Tweet
China Buying Up World's Sinking Assets
Tuesday, November 18, 2008 12:30 PM
Article Font Size
BARCELONA, Spain � Chinese companies are shopping for companies in Europe and around the world, undeterred by the global financial crisis. In fact, they are hunting for bargains.
Analysts and business leaders say the economic meltdown that has pummelled global stock markets may be bad news for the West, but it could be a boon to Chinese companies flush with cash and looking for places to put it _ despite being burned on earlier investments.
"Business people from China have quite a high level of confidence that we will recover from the impact, and they see more opportunities through this crisis," said Fu Chengyu, chairman of China's third largest state-owned oil company, CNOOC Ltd. "We feel more confident than we did six months ago, but this all depends on how we manage this opportunity ... We are looking forward to the next six months."
The optimism comes despite fears that China's economy is slowing, and that the government will be less enthusiastic about big Chinese companies sending investment overseas.
Cheap prices, low interest rates and China's insatiable appetite for raw materials are all likely to keep Chinese pocketbooks open, good news for capital-hungry Western companies that have seen their profits dwindle and their access to credit tighten.
"Cash is king, and China has a lot of cash, and the whole world is for sale at a discount," said Charles Tang, the chairman of the Brazil-China chamber of commerce. "China should wait a few more months and then go on a shopping spree, to secure what it needs at a super discount."
Where trade restrictions once prevented some high profile deals from getting done, some see progress.
"Things are changing," said Frank-Juergen Richter, president of Horasis, a Geneva, Switzerland-based group that helped organize the Global Chinese Business Meeting, a conference here bringing Chinese and global business leaders together. "The U.S. and Europe realize that they need Chinese investment" to help ward off a recession.
Chinese companies invested $34.16 billion overseas in the first half of 2008, including $25.66 billion in non-financial institutions. That last figure represents a 229 percent increase over the same period in 2007, according to Chinese government figures.
With their balance sheets loaded with cash, and with interest rates falling, many believe the upward investment trend will continue, despite the risks.
The Chinese financial system has avoided the turmoil that has paralyzed Western markets, thanks to far stricter regulations. And the Chinese economy, while slowed considerable by the global downturn, is still expected to grow at an enviable 8 percent rate in 2009, helped in part by a $586 billion government stimulus package announced earlier this month.
Most Chinese investment overseas has so far focused on the banking and oil sectors.
In August, China's largest offshore oil-services provider, China Oilfield Services, announced it was buying Norway's Awilco Offshore in a deal valued at $2.5 billion. And in March, the Industrial & Commercial Bank of China Ltd. finalized the US$5 billion purchase of a 20 percent stake in South Africa's Standard bank, the biggest overseas investment ever by a Chinese investment institution.
China has also invested heavily elsewhere in Africa and in Latin America, with Aluminum Corp. of China investing more than US$2 billion in a copper mountain in Peru, and others snapping up stakes in mining, commercial farming and construction in Congo, Zimbabwe and Zambia, among other places.
There are risks as well, particularly for companies flush with cash but short on experience in investing.
Chinese companies have been burned on investment in Western banking and financial companies. China's Ping An Insurance Co. was the biggest foreign shareholder in Fortis, a Dutch-Belgian bank that got into trouble and had to be taken over by the French and Dutch governments in October. Ping An said recently that it would take a $2.3 billion loss.
But whatever losses Chinese companies have suffered are dwarfed by the amount of cash they still have on hand. Ping An, for instance, still has $100 billion in assets, and can absorb the Fortis losses with relative ease.
Todd Lee, an analyst and head of the Greater China Group at Global Insight, said the government was likely to put the brakes on companies moving too much wealth overseas.
"On the one hand, assets are cheaper overseas, so for Chinese companies that are doing well that does present an opportunity," he said from his Boston office. "On the other hand, the Chinese government is very concerned about growth and the effect the global recession will have on the economy so they don't want to see capital leaving China on a massive scale."
Indeed, Chinese government leaders have warned the country's business community not to leap too soon into a market still searching for the bottom. Li Rongrong, the chairman of the Chinese agency in charge of big state corporations, had blunt words for those licking their chops at the cut-rate prices of overseas companies.
"Hold your cash," he said last week, according to the China Daily newspaper. "Don't rush. There will be plenty of opportunities in the future."
