One consequence of China's rapid economic ascension has been the accelerating purchase of foreign assets by Chinese firms. Unfortunately for them, many skeptical governments in the South Pacific as well as the West are moving to block such global expansion by China.
China's Global Shopping Spree
The trend of China acquiring overseas assets at an ever-increasing pace is twofold. First, this is the natural trend of countries that begin to accumulate greater wealth. Think about how many European countries have used their established affluence to invest heavily in foreign nations. Moreover, we have seen this type of pattern even more recently with the wealthy Gulf states using their oil profits to expand into international markets.
Second, China's foreign buying spree fits into the country's economic plans. The People's Republic has been attempting to transition from a production-based economy that has relied heavily on manufacturing into becoming a more financial-based economy that relies on providing services.
At the same time, these macro incentives for China to expand its reach around the globe dovetail with the tastes of individuals in the country. Many of China's newly minted elites have spent huge sums of money on luxury items, rare art, and historical collectibles. (One startling example was a Chinese man's $36-million purchase of a rare porcelain cup in 2014. He paid with an American Express card.) These kinds of high-end wares are generally sold (and bought) by affluent Westerners. Now, wealthy Chinese individuals are helping drive such luxury markets.
The intertwined institutions of Chinese business and the Chinese state have likewise participated in the buying spree. One example is how major mining firms in the country with government backing have scooped up mines in South Africa, one of the world's most gold-rich regions.
As you might imagine, this growth of China's global purchasing power is not without its detractors. Native citizens of the countries affected by the international expansion have begun to complain in some cases. In Canada (Vancouver in particular), an influx of high-net-worth Chinese immigrants has greatly inflated real estate prices. It's becoming too expensive for locals to afford their rent as these families pay top-dollar for high-end real estate. A similar trend has been noted in California.
The biggest example of the push-back against this pattern came from the Australian government. The country's Treasury Minister, Scott Morrison, has once again blocked a bid by a consortium of Chinese companies (led by Shanghai Pengxin Group) to buy the Aussie agricultural firm S. Kidman & Co. Kidman's assets amount to more 1% of Australia's entire landmass!
The proposed purchase total is for $285 million. It would include Kidman's 185,000 cattle. The company's pastoral properties cover an incredible 2.5% of Australia's total farmland, as well. Other groups of Chinese buyers have had similar problems buying sheep farms in New Zealand. One of the main concerns in both cases is that the country's native firms can't compete with the groups from China.
We'll see how countries around the world balance the desire to attract foreign investment with remaining competitive against these growing Chinese buyers.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.