Wang Yanlin has an interesting article in the Shanghai Daily today on China’s global spending spree. For example, Sichuan Tengzhong Heavy Industrial Machinery is now the proud owner of Hummer. The China Investment Corporation just increased its holdings in Morgan Stanley (and is generally seen to be more active in financial markets). PetroChina will purchase a 45.5 % stake in Singapore Petroleum Co. The list goes on.
According to Sun Lijian, a finance professor at Fudan University,
“It is not accidental that Chinese companies are gathering momentum in overseas expansion…It is a logical strategy for them to go abroad. The major question is one of timing.”
Clearly, China’s timing has to do with their ballooning foreign exchange reserves (which are roughly $2 trillion dollars) and their desire to diversify out of dollar denominated assets (Brad Setser notes that China has $1.5 trillion in dollar assets). But this then raises the question as to how this diversification is being implemented. The CIC, for its part, is small and the majority of its money has gone into Chinese banks. So, where is the rest of the money going?
One of the most interesting statistics in Wang’s article is the number of newly created Chinese firms in foreign markets:
“According to the Ministry of Commerce, China set up 445 companies overseas in the first quarter of this year, up 6.8 percent from a year earlier. Outbound direct investment reached US$55.6 billion last year, almost triple a year earlier. Overseas mergers and acquisitions by Chinese companies also increased, the ministry said.”
Clearly, with $2 trillion in reserves, China needs many tools to facilitate the foreign investments. But 445 new corporations overseas in three months? Are these state-owned and state-run? Where are these firms and what industries? If the pace of setting up Chinese firms overseas continues, this phenomenon may offer more political and economic intrigue than the rise of SWFs. Something to keep an eye on.
0 Responses to “Forex Reserves: Spend’em if you got’em”