Chinas overseas investment

Chinas go global investment strategy was implemented over 10 years ago, with inward FDI investment starting at virtually zero in 2000 to $2bn in 2008. Weak Sterling continues to attract investment into London. With the growth of the population and standard of living, there is growing demand for Luxury brands, safer products, and Chinese firms are making technology investments by moving up the value chain

The European Crisis made European assets look cheap. Chinese FDI investments increased to $19bn in 2012 up from $5bn in 2009. $12bn of which has been in Europe. These investments have been particularly 8.4%  industrials, 67% natural resources, brands and infrastructure. Investments range from Volvo, Putzmeister, Ferretti and Gieves & Hawkes.

With 21% of global share, China is the worlds largest consumer of energy. The Chinese need access to know how, advanced technology, entry to overseas markets and natural resources.

Where will their investments be next? New energy, Biotechnology, New IT, high end equipment, Clean Vehicles, and possibly into the services sector. The Chinese target higher margin products and moving up the value chain.

The US has blocked investments in windfarms by Sany, and Huawei on security grounds, yet Europe is more welcoming.

Much investment is coming into the UK from Malaysia too, 10% of all investment in UK commercial property was in Malaysia, including Laura Ashley.

With the Chinese explosion of their own R&D Chinese intellectual property protection is becoming robust.

M&A Regulation

Chinese regulators do not allow more than one bidder in the sale process, which requires several levels of approval, NDRC then MOFCOM. Acquisitions are dependent on the Chinese political and economic agenda. These regulators balance the national Chinese economic and overseas investment aspect, and the country needs to be approved via the China diplomatic relationship.

China still remains very focussed on the domestic market, for example Martin Bloom Chairman of Renesola, a solar company listed on the NYSE, grew from 5m to $1.2bn in 5 years.

The main challenge will be when the Chinese switch their attention away from fuelling growth with their domestic economy.

What’s next?

Whilst inward investment may be attractive at present it is clearly a very well orchestrated means to an end.  In the 1990s Lenovo built up 10 years of operational advantage and launched a 30% price cut with decimated IBM and the other competitors at the time, and remains largest or second to HP. Yang Yuanqing the 48 year old CEO with 8% of the equity worth $6.6bn approaches globalising Lenovo as a twin fist strategy, one t6o protect the Chinese market and the other To attack Europe. The state funded the start and he says it is now a “market driven company”. He states the “Chinese customer is one of the most tough” and plans to set up a European centre to launch an assault on Western markets with their smartphones from 2014. Britian is a strong contender for this EU base with due to Britain’s strength in fashion and gadget design.

Whilst the Mature economies struggle with their balance sheets, the next big blow could be in 3-5 years time when the Chinese look to compete globally. Indeed so inward focussed have they been on their own markets mobile phone standards and technology protocols are different. The balance sheets of the major corporate have remained strong, but that may change as the Chinese technology giants go global with THEIR products and brands.

It is clear that the best place to have a business is in the toughest market as being the best place to hone and refine the most competitive products.

Certainty of deal completion will likely improve but just watch this space when the Chinese start fuelling their growth overseas when they start selling CHINESE technology, products, energy and brands.