Chinese firms on takeover spree to tap high-end markets

From China’s sovereign wealth fund to a provincial mining company — from building high-end condominiums in San Francisco to manufacturing electric buses in Bulgaria — private enterprises continued to muscle their way into a range of overseas investments throughout 2012, determined to tap advanced manufacturing skills and high end markets of the West.

Property firms, encouraged by the yuan’s appreciation, continued to buy and invest in foreign real estate, especially in UK and the US. Recently, developer China Vanke, the biggest real estate company in terms of market value here, made its first move into the US market by teaming up with an American developer to build luxury condominium buildings in San Francisco. For the first time in 30 years, the company is developing a global strategy.

Other Chinese real estate firms too are investing abroad. Wanda Group, a heavyweight of commercial property, has plans to invest $10 billion (Dh36.7 billion) in the US over the next decade, particularly in hotels, retail and commercial properties. Xinyuan Real Estate of Beijing bought a condominium site in Brooklyn, New York City, for $54.2 million, while Beijing Capital Land signed an agreement last year to purchase land in France for a Chinese-French economic zone.

Low-profile but cash rich regional companies too are taking their ambitions abroad. A privately owned mining company from Sichuan, Leshan Heima Mining, has spent €15 million acquiring a 75 per cent stake in Lisa Airplanes, a French light-sports aircraft manufacturer. Leshan Heima operates in the phosphate rock-trading business and made the acquisition through its subsidiary in France, using self-raised funds to pay for the buy. Not only has Leshan Heima acquired majority stake, it is also planning to move production lines to China in a couple of years - a reminder how the Chinese remain focused on grabbing every opportunity at manufacturing.

Lure of East Europe

The Chinese, however, are more focused on East Europe, seeing this as a gateway to the high end markets of Western Europe. Since the 2008 recession, western European companies have either been reducing investment or pulling capital out of East Europe. This has left the region open for Chinese companies, to either invest there, or use it as a base to distribute their goods to the broader EU nations.

East Europe provides Chinese firms with a shortcut into the entire continent. Also, the region has a competitive edge in terms of technology for tech-hungry Chinese enterprises and its labour cost is relatively low compared to other western markets. The latest high-profile move by a Chinese company into the region came in December last year, when Shanghai’s electric-vehicle maker BYD (Build Your Dreams) signed a 50-50 joint venture with a local partner to build an electric car and bus assembly plant in Bulgaria.

Poland, Hungary and Romania are now the major destinations, accounting for nearly 90 per cent of total Chinese investment in East Europe. Over the past two years, Chinese inroads have been taking place through direct investment and mergers and acquisitions. In February 2012, Guangxi Liugong Machinery took over Huta Stalowa Wola, a Polish road machinery maker, for about $100 million, marking China’s biggest investment to date in Poland. Last year, automaker Great Wall Motor developed China’s first automotive project in the EU by opening an assembly plant in northern Bulgaria.

China Investment Corp (CIC), the powerful sovereign wealth fund, too has become ambitious in Europe. Last week it invested in the $500 million shares floated by Moscow Exchange. CIC will try to balance out its portfolio this year after it “under-bought” in Europe and “over-bought” in the United States and emerging markets in 2012. The CIC will invest more in manufacturing, real estate and infrastructure in Europe and indicated plans to buy a 4 to 10 per cent stake in the German automaker Daimler. It has also bid for a sensational £800 million London office complex.