Tuesday, November 18, 2008 12:30 PM
Article Font Size
BARCELONA, Spain � Chinese companies are shopping for companies in Europe and around the world, undeterred by the global financial crisis. In fact, they are hunting for bargains.
Analysts and business leaders say the economic meltdown that has pummelled global stock markets may be bad news for the West, but it could be a boon to Chinese companies flush with cash and looking for places to put it _ despite being burned on earlier investments.
"Business people from China have quite a high level of confidence that we will recover from the impact, and they see more opportunities through this crisis," said Fu Chengyu, chairman of China's third largest state-owned oil company, CNOOC Ltd. "We feel more confident than we did six months ago, but this all depends on how we manage this opportunity ... We are looking forward to the next six months."
The optimism comes despite fears that China's economy is slowing, and that the government will be less enthusiastic about big Chinese companies sending investment overseas.
Cheap prices, low interest rates and China's insatiable appetite for raw materials are all likely to keep Chinese pocketbooks open, good news for capital-hungry Western companies that have seen their profits dwindle and their access to credit tighten.
"Cash is king, and China has a lot of cash, and the whole world is for sale at a discount," said Charles Tang, the chairman of the Brazil-China chamber of commerce. "China should wait a few more months and then go on a shopping spree, to secure what it needs at a super discount."
Where trade restrictions once prevented some high profile deals from getting done, some see progress.
"Things are changing," said Frank-Juergen Richter, president of Horasis, a Geneva, Switzerland-based group that helped organize the Global Chinese Business Meeting, a conference here bringing Chinese and global business leaders together. "The U.S. and Europe realize that they need Chinese investment" to help ward off a recession.
Chinese companies invested $34.16 billion overseas in the first half of 2008, including $25.66 billion in non-financial institutions. That last figure represents a 229 percent increase over the same period in 2007, according to Chinese government figures.
With their balance sheets loaded with cash, and with interest rates falling, many believe the upward investment trend will continue, despite the risks.
The Chinese financial system has avoided the turmoil that has paralyzed Western markets, thanks to far stricter regulations. And the Chinese economy, while slowed considerable by the global downturn, is still expected to grow at an enviable 8 percent rate in 2009, helped in part by a $586 billion government stimulus package announced earlier this month.
Most Chinese investment overseas has so far focused on the banking and oil sectors.
In August, China's largest offshore oil-services provider, China Oilfield Services, announced it was buying Norway's Awilco Offshore in a deal valued at $2.5 billion. And in March, the Industrial & Commercial Bank of China Ltd. finalized the US$5 billion purchase of a 20 percent stake in South Africa's Standard bank, the biggest overseas investment ever by a Chinese investment institution.
China has also invested heavily elsewhere in Africa and in Latin America, with Aluminum Corp. of China investing more than US$2 billion in a copper mountain in Peru, and others snapping up stakes in mining, commercial farming and construction in Congo, Zimbabwe and Zambia, among other places.
There are risks as well, particularly for companies flush with cash but short on experience in investing.
Chinese companies have been burned on investment in Western banking and financial companies. China's Ping An Insurance Co. was the biggest foreign shareholder in Fortis, a Dutch-Belgian bank that got into trouble and had to be taken over by the French and Dutch governments in October. Ping An said recently that it would take a $2.3 billion loss.
But whatever losses Chinese companies have suffered are dwarfed by the amount of cash they still have on hand. Ping An, for instance, still has $100 billion in assets, and can absorb the Fortis losses with relative ease.
Todd Lee, an analyst and head of the Greater China Group at Global Insight, said the government was likely to put the brakes on companies moving too much wealth overseas.
"On the one hand, assets are cheaper overseas, so for Chinese companies that are doing well that does present an opportunity," he said from his Boston office. "On the other hand, the Chinese government is very concerned about growth and the effect the global recession will have on the economy so they don't want to see capital leaving China on a massive scale."
Indeed, Chinese government leaders have warned the country's business community not to leap too soon into a market still searching for the bottom. Li Rongrong, the chairman of the Chinese agency in charge of big state corporations, had blunt words for those licking their chops at the cut-rate prices of overseas companies.
"Hold your cash," he said last week, according to the China Daily newspaper. "Don't rush. There will be plenty of opportunities in the future."
!
Comment