By Gordon G. Chang
Regulators on both sides of the Atlantic, acting as if on cue, are moving to block acquisitions of local businesses by Chinese companies.
Berlin, long open to Beijing’s investments, has just retracted its clearance of the $729 million purchase of chipmaker Aixtron by Fujian Grand Chip Investment Fund.
The move came just days before Berlin proposed EU rules giving member states the authority to stop Chinese takeovers in strategic sectors, especially when the potential acquirers are state entities. “We need to have the powers to really investigate deals when it is clear that they are driven by industrial policy or to enable technology transfers,” said Deputy Economics Minister Matthias Machnig.
Current German law permits the government to stop acquisitions of only defense companies, IT security firms, and businesses handling state documents.
German officials are not the only group worried.
China’s largest foreign acquisition looks like it might run aground in Brussels.
EU antitrust regulators have started a review of China National Chemical Corp.’s bid to buy Syngenta, the Swiss agribusiness giant, for $44 billion.
Even not counting the Aixtron and Syngenta deals, European regulators have blocked almost $40 billion in Chinese takeovers of businesses since the middle of 2015 according to Grisons Peak, an investment bank.
The blocking of acquisitions comes after a wave of Chinese investment.
Even not counting the Aixtron and Syngenta deals, European regulators have blocked almost $40 billion in Chinese takeovers of businesses since the middle of 2015 according to Grisons Peak, an investment bank.
The blocking of acquisitions comes after a wave of Chinese investment.
Grisons Peak puts the highpoint of China’s purchases at $95.6 billion in the first quarter of this year. Since then, takeovers have trended down, with just $49.4 billion in Q2 and $46.1 billion in Q3.
In the U.S., this month it was reported that, due to concerns raised by the Committee on Foreign Investment in the United States, Blackstone Group called off the sale of Hotel del Coronado to China’s mysterious Anbang Insurance Group.
CFIUS, as the Federal interagency body is known, was also thought to be responsible for the killing of the sale of the lighting-components business of Royal Philips NV to a Chinese group led by GO Scale Capital for $2.8 billion in January.
So far, the U.S. has welcomed Chinese capital.
CFIUS, as the Federal interagency body is known, was also thought to be responsible for the killing of the sale of the lighting-components business of Royal Philips NV to a Chinese group led by GO Scale Capital for $2.8 billion in January.
So far, the U.S. has welcomed Chinese capital.
As the Rhodium Group has reported, Chinese entities invested $18.4 billion in the U.S. in the first half of 2016, almost three times the $6.4 billion in the same period a year earlier and more than that invested all last year.
That upward trend—Rhodium calls it “tripling down on America”—may not last long.
That upward trend—Rhodium calls it “tripling down on America”—may not last long.
Ali Meyer of the Washington Free Beacon, the online news site, reports that the U.S.-China Economic and Security Review Commission, in its next annual report, will recommend that Congress give CFIUS the authority “to bar Chinese state-owned enterprises from acquiring or otherwise gaining effective control of U.S. companies.”
“The Chinese Communist Party continues to use state-owned enterprises as the primary economic tool for advancing and achieving its national security objectives,” notes the “final draft” of the Commission’s report.
“The Chinese Communist Party continues to use state-owned enterprises as the primary economic tool for advancing and achieving its national security objectives,” notes the “final draft” of the Commission’s report.
“There is therefore an inherently high risk that whenever a state-owned enterprise acquires or gains effective control of a U.S. company, it will use the technology, intelligence, and market power it gains in the service of the Chinese state, to the detriment of U.S. national security.”
There are many reasons for the concern in the EU and America over Chinese investment, but a common theme, as Commission member Larry Wortzel notes, is fairness.
There are many reasons for the concern in the EU and America over Chinese investment, but a common theme, as Commission member Larry Wortzel notes, is fairness.
“There is no reciprocity,” he told the Free Beacon.
“While Chinese companies can buy U.S. or Western companies, American and other Western companies are barred from buying key sector state-owned enterprises, if not all state-owned enterprises.”
And in Berlin the business community, which is skeptical of new curbs on Chinese investment, has expressed the same general concern.
And in Berlin the business community, which is skeptical of new curbs on Chinese investment, has expressed the same general concern.
“The European economy must be allowed to do in China what the Chinese are allowed to do in Europe,” said Ulrich Grillo, head of BDI, a German industry association, to the Financial Times.
For decades, Washington, Brussels, and other capitals have not insisted on fair treatment for their companies, largely because of the lure of the Chinese market, but now that market is showing signs of softness in most segments.
Perhaps the best proof of the softness in China is the rush by Chinese entities to buy foreign assets. Although some acquisitions by state and private enterprises seem to be at the direction of the state, many deals are evidently not.
Last year, net capital outflow could have been as much as the $1 trillion reported by Bloomberg. Beijing has tried to staunch the outbound flow with drastic measures, but this year the outflow could be close to that staggering figure.
The outflow will undoubtedly pick up as the renminbi continues its decline.
For decades, Washington, Brussels, and other capitals have not insisted on fair treatment for their companies, largely because of the lure of the Chinese market, but now that market is showing signs of softness in most segments.
Perhaps the best proof of the softness in China is the rush by Chinese entities to buy foreign assets. Although some acquisitions by state and private enterprises seem to be at the direction of the state, many deals are evidently not.
Last year, net capital outflow could have been as much as the $1 trillion reported by Bloomberg. Beijing has tried to staunch the outbound flow with drastic measures, but this year the outflow could be close to that staggering figure.
The outflow will undoubtedly pick up as the renminbi continues its decline.
So far this year, the Chinese currency is down 4.4% against the greenback.
The yuan will almost certainly weaken further when American interest rates go up, as Fed Chair Janet Yellen signaled in September, and as the Chinese central bank decreases support.
The fall of the renminbi tells us the Chinese people have lost confidence in their economy and society.
The fall of the renminbi tells us the Chinese people have lost confidence in their economy and society.
A study just released by Hurun Report states over 60% of China’s rich plan to invest in overseas residences in the next three years.
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