that expired after a lengthy illness, will be revived this month as a Chinese sports car when the Nanjing Automobile Corporation begins to produce convertible sports cars under that name in China.
An MG sports car in Longbridge, England, where new models are being designed. Nanjing Auto bought the rights to the MG name and its former production facilities two years ago.
The rebirth of MG is the latest and most splashy example of how China’s growing economic might is reaching carefully into foreign markets, buying up troubled companies with established brands and using them to build bridgeheads for some of the hundreds of billions of dollars that the country has to invest overseas.
“Within a very small period of time you will see a lot of industries following the same strategy,” said the chairman of Nanjing Automobile in the United Kingdom, Wang Hongbiao, whose stature and demeanor bring to mind Humphrey Bogart.
It is a cautious, even stealthlike approach, and a stark contrast to Japan and Korea, which spent billions of dollars over decades to build recognized brands through exports before establishing a high-profile corporate presence overseas. That era reached its peak with the purchase of Rockefeller Center by Mitsubishi Estate in 1989. These days, China also wants to avoid a political backlash, like the kind that has already scuttled at least one deal.
Still, China is in a hurry, and as it increases outward investment, many of its companies hope to leapfrog the expansion process by acquiring technology and distribution networks together with well-known names on which to build larger businesses.
The investment agency that China is setting up to diversify its $1.1 trillion foreign exchange holdings could provide another boost, particularly as the government sees the entire world — including developing countries in Africa and Latin America — as its stage for acquisitions.
It began when the Chinese television and mobile telephone maker TCL bought the bankrupt Schneider Electronics of Germany in 2002. The computer maker Lenovo acquired IBM’s troubled personal computer business in 2004.
Now, China Qianjiang Group, the largest motorcycle manufacturer in China, owns Benelli, the oldest motorcycle manufacturer in Italy. Shenyang Machine Tool Group has bought the 140-year-old German machine tool maker Schiess. Xinjiang Chalkis, a tomato producer, even owns a French tomato cannery and sells Chinese tomato sauce in Provence. All of those target companies were facing financial crises.
Many of China’s foreign purchases have been focused on energy resources, dominated by big state-owned enterprises like the national oil giants PetroChina and Cnooc, which have spent billions in recent years acquiring oil and natural gas fields. Those deals have helped swell the value of China’s foreign acquisitions to nearly $14 billion on more than 100 deals last year, from just $18.6 million in 1990, according to Thomson Financial, which tracks global investment trends.
But with the largest foreign exchange reserves in the world putting upward pressure on the yuan, China is now happy to have smaller companies invest some of that money overseas.
“Even five years ago, it would have been difficult to get approval for this kind of stuff,” said Jonathan Anderson, chief economist for Asia at UBS in Hong Kong. “But now the government is clearly giving companies a mandate to go out and make acquisitions.”
To encourage outbound investment, the commerce ministry now accepts applications online, and the State Administration of Foreign Exchange has abolished quotas on the purchase of foreign exchange for such deals.
That has led to a sharp increase in deals all over the world.
Wanxiang Group, the biggest maker of drive shafts, shock absorbers and other car components in China, bought the American auto parts companies Schiller, Universal Automotive Industries and Rockford Powertrain, to get into the United States market with established brands.
Samson Holdings, a Taiwanese-owned China-based furniture maker, has done the same by buying the North Carolina furniture makers Universal Furniture, Legacy Classic and Craftmaster Furniture.
In 2004, the Shanghai Automotive Industry Corporation took a controlling stake in Ssangyong Motor Company, the fourth-largest automaker in South Korea, in order to gain access to that market.
Still, the foreign investments are a trickle at this stage. Nanjing Auto, for instance, paid just over $100 million for the MG assets two years ago. “This is not Japan in the 1980s; this is Japan in the 1960s,” Mr. Anderson said.
Following the pattern of similar acquisitions, Nanjing has retained key managers while shifting much of the labour-intensive production back home where it is cheaper.
