Wednesday, April 6, 2016

CHINA BUYERS IS GOOD BUT LONG TERM THREAT

 There is a radical shift which I have been calling form a long time in terms of Chinese investments in other countries.  The recent investment trends are sufficient enough to prove that the long term society of many developed economies like Europe and US will have Chinese neighbors and shops. If some on look meticulously towards their investment pattern one will get a clear idea about their long term vision in terms of building wealth and assets. China ‘S outward direct investment (ODI) has elevated to 80 percent year-on-year in January and February 2016.


Now please don’t jump into conclusion that they are investing in African mines. In other words they have shifted and reduced investments in mines. Their middle class rich people are investing in properties and shops, business etc and that’s too in Europe and US. Well I repeat again that this is very reason why Chinese currency has been included into IMF basket of currency. Their business investing is through equity routes and less through debt which means their investment strategy is to get control in the long term. Equity now accounts for 80 percent of China’s direct investment assets abroad. China has learnt a hard lesson that investing in mines is not cup of tea for every rich Chinese people. Hence they are being invited and investing in manufacturing, services and infrastructure projects. The M&A have jumped to 60% in 2015 from 40% in 2010. Chinese direct investment in the eurozone was up 37 per cent in 2015, rising to $17.1bn from $12.5bn.

Getting into the asset segment we find that Chinese demand has enhanced towards hotels.. Further its being found that Chinese investors and buyers have announced plans to spend $39 billion so far this year buying U.S. companies. Chinese investors purchased $8.6 billion in U.S. commercial real estate assets last year, with a notable increase in hotel investments, which accounted for $5.8 billion
Few of the largest INVESTMENTS IN U.S. COMPANIES INVOLVING CHINESE BUYERS  (Includes announced and completed deals).
Target, $ value ($ millions), Buyer
  1. Starwood Hotels, $15,188, Anbang Insurance
  2. Smithfield Foods, $7,276, Henan Shineway Industry
  3. Ingram Micro, $7,247, Tianjin Tianhai Investment
  4. GE Appliances, $5,400, Qingdao Haier
  5. Terex, $5,122, Zoomlion Heavy Industry
  6. Legend Pictures, $3,500, Dalian Wanda
  7. AMC Entertainment, $2,909, Dalian Wanda
  8. Fairchild Semiconductor, FCS, $2,659
  9. Devon Energy (5 U.S. shale oil and gas fields), $2,442, Sinopec Int'l Petroleum
  10. Activision Blizzard (stake bought by group of investors), $2,339, Tencent Holdings(was one of several investors, including Los Angeles-based Leonard Green)
  11. Waldorf Astoria New York, $1,950, Anbang Insurance
  12. Source: S&P Global Market Intelligence

Buying hotels helps to land Chinese investors and bureaucrats into safe zone to study many business opportunities and explore trade pacts. This also increases the revenues of tourisms for the developed economies and Chinese people will pocket the revenues from their won people through the hotels. The hunger of china is travelling on the path of more appetite if we could extract from the trend of Chinese investments. China is penetrating into the long term culture and societies of the US and Europe. Technology and penetration into strategic sectors are the key motives behind china. As an investor you will find this healthy but being an economist I am scared since too much control and penetration is harmful for any economy in the long term. Geo political tensions in one part of the country could spread like a wild fire in these economies and societies in the long term. Further society control passes from the originals to the others which is an invincible threat.

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