Source: www.economist.com
First things first, my apologies to those of you who were hoping to read about something other than China this week, but as it is a favourite topic of mine and last week's lead - China buys up the world - in The Economist, I really can't help myself from blogging about it.
Source: www.eiu.com
Now, correct me if I'm wrong but isn't the common perception: China = Communism? Well, whilst in theory, the ownership of a business in a capitalist economy is irrelevant, in practice it is rather controversial. Therefore, when the #1 country that comes to mind when thinking of the word "red" or "communism", is now going on a global shopping spree, one starts to wonder. A capitalist in disguise? Hardly. A country with a big, fat trade surplus and a business-savy government? More likely.
Source: www.economist.com
With such a high trade surplus ($27bn) and increasing pressure on the Chinese Yuan, it is no wonder that the Chinese government, often through the Sovereign Wealth Fund, as well as through the slightly more secretive SAFE (State Administration and Foreign Exchange) fund, is starting to buy up the world. I mean, why not kill two birds with one stone? Secure the wealth through M&A's of large and well-established MNE's, thus hedging against rich countries' devaluations and possible defaults, and at the same time increase their presence in the west, and acquire technology and know-how in the process.
The Chinese can throw money at companies like no other country in current economic times. However, is overpaying a clever idea (just because you can, doesn't mean that you should)? Empirical evidence highlights the caveats with this strategy. Let’s not forget what happened to Japan…
Source: www.japaninc.com
Chinese firms currently own 6% of global investment in international business, a bleak comparison to the 50% that the UK held in 1914 and the US held in 1967. This further supports the argument that China will, no doubt become a superpower, but it will take a good couple of decades before it resembles a calibre as that of the US, key reasons being the culture and government structure.
Source: www.leaderswedeserve.wordpress.com
FT's blogger Martin Wolf discusses the rise of China in one of his latest postings; Will China's rise be peaceful?. It is an interesting piece discussing how to, if at all, the west should facilitate for the rise of the east, including China. In my comment, I very much agree with Mr Wolf, that whilst western governments are solely focused on the political interests serving this acquisition spree and therefore being less welcoming, it would be foolish to write China off as a devious and naughty game player with a hidden agenda.
Source: www.autoblog.com
As I am Swedish, I will take Volvo as an example. Forget IKEA, forget H&M, Volvo is as Swedish as it gets, at least for the Swedes themselves. I remember when I was little, my father drove a Volvo, many of my friends parents also drove Volvos'. Not only because it was Swedish, but it was considered a "proper" car and any self-respecting man drove one, at least during the 80's and 90's. That was the good days. Since Volvo Cars were acquired by Ford it has been a long way downhill. The recent takeover by the Chinese automotive holdings company; Geely, could realistically breathe some new life into this fossil of a brand.
If you want further insight into what it is like being owned by the Chinese, another article in The Economist (same issue as the lead, which I referred to earlier), read - Being eaten by the dragon - in which anonymous CEOs of companies that have been "victims" of Chinese takeovers, give their view on what it is like to be owned by the Chinese. No names of either CEOs or companies are given. However, if you have been paying some attention to the M&A activity involving China as bidders in recent years, it isn't hard to figure out which the companies are...
Source: www.irishmoneytalk.com
What other options for investment is there? Ireland? Not really that attractive given its current "slight mishap"... (for an interesting read on this, go to Robert Peston's blog on the BBC website and read Ireland: The big uncertainties, and if you are interested in my opinion, have a look at my comment)
So, to conclude, China is no longer solely the target for western companies in terms of expansion strategy, their increasing interest in international and cross-border holdings in some of our dearest and most well-known western companies makes a strong case for the investor who believes in China as potential area for growth investments. The selection just doubled. A likely scenario is that the companies who don't choose to go to China on their own, may very well will be bought by the Chinese, who at some point in the future will move operations to the motherland, whether the company likes it or not.
To put it in plain English; China is your Smorgasbord.
It is a very interesting article. It is hard not to speak about China. I would like to share my view about their strategy. Firstly, if you look at the history of this country, they had a strong culture based on strategy and some interesting philosophers. For example, the well-known book The Art Of War written by Sun Tzu and The Thirty Six Strategies comes from ancient China as the well-known philosopher Confucius too. I have to mention that China has dominated the ancient world for thousands of years. They had some brilliant strategy, they won with clever tactics without going on war. Some strategies could be perceived as ‘unfair’ or as a ‘maximum exploitation of weaknesses’. Now, I think that China is going back to this principle. They can copy the best products from European countries with very few differences. Politicians are clever because with the status of the Communist Party, they are capable of maintaining the exchange rate very low to attract foreign capitals and have major profit. Moreover, the Communist Party does something for its people so, Chinese would not want a revolution for democracy at the moment and therefore, the government could have a long term strategy because they do not think and fear about the coming election. Western countries have a limited power because their domestic market has weak growth. China has the power to destroy US economy , if they would sell all the Dollars they own within one day. If the two sides face major problems, there would be a ‘lose-lose’ situation and US has more to lose.
ReplyDeleteFor me, China will be the leader of the world’s economy in about 20 years. They will take responsibilities, but they will always look at their own interest first, then only at the others’.