Why would Sichuan Tengzhong Heavy Industrial Machinery Co., Ltd., a large privately held Chinese engineering firm that manufactures special-use vehicles for road and bridge construction, purchase GM‘s albatross brand, Hummer?

Why wouldn’t they? is the question.

China has large cash reserves, they own $1.3T in US T-Bills, and they are still growing GDP at close to double-digits, even as shares of GM have fallen 100% during the past 9 months.

China doesn’t yet have deep or wide skills and capabilities for manufacturing automobiles–the country hasn’t needed cars for its own markets until very recently, and it has imported what it needed until now.

And China is building. A lot. Everywhere. All the time.

In central China in May 2009, thousand-mile-long elevated rail and auto routes emerge like a mirage from the dry sands of the Gobe Desert, even as 16th Century-styled mud housing continue to be the norm for hundreds of millions of central and western Chinese.

Photo by John Dila

Back home, most Americans left their Q1/09 Stimulus Package gifts in the bank for fear they might lose their job (if they still have one) or for fear they might lose their house if they can’t generate enough income to pay the interest on the credit card bills and interest-only mortgage (20% of all houses for sale in the US are in foreclosure):

Much of the stimulus money that recently rolled into bank accounts stayed there, pushing up the savings rate to 6.9 percent, from 5.6 percent in April. (Washington Post, June 27, 2009).

But there are fantastic bargains to be had in the global marketplace and, unlike most Americans, the Chinese government and private businesses (like Sichuan Tengzhong) are spending on infrastructure projects that are paving the foundations to bring those who are stuck in the 16th Century into the 21st. Before, by the way, you can say, “General Motors.”

The purchase of Hummer is a savvy move, and Chinese regulators, who must OK the deal before it is ratified, are about as likely to reject it as Americans are likely to spend their money right now. And, Sichuan Tengzhong is positioned to lead the negotiation of the deal in which the seller is in Chapter 11, which should make Chinese regulators feel confident.

It’s very possible the Chinese will usher in a new golden era for the Hummer, wherein the vehicles are employed to perform tasks that they were actually designed and built for rather than to sit in the parking lots of up-scale US malls while their owners purchase faux para-military fashion accessories. The fashion accessories are made in China, BTW.

This is a move that helps one of America’s flagging auto firms and that makes sense for China.

The Humvee lives on. Go China!

© 2009 John Dila

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