Pirelli cables look to tap Chinese growth .
David Jones
MILAN 1996-08-30
Italian tyre and cables giant Pirelli on Friday announced its long-awaited move into China with a cables joint venture set to capitalise on the rapidly-growing Chinese telecommunications market .
Pirelli is linking with Hong Kong-based group CITIC Pacific in a venture to be called the Wuxi Tong Ling Company Ltd , which will operate in partnership with a local industrial company at its existing factory in Wuxi , Jiangsu province , Shanghai .
The partners will invest around $ 30 million in the existing copper cable plant at Wuxi to update technology and include optic fibre production , with annual turnover expected to reach $ 60 million within the next few years .
The move marks a further move by Pirelli 's cables division to expand in the fast-growing Far Eastern developing markets with the group already present in Indonesia , India and Malaysia .
" This is really positive news for Pirelli , and I expect that it will produce one of the best half-year results in late September compared to other industrial Italian companies , " said analyst Paula Buratti at Indosuez .
She emphasised that the move was positive because Pirelli will have management control of the Chinese venture , and it also showed another example of Pirelli exporting its technical know-how to developing markets .
Pirelli shares reacted favourable even though talks had been underway for some time and news about a venture had been widely expected .
The shares rose 0.2 percent to 2,555 lire by 1350 GMT in an easier Milan stock market .
This will be Pirelli 's first industrial involvement in a Chinese market where demand for telecommunication networks is expected to grow to 80-100 million new lines between 1996 and 2000 , doubling demand for optical cables .
China 's second largest telecoms operator Unicom already has a mandate from the central government to establish 15 million new phone lines by the year 2000 , which will necessitate new trunk line systems and local distribution networks .
" The starting of this production base in China has for our group an undoubted strategic value , representing an important enhancement of our presence in Asia , " said Pirelli SpA chairman and chief executive officer Marco Tonchetti Provera .
Pirelli Cables has global sales of over $ 3.5 billion , and has become a large supplier of optic cables and systems to major telecoms carriers in the U.S. , Europe and the Far East .
CITIC Pacific is a major Hong Kong-listed company focusing on infrastruture , trading , distribution and property , with 28 percent of its 1995 profits coming from telecoms .
It has investments in several industrial joint ventures in China .