More than two decades ago, Japan sported the most dynamic
in the developed world.
The country's Nikkei
stock market index
was soaring to new heights, and
prices were skyrocketing. Flush with cash after a multi-decade
spree of trade surpluses, Japanese investors started to seek assets
elsewhere, and some of their biggest moves took place here in the
At the time, Japan Inc.'s move to snap up the highly prized
Pebble Beach golf course in California and the Rockefeller Center
complex in New York City led to lots of hand-wringing. Suggestions
that our most beloved assets were falling into foreign hands led to
a widespread economic anxiety that bordered on xenophobia.
All the worries ended up being for naught, however. Within a
decade, those assets would be sold off -- at losses ranging from
$400 million to $1 billion -- and fears of a "foreign invasion"
Fast-forward to 2012, and China is the new bogeyman. Chinese
companies have been heavily investing in Africa, Latin America and
the rest of Asia for the last half decade, and now they're setting
their sights on U.S. assets.
Chinese companies have invested nearly $21 billion
in U.S. companies
over the past dozen years, but fully 17% of those deals (or $3.6
billion) came in just the first-half of 2012 alone, according to
research firm Rhodium Group. That's not far from the full-year
record of $5.8 billion set in 2010.
That record will be surpassed -- by a bigmargin -- if a pending
deal goes through by China's Dalian Wanda to acquire movie theater
chain AMC for $2.6 billion. The purchase is looking more and more
likely, given reports that Wanda announced it had received
regulatory approval for the purchase. A
report in the Los Angeles Times
said that the deal is expected to be closed at the end of
Big Investments, No Big Deal?
Is this additional investment cause for concern? After all, a
number of African countries have begun to regret major
infrastructure development deals with China, citing concerns that
these deals exploit vast troves of mineral resources, but fail to
provide the value-added processing of these resources that help an
But here in the United States, we should have no such concern.
Chinese investments are more focused on mid-sized manufacturers or
other industrial processors such as chemical manufacturers. For
example, from 2011-2012, there have been 17 deals involving the
"fossil fuels" and "chemicals" industry, which have totaled nearly
$4 billion in value. These firms usually provide solid jobs, and
those jobs are likely staying put.
If you live in California, you're probably aware of a
Chinese-owned firm that operates locally. Of the
591 deals tallied by Rhodium Group since 2000
, 27% of them took place in California. (In fact, of all the
American-based businesses in which Chinese firms are investing,
roughly half of them are in California, Texas, New York or
Notably, private companies account for 73% of all of those
deals. The other 27%, which were made by the Chinese government,
account for 63% of the dollar
of the deals.
Why The Chinese Are Buying In
Chinese companies are targeting U.S. firms with specific goals in
- Gaining an understanding of advanced manufacturing
- Procuring a supply of intermediate goods used in the
manufacture of finished goods (e.g., auto parts that go into
Chinese cars and trucks)
- Acquiring businesses that have historically produced solid
, bringing a tangible ongoing return on their investment
- Avoiding tariffs in industries that are often the subject of
Think these motives are suspect? You shouldn't. It's precisely
what global firms do every day as they aim to spread their
resources across various economies. And you may be surprised to
know that U.S. firms own a lot more assets in China than Chinese
firms do in the United States. According to the U.S.-China Business
Council, U.S. firms have invested at least $90 billion in China in
each of the past four years. That's more in any given year than
China has invested in the United States in the last dozen years --
Of course, investments in China often come with serious
restrictions. In certain sectors, the Chinese government insists
that foreign owners control less than 50% of the voting stock in a
domestic company, and they are also required to share their
technology with local partners. For example, global automakers such
and Volkswagen have provided so much expertise to their Chinese
manufacturing partners, that the Chinese auto industry may
eventually be able to sell vehicles in the most demanding
But this shouldn't be cause for alarm. That was precisely what
happened in Japan and then South Korea. Cars made in those
countries were uninspiring at the start of their economic
development, but eventually became world-beaters. That spelled
trouble for firms like
, Chrysler and GM, but a range of other U.S. industries eventually
benefited from the economic growth in Japan and South Korea. These
countries initially needed a leg up to develop globally competitive
economies, but their citizens now account for some of the most
free-spending consumers of U.S.-branded products. From
McDonald's Corp. (NYSE:
Nike Inc. (NYSE:
Microsoft Corp. (Nasdaq:
, you hear about these markets on virtually every quarterly
these companies hold.
And down the road, you'll be hearing a lot more about Chinese
markets for our goods. It's still a tough sell, but as China shifts
away from being an export-led economy to a domestic consumption
economy, this economy has the potential to become the United
States' greatest export success story.
Action to Take -->
Chinese companies are starting to snap up U.S. assets in a
big way. Top real estate markets such as New York, Los Angeles and
San Francisco are experiencing a rising tide of million-dollar
homes being sold to Chinese citizens. These folks are now moving
beyond real estate and their cash is providing a badly needed
injection of liquidity at a time when our economic activity is
diminished. As was the case with the Japanese buying spree of the
late 1980s and early 1990s, this is simply a logical step in the
evolution of China's economy onto the global stage.
This article originally appeared on InvestingAnswers.com:
Why China Is Frantically Buying These U.S.
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of MSFT in one or more if its "real money" portfolios.
© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.