The “Chinese Dream” Come True: Gobbling Up Assets Overseas

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Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

The “Chinese dream” is the dream of the whole nation and also of every individual Chinese, explained Fu Ying, chairwoman of the Foreign Affairs Committee of the National People’s Congress. The slogan had been coined by President Xi Jinping after he’d ascended to the throne of the Communist Party. It would benefit the world, she said. But for the richest Chinese, it has already come true.

So Chinese real estate mogul Zhang Xin bought a big stake in the iconic 50-story white-marble General Motors Building in Manhattan. A few days ago, Shuanghui International Holdings, China’s largest meat processor, offered to acquire Smithfield Foods, the largest pork producer in the US, a couple of months after 16,000 dead pigs floated down the Huangpu River into Shanghai. Maybe, Shuanghui wants to obtain Smithfield’s expertise in food safety; or maybe it just wants to find a place outside China to park a few billions.

Other industries have seen similar purchases, particularly the automotive component sector. Or what’s left of it in the US, as many component makers have already moved their production and in some cases even their design centers to China in search of cheap labor. It shows: for the first four months of 2013, imports of Chinese auto components have swollen to over $5 billion and will soon be in second place, behind Mexico but ahead of Japan and Canada. Delphi, GM’s former component division, and Visteon, Ford’s former component division, have but skeleton crews left in the US [for these dark aspects of deindustrialization, read my article....  The Currency Wars: Now US Automakers Are Squealing].

The Chinese have also gone on a shopping spree in Germany, where they’re interested in the Mittelstand – family-owned companies with innovative technologies and high-quality manufacturing in worldwide niche markets. The most prominent was the acquisition of Putzmeister, long the world leader in concrete pumps (here is my take). The Chinese have been buying in each country according to their perception of what that country is famous for, and what is available to Chinese buyers without too many political hassles.

So in France, the Chinese have a different shopping list – in late May, for example, Fosun International, one of the biggest privately owned Chinese conglomerates, partnered with Axa Private Equity to make a tender offer for vacation-resort operator Club Med, of which both are already the largest stockholders. There were other deals for what France is known for in China: châteaux and their vineyards.

It just emerged that Goldin Financial, based in Hong Kong, bought three châteaux and their prestigious vineyards in Bordelais, a brand-name wine region in southwestern France: Château Le Bon Pasteur in Pomerol, Château Rolland Maillet in Saint-Émilion, and Château Bertineau Saint-Vincent in Lalande de Pomerol. A few weeks earlier, a Chinese architect had bought the Château La Fleur Jonquet in the Graves region.

In 2008, the Chinese made their first acquisitions in Bordelais, each less than €5 million. Over the years, the pace quickened. By 2011, they’d picked up 21 vineyards, some of which had been on the market for a long time. In 2012, they added another nine – including a Grand Cru Saint-Émilion. And so far in 2013, they’ve snapped up six more.

The Chinese are now in second position of foreign owners in the region, behind the Belgians with 45 vineyards. China is already the number one importer of Bordeaux, with 538,000 hectoliters, or 10% of production, more than double of runners-up Germany, Belgium, and the UK. They’ve also gone shopping in other wine regions, including Burgundy where a Chinese investor bought the Château de Gevrey-Chambertin last summer.

It’s the same story around the world. The “Chinese dream” come true. For some. That concept “came just in time,” said Fu Ying while addressing the Asia-Pacific Roundtable in Kuala Lumpur, Malaysia. “It reflects the reality in China and people’s expectations, and serves the need to unite the people to achieve a higher objective,” she said.

A higher objective? Corporate chieftains from the US, Europe, Japan, and elsewhere have invested untold billions in China over the years to offshore production from their home countries. As a consequence, the US, most other Western countries, and more recently even Japan, have run up huge trade deficits with China. And hot money washed ashore, even while the Chinese government created an enormous credit bubble that could effortlessly fund just about anything, from the largest high-speed and money-losing rail network in the world to entire ghost cities, no matter how impossible it would later be to service this debt.

That bubble is there for all to see, more flamboyant than ever, scaring even the government – and the rich. Those who can, while they still can, try to take at least some of their money overseas where it would be safe even during periods of financial or political instability at home.  

But bubbles are everywhere. An economic slowdown is looming over the global economy, but no one seems to care, as stock markets continue to reach new record-highs – giving investors false hopes of economic growth. But how long can this mirage actually last? Read.... A Mirage Called The Stock Market