In many quarters these days, both inside China and out, listed Chinese companies continue to be viewed as opaque organisations hiding financial weakness and corrupt practices.
Muddy Waters, in a report issued four months ago, alleged that Chinaâ€™s biggest operator of dairy farms, China Huishan Dairy Holdings, had inflated expenditures on its dairy farms by as much as 1.6 billion yuan. In response, the South China Morning Post reported last week, local government officials called in company representatives to meet with scores of lenders, including Bank of China. The previous Friday, the companyâ€™s shares plunged as much as 90%, wiping out US$4 billion of market value.
Short sellers, such as Muddy Waters, take advantage of negative perceptions to issue research reports detailing accounting fraud at publicly traded Chinese companies, then buy the companyâ€™s shares at a discount.
William Pesek, writing about Huishan Dairy in Barronâ€™s, observed: â€śAs more and more investors question opaque companies that look too good to be true, the China Inc. brand will take bigger hits.â€ť
David Shambaugh, a China expert at George Washington University, told The Economist last week that China spends US$10 billion a year to build its â€śsoft power,â€ť while the US spent less than US$670 million on its â€śpublic diplomacyâ€ť in 2014.
While everyone around the world is familiar with the â€śMade In Chinaâ€ť label on a variety of consumer goods, Chinese supply chains remain synonymous with shoddy products, such as electronic goods that donâ€™t work, milk laced with melamine, and rotten meat.
What must China do to build its brand in the 21st century?
- Move up the manufacturing value chain and improve the quality of its products. The â€śMade in China 2025â€ť initiative addresses some of these issues.
- Improve the quality of its manufacturing and food processing supply chains.
- Demonstrate leadership in environmental initiatives domestically and globally, and develop green technologies.
- Build transparency and rules-based culture into Chinese companies in all industries.
In Interbrandâ€™s list of the top 100 global brands published last year, only two were Chinese: Huawei, the worldâ€™s largest telecommunications supplier; and Lenovo, a multinational technology company. No mention of TenCent, Alibaba, or Haier, for example.
To help Chinese brands go global, China itself must be positively re-branded. It is already taking steps to do so. It is rebalancing its economy to rapidly grow the consumer sector. And the country is building the foundations for an innovation-driven economy by concentrating on next generation information technology, numerical control tools and robotics, energy saving vehicles and medical devices, among other sectors.
Only one question remains: which PR firm will become Chinaâ€™s agency of record?
Robert T. Grieves is chairman of Hamilton Advisors and chairman of the Council of Public Relations Firms of Hong Kong.
(Photo courtesy: 123RF)