We’re barely into the second quarter of 2008 and already China’s total outbound investment is closing in on the full-year total for 2007. Spending currently stands at US$24.52 billion (from 56 deals), up 1,000% on this point last year, according to Thomson Financial. The full-year figure for 2007 was US$29.84 billion (from 219 deals). In 2004, outbound investment came to just US$3.92 billion.
Obviously, this year’s numbers are skewed quite horrifically by Aluminum Corporation of China’s (Chinalco) US$14.28 billion investment in mining giant Rio Tinto (made through a subsidiary with a little help from Alcoa of the US). If there is anything to these rumors about Baoshan Iron & Steel seeking a 9% stake in BHP Billiton, the numbers would be skewed even more.
Aside from the focus on metals and mining (which is unsurprising given the current macro climate), recent deals are notable for their relative smoothness and sophistication. It is all a far cry from China National Offshore Oil Corp’s unsolicited and poorly prepared bid for US oil group Unocal in 2005.
Chinalco brought Alcoa on board as it helped preempt suggestions that this was another state-driven resource grab (which, to a certain extent, it was). This is a bona fide commercial move with a bone fide commercial partner, the could say. Structurally, this is not something that was conceived overnight.
As was highlighted in our cover story in March, Industrial and Commercial Bank of China’s purchase of a 20% stake in Standard Bank of South Africa for US$5.6 billion was three years in the making.
China Investment Corp, the country’s sovereign wealth fund, paid US$5 billion for a 9.9% stake in Morgan Stanley and US$3 billion for 10% of private equity firm Blackstone. Rather than create unrest within the US political community, these investments (and the subsequent losses incurred) have provoked domestic criticism of the government’s strategy. “They’re just stupid,” a Chinese dealmaker told me last month.
For more on Chinese outbound investment – with particular reference to acquisitions in the US and how one recent deal (Huawei’s bid for 3Com in alliance with Bain Capital) did go wrong – please see this special report from our April issue.