Get Ready For More China Overseas Investment
All signs point to the fact that Chinese companies are gearing up to make more overseas direct investments (ODI) in coming years. Moreover, there are indications that they are likely to find more welcoming arms than they have in the past — at least in some circles.
First, there’s the anecdotal evidence. Just in the past three months, I have been asked by one of the handful of companies reporting directly to China’s State Council to provide two days of training to its financial staff on the subject of making investments overseas. The Central Government is encouraging the company to expand outside the country, and they need to know how to go about the process. Provincial leaders are also getting into the act. We have also been approached by the leaders of one province to provide this type of training to their companies.
The empirical evidence also points to a growing trend towards more ODI. The latest Statistical Bulletin of China’s Outbound Foreign Direct Investment showed that Chinese non-financial ODI surged by 14 percent to $68.6 billion in 2011 from a year earlier. China’s total ODI gained 8.5 percent year-on-year to $74.7 billion, which makes China the sixth-largest investing nation in the world. In 2002, just 10 years ago, China spent just $2.7 billion outside the country.
Although SOEs accounted for around 90 percent of China’s cumulative ODI by the end of 2011, private companies are expected to play a greater role going forward. In 2011, private companies accounted for nearly half of China’s outbound investment. Shi Ziming, commercial counselor at the Department of Outward Investment and Economic Cooperation of the Ministry of Commerce, said recently: “Private enterprises will definitely play a more and more important role in the process of the nation’s outbound direct investment activities. They will probably surpass state-owned enterprises [SOEs] as the major force of China’s investment wave.”
Lenovo Group Ltd., Huawei Technologies Co. Ltd., Geely Holdings Group and Sany Heavy Industry Co. Ltd. are among the largest private investors overseas. Geely shook up the global auto industry last year when it bought Volvo from Ford, and Sany, the large construction equipment maker, gained a worldwide reputation earlier this year when it bought a 90 percent stake in German concrete pump manufacturer Putzmeister for 324 million euros ($407 million).
Ever since the $18.5 billion bid for California-based Unocal Corp. in 2005 by CNOOC, China’s leading offshore oil producer, failed due to heavy opposition from the US government, the reception to Chinese investment, at least on the part of some, has improved. In May of this year, Dalian Wanda Group, China’s largest entertainment group, agreed to buy AMC Entertainment Holdings Inc. for $2.6 billion as part of its expansion into the United States. The acquisition was completed in September without opposition, creating the world’s largest theater owner. As noted in our recent post on the subject, we noted that the Federal Reserve Board has recently become more relaxed about approving incursions by Chinese financial institutions into the United States. As recently as 2009, the Fed denied a bid by China Minsheng Banking Corp. Ltd., a private Chinese bank, to acquire United Commercial Bank before U.S. authorities closed the San Francisco-based lender.
Meanwhile the U.S. presidential contest has brought out anti-China rhetoric from both President Barack Obama and his challenger, Governor Mitt Romney. Many believe that the recent WTO complaint filed by the U.S. against China’s auto component export policies was politically motivated. Moreover, new fears about resistance to Chinese investment in the U.S. were sparked last week when Barack Obama blocked a Chinese company from developing wind farms in Oregon on grounds of national security.
Meanwhile, local political leaders, anxious to lure Chinese investment into their states and cities, are actively courting Chinese investors.
Republican Governor Brian Sandoval recently led a trade delegation from Nevada to Beijing and Shanghai to promote investment in the state. Nevada expects to receive about $3 billion of investment from China in a variety of industries in the coming years. Governor Sandoval was the first sitting governor from Nevada to visit China.
Toledo Mayor Michael Bell, an Independent, has been to China three times over the past several years to encourage investment in his city, and election or no election, wishes that Barack Obama and Mitt Romney would stay away from his part of Ohio. The presidential candidates were in Toledo last week, fighting for votes, in part by stepping up their tough rhetoric about China. At the same time, Mayor Bell was speaking to 150 potential Chinese investors. “I have to say, the campaign is really hindering us,” says Mayor Bell. “The Chinese people we invited here are asking, ‘Why are you picking on us?’ or ‘Why are we suddenly the big issue?’”