The Chinese Are Coming!

It looks like the dealmaking synapses of China's corporate chieftains are going haywire. On June 21, China's Haier Corp., backed by private equity firms Blackstone Group and Bain Capital, bid $1.28 billion for appliance maker Maytag Corp. (MYG ) -- home to not only the loneliest repairmen in town but also a brand getting beaten by more efficient rivals such as Whirlpool (WHR ), General Electric (GE ), and Electrolux (ELUX ). The move by Haier comes as CNOOC (CEO ), a Chinese oil giant, has bid $18.5 billion for Unocal (UCL ) potentially scuttling the takeover plans of Chevron (CVX ). And late last year, Beijing-based Lenovo Group Ltd., China's biggest computer maker, bought IBM's (IBM ) PC business.

Neither Haier nor CNOOC has its prey in hand, and there are plenty of obstacles to any potential deal. Nonetheless, get ready for resounding cries from U.S. politicians and pundits about the Chinese assault on venerable American corporate assets.

But before trade hawks start smashing Haier refrigerators on the Capitol steps, consider this: It's true that many mainland companies are flush with cash -- or ample credit lines from pliant Chinese banks -- and that they enjoy rock-bottom manufacturing costs. Some will undoubtedly rise to global prominence alongside the likes of General Electric, Toyota (TM ), and Nokia (NOK ). Haier and CNOOC might make it into the winner's circle. But right now a lot of Chinese companies with little experience managing global brands and distribution are trying to buy their way into the big leagues in a hurry. That's dangerous, since some 70% of acquisitions fail, says Jonathan Woetzel, a consultant with McKinsey & Co. in Shanghai. "There is no reason to expect Chinese companies to do it any better," he says.

In at least one case they appear to be having trouble. TCL Corp., a leading Chinese appliance maker, acquired Alcatel's (ALA ) mobile-handset operation and spun the business into a joint venture last August. The project lost $45.7 million in the first quarter, selling just 1.53 million handsets. That's a pace of about 6 million phones annually, far below the 20 million envisioned when the venture was set up. It's unclear how a similar deal TCL has with French TV maker Thomson Electronics, owner of the RCA brand, is faring. But in handsets the electronics company has a hard fight on its hands in its core mainland market as foreign rivals such as Motorola Inc. (MOT ) and Nokia have won back market share. "TCL's handset business is in crisis," says Ted Dean, managing director of BDA China Ltd., a Beijing technology-research firm.

Unlike the Japanese giants that muscled their way into U.S. real estate in the 1980s, Chinese outfits shopping for brands aren't always coming from a position of strength, especially in the ferociously competitive landscape of the mainland. Haier's profits last year were flat, and its gross margins for refrigerators dropped to 16.5% from 19.2% in 2003 as competition raged in China and materials costs jumped. Lenovo saw its profit for the quarter ended Mar. 31 (before the IBM deal was closed) slip by 12% as prices for PCs in China tumbled.

Haier boss Zhang Ruimin is justly famous in China for turning an ailing state company into a powerful mainland brand. But pulling off a salvage job on Maytag may be tricky. (Neither Maytag nor Haier is commenting on the offer.) The American company has been a laggard in outsourcing its production overseas. Its Hoover vacuum-cleaner business is losing money. And U.S. retail chain Best Buy Co. (BBY ) recently dropped Maytag products. An effort by the Chinese suitor to save the Maytag brand would require a whole new skill set for Haier, which has relentlessly pursued a strategy of pushing only one brand around the world. But if Haier just wants Maytag's sales and service channels, its technology, and perhaps a few U.S. plants -- Haier already has its own factory in South Carolina -- the Chinese company will have to persuade millions of Americans to accept the Haier brand instead of Maytag. China is definitely asserting itself in the global marketplace. But will the Chinese turn out to be the shrewdest of dealmakers -- or just the buyers of last resort for ailing companies? The answer to that question will make all the difference.