November 20,2009

GE Deeper into China Aspiration of Global Competition and Innovation

By CSC staff, Shanghai

China is a spot of brightness in the global gloom for a number of foreign companies, among which number GE. C

hairman and CEO Jeff Immelt has reason to be excited. GE has reached cooperative agreements with the Aviation Industry Corporation of China (AICC), Shenhua Group, and China South Locomotive & Rolling Stock Corporation (CSR) and the Ministry of Railways, involving infrastructure in aviation, energy and transportation.


The energy infrastructure business now tops the priorities of GE's global business structure. In Immelt's view, those contracts have a common feature-they will bring rapid growth opportunities, create high-tech jobs, and promote clean technology applications. "Whether by expanding partnership in the existing aviation, energy, transport sectors, or by cooperating technically, GE will gain new business development opportunities."


The cooperation between GE and CSR entered its fourth year in 2009. The new joint venture will deepen their relationship, with a total investment of $90 million and each side accounting for 50% of the shares. It will develop and manufacture GE Evolution (r) Series diesel locomotive engines in China, providing export and service to other emerging markets.


President and CEO of GE Transportation Systems Group Tim Schweikert says that combining CSR Qishuyan's leading advantage in the field of manufacturing technology with GE's advanced technology development capabilities and global market experience will create new competitive advantages.


The new j-v is on the way to grasp an historic opportunity in the modernization of China's railway system. The government plans to allocate nearly $90 billion for railway construction and $15 billion for train car purchase this year and next.

The two companies are also looking at new opportunities in the US market. Word has it that the US will invest $13 billion in railway and new high-speed rail construction in the next five years. GE and the Chinese Ministry of Railways are turning their attention to the future US high-speed rail market, and the two sides have pledged to strengthen cooperation for US over-350-km-per-hour high-speed rail projects.

Reaching agreement with Shenhua, a state-owned mining group, on a joint venture is GE's latest development in China's clean coal technology market. Under the agreement, the two companies will carry out strategic cooperation to expand coal gasification technology in industrial applications, conduct research on clean coal technologies, further improve the commercial performance of integrated gasification combined cycle (IGCC) power generation  technology, and jointly promote and facilitate IGCC commercial application projects with carbon capturing and storage (CCS) technology.


GE's competitors, Total Group and other multinational energy giants, are contacting Chinese coal companies including Shenhua, hoping to find opportunities in a market with huge potential. GE has an advantage in that its cooperation with Shenhua is expected to get support from the US Trade and Development Agency (USTDA). To promote commercial application of IGCC technology, USTDA has promised to select an IGCC power plant in China set up by GE to provide early funding.


Among GE's four business pillars, its finance, health care and media businesses have not completely shaken off the recession, and only the energy infrastructure business is growing.


GE insiders say that in early cooperative stages with CSR, the two sides adopted a "market for technology" business model. GE Transportation Systems Group and the Chinese Ministry of Railways signed a strategic contract to sell 300 Evolution Series mainline locomotive components to CSR, and CSR Qishuyan assembled the components. CSR Qishuyan has so far produced more than 100 mainline locomotives, which are now in use.


However, as time goes on, Immelt and other GE executives began to realize that a partnership with leading Chinese enterprises was more in the interest of GE as they can complement each other in the global market competition.


The joint venture set up by GE and CSR will boast GE's leading technical advantages in the railway truck field as well as China's manufacturing advantages, which highlights the added value of GE technology. The aviation electronic company jointly established by GE Aviation and AICC is also a manifestation of this strategy. Through the establishment of a joint venture, jointly developing next-generation avionics technologies and products, and participating in international civil aviation market competition, has gone beyond the previous business level of providing engine products.


The change of GE marketing strategy matches its Chinese partner's international strategy. Zhu Hongren, chief engineer of the Ministry of Industry and Information Technology says both sides will consider more extensive cooperation in fields such as the engine and mechanical systems, and industrial products.


Zhang Xinguo, deputy general manager of AICC, further points out that a joint venture for the big passenger aircraft development based in China will seek market in Europe, the US and other markets, and will be a strong competitor in the global passenger aircraft market. By joining in, GE will have edge in the future competition.

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