For Westinghouse, A Slow Boat To China
Ernest Drew barely had time to unpack. The former senior executive at German chemical giant Hoechst had just returned from a business trip to China in June when he got the top job at Westinghouse Electric Corp.'s industrial division. Drew, 60, was back in Beijing within days--this time to talk nuclear energy.
China represents a badly needed growth opportunity for Westinghouse. It may even be the key to survival for the $3.2 billion industrial group after it spins off this fall from the rest of Westinghouse, which will be called CBS Corp. As it stands, the industrial unit lacks a marquee money-making business to entice investors. The concern is that if the new stock sputters, somebody might snap up all or part of the company. Already, French nuclear engineering company Framatome and others are eyeing Westinghouse's power divisions. But Chinese nuclear orders could boost the stock and keep the company intact. "If there's going to be consolidation, we have to drive it," Drew says.
To build his bridge to China, though, Drew needs help in Washington: A 1985 law prohibits sale of nuclear technology to China unless the President certifies that Beijing is not passing technology on to nonnuclear countries. To date, no President has done so. But government sources say President Clinton is prepared to certify China in time for his October summit with President Jiang Zemin.
If Clinton allows the nuclear deals, then Westinghouse and other suppliers of nuclear technology could be bidding for contracts in the huge Chinese market within 30 days. The Chinese expect to include 10 new nuclear plants in their next five-year plan and to spend some $60 billion to $100 billion on nuclear energy over the next 25 years.
That prize means the most to Westinghouse. GE, for instance, has a dozen major businesses. But after the spin-off, Westinghouse Electric Co. will get a third of its sales from nuclear energy, where sales have been declining for the last decade. "If they're going to stay in the game, they've got to serve the world's biggest growth market," says Kemp Fuller Jr., an analyst at National Securities Corp.
QUID PRO QUO. Westinghouse has been doing spadework in China for many years. Chairman Michael H. Jordan has visited six times in four years and poured $100 million into fossil-fuel joint ventures. Engineers from Westinghouse and China have worked together on a new generation of 600-megawatt reactors, and joint ventures to construct these $800 million plants would be an obvious next step.
First, though, comes the political test. The Chinese say they want to leave the October summit with something tangible--a U.S. endorsement of their entry into the World Trade Organization or a breakthrough on nuclear exports. "They've publicly put the nuclear agreement way up there," says James R. Lilley, U.S. ambassador in Beijing during the Bush Administration. The Chinese say the deal will ease their $40 billion trade surplus and create U.S. jobs.
There will be stiff resistance in Congress. In July, 62 House members signed a letter urging Clinton to hold back certification. They noted evidence--denied by Beijing--that China aided Pakistan and Algeria with nuclear projects. Industry observers say Clinton will go ahead with certification. But the deal could founder on fresh news of Chinese exports or links to Donorgate.
For Westinghouse's industrial spin-off, the stakes could hardly be higher. The new company is a virtual dwarf in an industry of giants, from GE and Siemens to Mitsubishi. With a strong foothold in China, Westinghouse could carve a niche for the 21st century. Without it, look for the giants to gobble up what's left of George Westinghouse's old empire.