Even so, China’s overseas investments have already caused some alarm. In the United States, national security concerns over a takeover bid by Cnooc for Unocal in 2005 killed that deal. And a bid by Haier, a Chinese refrigerator maker, for Maytag was cut short the same year by a quick counter-offer from Whirlpool.
Emotions have already risen in Britain recently over Burberry’s plan to move production to China. Even Prince Charles has added his voice to protests that the quintessentially British brand would be made in China.
Given those problems, Nanjing Auto, China’s oldest automaker, is eager to keep a low profile and has been careful to preserve the British face of its famous brand — lest the reborn MG become nothing more than a Chinese competitor to the Mazda MX5. Earlier this year, Nanjing shipped eight vintage MGs to China as an introduction to the brand. The only twist: In China, Nanjing auto executives have told people that the MG stands for the more instructive 'modern gentleman' instead of the original meaning, 'Morris Garages,' where the cars were first made. MGs became classics of their time, beloved by generations. While the Italians built flashier sports cars for the rich, MGs developed a loyal following among aficionados who still refer to the distinctive logo as the 'sacred octagon.'
“Emotion is the most important factor in purchasing cars,” Mr. Wang, 44, of Nanjing Auto, said. “That’s why we feel the brand is so important and is why we want to protect the British flavour of the brand.”
Rising labor costs and a series of missteps by British Leyland, the defunct company that manufactured MG during its 1960s heyday, led to the sale of MG to several different owners before bankruptcy finally ended production in April 2005.
Nanjing Auto bought all of the tangible assets from the MG plant, together with the rights to some of Britain’s most famous automotive brands, including MG, Morris, Austin and Austin-Healey.
It crated up most of the manufacturing equipment and shipped it to Nanjing, where it has been painstakingly reassembled.
On March 27, the 60th anniversary of Nanjing Auto, the Nanjing plant will start producing two MG models: the MG7, a five-seat, four-door sedan, and the MG TF2, a two-seat, two-door convertible sports car. It hopes to eventually export the MG7 to Europe.
But the company has also signed a 33-year lease on a portion of the Longbridge factory site and later this year will begin producing the MG TF2 there for sale in Britain and eventually continental Europe.
Negotiations are under way to produce a hardtop version of the MGTF roadster through a joint venture in Oklahoma, and Mr. Wang said he hoped Americans would be able to purchase an MG in the near future, depending on the company’s ability to meet federal regulations.
Initially, the cars will be updated versions of two-year-old models; Mr. Wang said the company would design all new models — a process under way — in Britain.
“It’s just like cooking,” he said, sitting in his corner office with Chinese, American and British flags on the carved wooden mantelpiece above a gas fire. “You have to keep the original flavour.”
Mr. Wang took a visitor across the empty factory compound to an unused conference centre that houses the office of Lord Austin, founder of the Austin Motor Company, later a part of British Leyland.
Inside the musty, wood-panelled office, filled with original furnishings, he pulled opened a drawer, releasing a hidden mechanism and allowing the top of Lord Austin’s heavy oak desk to slide back, revealing a secret compartment containing a guest book, its pages filled with the signatures of visitors to the legendary car company.
“Royalty signed here,” said Mr. Wang with evident enthusiasm at this bit of British heritage. The book contains the signatures of Prince Philip, Princess Margaret and Lord Snowdon.
A collection of gleaming cars is kept in the compound, including a lavish two-tone green 1938 MG saloon with graceful fenders and running boards, as well as an MGB sports car, the most popular British sports car ever made.
Not all Chinese companies are entering “through the backdoor,” as the Chinese like to say, by buying established brands. Changhong, one of the biggest television makers in China, has begun production of flat-screen TVs in the Czech Republic at a $100 million factory that it built from scratch.
Other TV makers in China have manufacturing operations in Europe to avoid paying the 14 per cent duty on imports to the European Union.
But that has not been the strategy for China’s bigger companies like Nanjing Auto.