China Overseas Investment: No Big Deal
February 15th, 2010
The American Security and Exchange Commission (SEC) recently released a list of Chinese holdings in American companies listed on American stock exchanges total US$9 billion. Companies include: Apple, Coca Cola, Johnson & Johnson, Motorola and Visa. the source of the investments is China’s sovereign fund, the China Investment Corporation (CIC). Sounds like a lot of money from an investment point of view, but it’s not. For one, the CIC has US$300 billion to invest abroad. For another, US$9 billion is nothing compared to the U.S. stock of Foreign Direct Investment (FDI) of over US$2.1 trillion in 2007. The UK led the way back then with over US$410 billion in investments, with Japan number 2 at about half that amount.
Though China’s investment flow into the USA has increased 30% from 2004 to 2008, other countries have really been going to town buying American assets, with Spain accelerating investment holdings in the United States by 60%, India by 64% and the United Arab Emirates(UAE) by 210% to contribute to about US$94 billion in FDI to the States in 2008!
Don’t expect China to be making too many high-profile investments in the States in the near-future, either through the CIC or through the real heavy-weight, the SAFE, the StateAdministration for Foreign Exchange, which is actually responsible for over-seeing the U$2.1 trillion in foreign reserves. Instead, China is seeding much of its investments in its own backyard, in Southeast Asia, where the natives are more hospitable to Chinese money and overseas Chinese already have extensive networks; and in primary industries centered around mining and refinement of ores and petroleum. Private Chinese companies like to buy distressed companies (read: cheap), try to turn them around, and sell them on for a higher price after lifting important technologies from targets.
And why not: a bargain is a terrible thing to waste.
Further reading: CRS Report for Congress, International Trade Administration Presentation 2008
Past posts:
Managing Outbound Chinese Investors
Chinese Overseas Direct Investment Hits a Wall
