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X-Ray Shocker from China. Follow GE's Money

|Includes: General Electric Company (GE), MR
American business empires don't get much bigger or more American than General Electric (NYSE:GE). That's why the latest news from GE was such a shocker.

As the Wall Street Journal and Bloomberg reported, GE is moving the headquarters of its X-Ray operations to Beijing. And it didn't take long for a furor to erupt. Outrage poured in to the Journal's comments section.

As one typically indignant reader said: "Obama's jobs Czar, [Jeff] Immelt, moves good jobs to China, again." Another fumed, "Immelt made a big deal of blasting other CEOs for not creating more jobs in the US while he now moves a business to China. Why would he move it there? Lower costs? Less regulations?"

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Actually, GE's reasons were pretty exciting from an investor's standpoint. GE explained, "As the company grows more global, it's increasingly important for us to become close to our customers." GE Healthcare expects 20% to 25% of GE division's X-ray products to be developed in China during the next three to five years for sale around the world.

GE's health care unit is the world's biggest maker of medical imaging devices. A small part of that, the X-ray business, started 115 years ago. But GE doesn't feel it's getting its fair share of the huge Chinese market…at least not yet.

Scanning China for Billions

Globally, GE's Healthcare Division is the world's biggest maker of magnetic resonance imaging and cardiac tomography scanners. But GE took in only one billion dollars worth of its $16.9 billion in worldwide sales for the medical scanning business from China last year.

Now GE has huge ambitions for growth in China in several of its many business sectors.

The company had targeted $10 billion dollars in revenues from China in 2010. Yet, actual revenues were a major disappointment, coming in at only half of that amount. But 2011 could be a turning point for GE and for China.

Earlier this year the company signed a deal with government-owned Aviation Industry Corp. of China to inject much of GE's civilian avionics business into a 50-50 joint venture there.

And, extending well beyond the recent X-ray move, GE's healthcare ambitions in China are getting into full gear. In January GE Healthcare launched the so-called "Spring Wind" initiative to develop and market medical products and services throughout China.

GE says the division should have "double-digit" growth rates as the country converts from outdated technology. Much of China's existing X-ray infrastructure is old-fashioned analog and film-based equipment. GE now intends to develop more than 20 percent of the X-ray division's new digital products in China.

Winners and Losers

The latest GE move drove down shares of potential competitors. Chief among them is Mindray Medical (NYSE:MR), a Chinese smaller medical device maker traded as an ADR on the New York Stock Exchange.

GE is determined to maintain its dominance in the high-end medical imaging business.

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At the same time, GE intends to spread its presence throughout China at the family practice level, an important focus for improved Chinese medical care by the government in Beijing.

The effect on American jobs will be nil, no jobs lost, despite the outraged comments I mentioned earlier. But the opportunity for GE could be huge.

The company intends to invest about $2 billion across China, including opening six "customer innovation" and development centers. GE plans to introduce at least twenty products for the local market during the next three years, 70 percent of them for primary health care. In other words, GE will be pushing its brand into tens of thousand of doctors' offices and clinics around the country, using an army of 2,000 sales representatives.

GE is looking for major growth in the world's most populous nation. As one spokesman said, "Over the next five years, China will be GE Healthcare's most important growth market".

Let's hope the latest moves bring GE's profits to life!


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