Chinese Investors Snap Up Maytap, Unocal And It's Just A Start
Elliot Blair Smith
Thomson Financial says Chinese acquisitions in the USA soared to $3 billion last year, more than in the previous four years combined, driven by the $1.8 billion buyout of IBM's personal computer business. That investment flow runs counter to the huge trade surplus China enjoys at U.S. expense. By redeploying domestic profits abroad, China is able to accelerate its emergence as a global trading partner while tamping domestic inflation pressures, economists say.
Now, a Chinese-led investment group has bid $1.3 billion for Maytag. Another Chinese investor group reportedly is considering a $20 billion offer for Unocal.
Zachary Karavell, portfolio manager of Fred Alger's China U.S. Growth fund, says Chinese consumers account for 35 percent of all air conditioners sold, 20 percent of the TVs and 14 percent of the refrigerators, signaling that more bids such as the one for Maytag could be in the works. At the same time, China consumes about 25 percent of global energy supplies, an appetite unlikely to be sated by Unocal.
Harvard economist Kenneth Rogoff estimates that Chinese investment in this country is "close to $650 billion," of which nearly one-third is invested in Treasury securities, making it the second-largest foreign holder of U.S. government securities after Japan. But while the Chinese government has pursued a conservative foreign investing strategy to date, there are signs it is having trouble investing domestically.
International Monetary Fund economist Steve Barnett reported recently that the ratio of bank credit to economic output in China was far higher than in the USA, Japan or Korea, auguring a "large stock of non-performing loans." Citigroup Smith Barney strategist Yiping Huang says China's economy and profits "are probably peaking."
That portends even more Chinese interest in foreign investment opportunities. Thomson Financial market strategist Richard Thompson says the full effect of China's investment here probably won't be felt for years. "But maybe in the year 2015 we'll be singing a different tune," he says, "in Mandarin."
--------------------------------------------------------------------------------