Like the Japanese before them, big Chinese companies are increasingly becoming property owners in the U.S. and other countries.
Major Chinese conglomerates, once largely unknown outside of their home country, have invested in everything from golf courses in Myrtle Beach, S.C., to British automaker MG Rover, which Shanghai-based SAIC Motor acquired in 2007.
Overseas investment is growing because Chinese companies want to escape economic uncertainty and competitive pressure in their own country. The companies also are developing more of a multinational profile, offering capital to foreign firms and shoring up stocks on both sides.
These ventures, usually involving land use, unlock the ambitions of the Chinese firms. They can escape supply gluts, inflation and regulatory or market uncertainty in China while diversifying their businesses and sources of financing.
"The government is happy to see some investment leave China, as this removes some of the inflationary pressures and oversupply," said James Macdonald, head of Savills Research China, speaking on the heavily Chinese-invested offshore real estate sector.
Foreign partners of the Chinese investors get otherwise hard-to-find infusions of capital, plus exposure to the growing China market if they want to approach it someday. Chinese investment may also stimulate overseas property markets, and in countries such as Indonesia, create entire supply chain clusters with spinoffs into raw materials or the service sector.
Chinese overseas direct investment went from a total of $2 billion to $14 billion between 2004 and 2005, marking the start of the current trend. By 2013, it had reached $163 billion. More than 13,500 Chinese investors have parked capital in 177 countries, but top destinations over the past two years have included Japan, Singapore, the United Kingdom and the United States.
China’s investment pattern echoes that of big Japanese companies in the late 1980s. The Japanese bought everything from automotive and electronics companies to Columbia Pictures and New York’s Rockefeller Center. Japan’s foreign direct investment grew 53% between 1986 and 1989 following appreciation of the yen and liberalization in key foreign markets.
But Japanese investment in the U.S. met with a backlash from a competitive American public along with shaky profits. Japanese direct investment in the United States reached $159.7 billion by 2000 but had fallen to 47.4 billion by 2002.
China’s money has largely been welcomed so far. Chinese firms looking to invest offshore tend to find eager foreign partners, a chance to earn a name among consumers overseas and grow wiser about the laws, procedures and business cultures of other countries.
"I have had a Chinese investor wanting to buy an international insurance business because he wanted his colleagues in mainland China to be seen as ‘intellectually superior’ to others in their competitor set," said James Berkeley, managing director of the London-based management advisory service Ellice Consulting.
Stock pickers should watch the spiraling global maturity of Nasdaq-traded Chinese multinationals such as Bank of China (BACHY), which will help provide $462 million in financing for a tourism complex in the Dominican Republic, and Cnooc (CEO), which in 2011 entered a $570 million tie-up with Chesapeake Energy (CHK – Get Report) to develop shale gas fields in the United States.
Many of China’s top property developers are not listed in the United States, but investors keen to capitalize on Chinese-funded real estate projects may park money in a fund such as the Guggenheim China Real Estate ETF (TAO) or the Asian regional iShares Asia Developed Real Estate ETF (IFAS).
Foreign partners of Chinese firms stand to grow revenues, as well. Watch the shares, for example, of Carillion (CIOIF), a British construction company working with Beijing Construction Engineering Group on a $1.26 billion development near the Manchester city airport.
The advantage to foreign companies comes down to "fresh, unencumbered sources of capital and discretionary expenditure," Berkeley said.
This article was republished with permission from TheStreet.