china
The first is Lenovo’s purchase of IBM’s pc division. Last May, Lenovo purchased IBM’s pc division for $1.75 billion dollars. As a result, Lenovo became one of the largest pc providers in the world. And its revenue for the 2005 Oct-Dec quarter was $4 billion dollars, almost five times the profit earned in the same period a year earlier. And Lenovo continues to advertise the Thinkpad brand during the Olympics.
The second is China National Petroleum Corporations’ purchase of the Canadian PetroKazakhstan Inc. last October for 4.18 billion dollars. And, apparently, the output of oil rose from 150,000 to 200,000 barrels a day one month after the takeover. This is part of a general move from China to acquire foreign resources.
The third is China National Offshore Oil Corp’s (CNOOC) failure to buy US based Unocal for $18.5 billion. They did not fail because their bid was too low, but because of intervention from Washington. The US considered an acquisition of Unocal by a Chinese company to be a threat to national and economic security. So Chevron got Unocal for $17.8 billion. But CNOOC, though it has currently shifted its attention to purchasing smaller companies, has not given up on purchases in the US—but they have learned that having a positive media perception of a deal is just as, if not more important than the bid price and will plan accordingly in the future.
What is the conclusion to all of this? China is starting to invest in foreign resources, whether those resources are tangible like petroleum or intangible like technological and brand name. However, the foreign FDI in China still dwarfs China’s outbound investment: $60 billion to $6.9 billion. Nevertheless, the growth rates are incredible, 93% from 2003 to 2004 and 26% from 2004 to 2005.
However, just as there are restrictions on what companies foreign investors can buy, there are restrictions that are slowing down Chinese foreign investment. Right now, Chinese companies have a set a cap on the amount of foreign currency Chinese companies can buy at $5 billion. That was raised from $3.3 billion in early 2005. As caps are raised and laws are relaxed, more and larger deals can be expected from China.
Again, it seems that China’s growth is providing great opportunities. But this time it is for companies that want to sell to China.
