China Buys Foreign Companies at a Record Pace

Chinese money has been going overseas for years now, snapping up real estate, technology companies, and more than anything, oil and gas resources. But this year will be a turning point: For the first time, Chinese overseas investment will surpass foreign direct investment into China.

Chinese investment is poised to exceed $120 billion in 2014, up from $108 billion last year, predicts the Beijing-based Center for China & Globalization in a report released Wednesday. Foreign investment into China totaled $87.36 billion in the first nine months. It is expected to reach $120 billion this year.

“China’s sustainable growth and its ability to compete on the world stage hinge upon the speed at which it can foster its own powerful international companies,” said Long Yongtu, the chairman of the center, the China Daily reported today. “’Going out’ will provide a platform for Chinese companies to grow through participation in the global economy.”

But it’s not all about Chinese companies learning from their international counterparts anymore. Ever since China began to open its economy to the world more than 35 years ago, Chinese enterprises and policymakers have touted the money, technology, and know-how instilled as foreign investors poured into China. In what is a role reversal, Chinese companies are now starting to provide important benefits to their new foreign partners, says one official.

“International markets—especially Latin America, Africa, Southeast Asia and East Europe—still need many products such as machinery, power systems, rail and other shipping equipment, construction and household items to diversify and support their economies,” said Zhang Xiangchen, assistant commerce minister, in a press conference in Beijing on Oct. 22.

“China’s ODI [overseas direct investment], therefore, is essential for them to gain funds, technologies, human resources and development experience,” said Zhang, according to the China Daily on Oct. 23.

And in a breakthrough deal worth $567 million, China CNR Corp. will provide 284 cars to the Boston subway, with an option for 58 more, the Chinese state-owned company and Boston’s transportation authority announced last week, reported Bloomberg News.

The China & Globalization Center report also notes the changing focus of Chinese companies investing abroad. It says that the traditional cornerstone of energy and resource investments is shifting, as money flows to high-technology companies. During the first six months of the year, China invested $6.3 billion into higher value-added technology companies, with more than four-fifths going to the U.S., it says.

Other areas experiencing rapid growth were construction investment, up 129 percent in the first half, and culture-related businesses, up 102 percent over the same period. And while in the past, state companies have dominated the deal-making, private companies are playing an increasingly larger role and now account for 76 percent of total Chinese investment in the U.S., the report says.

Meanwhile, a separate study released Oct. 21 by the New York-based China and India-focused consultant Rhodium Group shows that Chinese investment into the U.S. totaled $3.1 billion in the third quarter of this year, up from $2.1 billion in the quarter before, including Lenovo’s purchase of IBM’s low-end server business.

The report highlights another key target for Chinese companies: real estate. “Chinese investors have spent more than $3 billion on commercial property in the United States over the past four quarters, making it the top sector in the past year,” write Rhodium researchers Thilo Hanemann and Cassie Gao. Property deals in Los Angeles, San Francisco, and Hawaii totaled $588 million, they note.

More than $10 billion of deals involving Chinese companies are still in the pipeline, the authors point out. Those include Lenovo’s $2.9 billion acquisition of Motorola Mobility and Anbang Insurance’s purchase of the Waldorf Astoria hotel in New York for $1.95 billion.

    Before it's here, it's on the Bloomberg Terminal.