It's tough selling big-ticket items when your buyers are scared of corruption probes
Last year was forgettable for GE ge in China. Sales grew only slightly in a market that officially registered 6.9% GDP growth and was one in which GE set goals for double-digit growth year in and year out.
But it wasn’t China’s slowing economy that hurt GE. The weak performance had a couple of other causes.
The government’s continuing two-year anti-corruption campaign turned GE’s local customers into nail-biting bureaucrats afraid to engage in big projects that were getting scrutinized by regulators. GE’s customers, the government-owned companies (SOEs) in oil and health care, are also undergoing heavy reforms and changes that make big purchases hard to approve.
The thawing of that campaign may be why Rachel Duan, CEO of GE China, told Fortune in an interview after her appearance at Fortune Most Powerful Women International Summit in Hong Kong today, “We can expect 2016 to be a good year in China.”
Duan, who has led GE’s $8 billion revenue China business since 2014, said the anti-corruption campaign is generally a good thing for China, but “it does impact the project decision delays.” And that matters because “most of our customers are SOEs” who face the most government scrutiny.
Duan said green energy is a big theme of the government’s new five-year plan, to be released in March. One third of electricity usage in the world is in China. That’s problematic considering 70% of China’s electricity is derived from coal. “There’s going to be a tremendous shift toward clean energy—that’s [natural] gas, that’s renewables, but also more clean-based coal use,” she says. Duan expects renewables and natural gas use to double in the next five years. GE has businesses in wind, hydro power and natural gas.
Before Duan took over GE’s China business, she ran its health care division in the country. She says that division might have the brightest prospects out of any for GE in China, including aviation, which almost can’t build jet engines fast enough to keep up with travel demand in the country.
GE’s medical equipment division last year posted what GE CEO Jeff Immelt said during an earnings release earlier this year was the second of “a tough couple of years.”
But recent government reforms have promoted private hospitals as a solution for China’s nagging issue of overcrowded public hospitals, where patients often line up at three or four in the morning to wait all day for a brief consultation with a doctor.
The private hospitals can afford the expensive medical equipment GE sells, like CT scanners, because the richest in China are visiting them. For everyone else, the government is beginning to push primary care facilities, which are normal in the U.S. but almost nonexistent in China.
“In China every large piece of equipment we sell in the space is going through a public tender. The tendering process has been interrupted by the anti-corruption campaign,” Duan says. “It’s not like private sector [where] it’s purely a business negotiation.”
However, the slowdown in buying last year has created a well of demand, which Duan says will become apparent this year. “When you look at intent to buy, it’s very robust,” she says.
It may not be optimism, it may just be the reality of what a multinational with close ties to government customers sees in China today following a huge and often debilitating two-year anti-corruption campaign.