China Picks Up the Pieces
While the West struggles with its economic crisis, China is busy picking up the pieces.
Chinese businesses are acquiring more offshore interests than ever before and the country was the most active foreign buyer in the U.K. last quarter, according to analysis Tuesday from Grant Thornton Corporate Finance.
Chinese businesses are making more acquisitions outside national borders as the country has built up huge surpluses during its economic boom and through its currency controls.
Announced foreign acquisitions by Chinese companies in the first quarter were worth GBP11.91 billion, almost equaling the total deal value of 2007.
“China is on a shopping spree fueled in large part by high levels of consumer spending in the West. Expect Chinese SWFs (sovereign wealth funds) or private equity groups backed by Chinese equity to acquire some big name brands in Britain during the final part of the decade, particularly those in minerals and fossil fuels, which remain top of the shopping list in China,” he [Stephen Weatherby]said.
A few years ago, I remember Elaine Supkis ranting in Setser’s blog that China would have us for breakfast. Elaine was not great on the details, but she saw the writing on the wall.
In his testimony before the Council of Foreign Relations, Brad Setser nicely describes the present trajectory of China’s impact on the world economy:
China’s economic success is often attributed to its embrace of the market. Directionally, that is no doubt true. However, the structure of its economy remains quite different from the structure of the US and European economies. Chinese state-owned enterprises and state-owned banks have a far large role in the US – and as a result, the expansion of Chinese firms abroad likely will imply the expansion of state-owned firms abroad. Moreover, China’s exchange rate regime has effectively given the China’s state – in all of its forms – a monopoly on the outward flow of funds from China. Private investors would prefer to invest in China and benefit from the expected appreciation of the RMB, not invest abroad and try to eke out positive returns in the face of the expected depreciation of the euro and the dollar against the renminbi.
Personally, I think China will have problems, but not of the kind that it expected. Economically, its game plan seems to be working; but there are not enough resources to pull China into the 21st century, but that is another story.