China: Who’s the buyer behind the country?

It was reported in the past week that China’s sovereign wealth fund is about to receive new capital from the government, adding billions of dollars annually to its already impressive wallet.

As China’s economic power continues to grow and countries around the world compete for Chinese investment, the question facing developed countries is: What will be the impact when China owns the world?

The China Investment Corporation was set up in 2007 to invest some of the $3-trillion in foreign exchange reserves accumulated through trade surpluses — fuelled in part, critics would say, by an artificially depressed exchange rate.

It is the world’s fourth-largest sovereign wealth fund but is growing fast as the Chinese government pursues its twin goals of securing raw materials and energy and reducing its holdings of United States treasury bonds, which are no longer seen by Beijing as future-proof.

Until 2000 China’s investments outside Asia were small and largely aimed at energy and natural resources in Latin America and Africa. But now it is on a spending spree, buying mining interests from Australia to Canada and looking for acquisitions that might provide technology, major brands or market access.

A host of other Chinese companies have moved into Europe and the US, including luxury textiles and vineyards in Italy, electronics manufacturers in France, engineering in Germany and car manufacturers in Britain. But as the writer Richard McGregor describes in his recent book, The Party: The Secret World of China’s Communist Rulers, every significant Chinese company has a shadow party structure inside it. Before we sell the entire farm, should we not be clearer about who exactly is buying it?

Britain, one of the world’s most open economies, has assiduously courted Chinese investment and now boasts more than 400 Chinese companies and 40% of Chinese inward investment to Europe.

China is still a relatively small investor in the US and Europe but the increasing pace of Chinese deals makes McGregor’s question more salient: Should China be regarded as just another country? Right now politicians and officials are tiptoeing towards a decision on the Chinese telecoms giant Huawei’s offer of discounted mobile telephony for the London underground. The deal is described as “sensitive” in official circles, because Huawei exemplifies the suspicion that dogs China’s industrial and commercial giants around the world.

Company founder Ren Zhengfei is a former People’s Liberation Army (PLA) officer. Huawei’s corporate structure is opaque and, as a key operator in Chinese telecoms, it has a close relationship with the government. In the US three Huawei deals have been blocked by the US committee on foreign investment. Huawei’s opponents insist that ties to the PLA remain, despite company denials. China’s policy of owning 50% of any “pillar” industry is enough to ensure continuing hostile scrutiny.

And the US is not alone. In 2009 Australia, which has extremely close economic ties with China, invoked national security to bar China’s Minmetals group’s attempted $1.8-billion purchase of OZ Minerals on the grounds that the key asset — the Prominent Hill mine — is close to the Woomera weapons testing range.

China itself bans foreign investment in any military or national security sector and restricts it in other key areas: this has killed off some steel and construction sector deals and, bizarrely, Coca-Cola’s bid for China’s biggest juice-maker.

In February China set up its own mechanism for scrutinising foreign bids under national security rules. —

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