A Global Shopping Spree for the Chinese
Mark Qiu has had a busy year. In October, the chief financial officer and vice-president of China National Offshore Oil Corp. (CNOOC) agreed to pay British Petroleum Co. $275 million for a 12.5% stake in the Indonesian offshore Tangguh Gas field. That followed a $593 million deal in January to buy the Indonesian assets of Spain's ailing Repsol YPF and the purchase in March of a 5% stake in the Northwest Shelf natural gas field off the coast of Australia for $320 million. And CNOOC still has plenty of cash in its war chest. "We have $2.3 billion on our balance sheet," says Qiu. "I have very aggressive development plans."
Qiu isn't the only one on a shopping spree. Mainland Chinese corporations from Haier Appliance Co. to steelmaker Shanghai Baosteel Group are snapping up overseas assets. And the pace is picking up. October saw a flurry of deals: Shanghai Automotive Industry Corp. said it would pay $60 million for a 10% stake in the revived Daewoo Auto now led by General Motors Corp. (GM ) China Petroleum & Chemical Corp. (Sinopec) bought a 75% stake in an oil field in North Africa for $394 million. And Huayi Group of Shanghai is paying $20 million for the battery-making assets of Moltech Power Systems, a bankrupt outfit in Gainesville, Fla.
Granted, China's investment overseas is tiny compared with the vast amounts of money flowing into the country. Chinese companies will spend at least $2.4 billion abroad this year, but that's just a fraction of the $50 billion in foreign investment China is projecting for 2002. The modest numbers, though, hide grand ambitions. One strategy of Chinese companies is to buy into new markets. In September, for example, television maker TCL International Holdings Ltd. paid $8 million for Germany's bankrupt Schneider Electronics. "Their sales and distribution channels are very good," says Connie Lau, deputy director of investor relations at TCL. "This is a key step for TCL to enter the European market."
China's expansion follows a pattern set by Japanese companies in the 1970s and '80s and by Koreans in the 1990s. But those companies grew behind protective tariff barriers and then expanded overseas because domestic markets offered limited growth. With China joining the World Trade Organization, mainland companies are going abroad to acquire technologies and skills they need to survive in the increasingly competitive market at home. Last year, Holley Group, a Hangzhou maker of electricity meters, gained a foothold in China's booming wireless business when it spent $3 million for the mobile-phone design and software operations of Philips Semiconductor. And TV-component maker Beijing Orient Electronics Group Co. wants to buy Hyundai Display Technology Inc., which makes liquid crystal displays, to boost domestic sales.
China's biggest overseas investments by far have been in natural resources, with surging demand in China forcing Beijing to invest in oil and mining outside its borders. In June, Baosteel paid $30 million for a 46% stake in an Australian iron ore mining joint venture with Rio Tinto PLC's Hamersley Iron unit. And Chinese smelter Jiangxi Copper Co. is looking at deals in the Philippines and Chile. "If we want to become stronger, we have to look overseas," says Jiangxi spokesman Huang Dongfeng.
Despite their ambition, Chinese companies have yet to prove their global mettle. Indeed, some say Chinese corporations overpaid for assets in their early oil and gas deals. "My impression is that the Chinese companies buying abroad are getting taken, much like the Japanese with real estate in the '80s," says a Hong Kong investment banker. CNOOC's Qiu agrees that some companies--his own not included--have paid too much. "Buying things isn't success by itself," he says. "We have to learn to play world club; you can't just play domestic league." Still, the increasingly savvy Chinese companies are determined to master the global game.
By Frederik Balfour in Hong Kong