I’m not sure most investors noticed a bit of intriguing news last week. There is a fascinating trend emerging that will impact the economic and investment horizon for the next decade. All I can say is: “Here we go again.”
During the late 1970s and into the 1980s, Japanese manufacturers were gaining
a foothold in American markets. Automobiles, steel, and electronics were
a few of the industries that experienced successful competition from Japanese
firms. As the
Fast forward to 2005.
For example, Chinese computer manufacturer, Lenovo, recently announced an agreement to acquire the personal computer business from IBM for an eye-popping $1.2 billion. This represents the largest overseas acquisition by a Chinese firm. However, it was not the only deal in 2004. According to data compiled by Bloomberg, overseas acquisitions by Chinese companies surged 99 percent to $3 billion in the year to Dec. 20, from the same period in 2003.
If the Chinese devalues their currency (Yuan) in mid-2005, as widely expected,
we could see an up tick in direct investment in the
According to Agnes Deng, a fund manager at Standard Life Investments in
Hong Kong, “Chinese companies going to overseas markets will be a long-term
trend starting now, and we're going to see more acquisitions like Lenovo
and IBM. A revaluation of the Yuan would be a big bonus for them. A stronger
currency would help
The issue of Chinese acquisitions now focuses on the sensitive subject of oil and ownership of US domestic oil companies.
State-controlled group China National Offshore
Oil Corporation (CNOOC) is considering a $13-billion bid for US-based oil
group Unocal (UCL), a move that analysts said underscores the determination
of Chinese energy companies to purchase assets overseas to power the country's
fast-paced economy. The Financial Times in a report on Jan 5 said that
This is not the first international energy acquisition for the Chinese. In 2003, CNOOC paid $348 million for an Australian natural gas company. In November, 2004, CNOOC reportedly launched a bid to buy Canadian oil and gas giant Husky Energy Inc. from Hong Kong tycoon Li Kashing. In addition, the Wall Street Journal reported CNOOC is in multi-company negotiations to buy Canadian oil-sands assets in Alberta province.
I have read several articles that indicate CNOOC
is particularly attracted to Unocal's oil and gas operations in Asia, including
US investors are entering a new age. As our dollars flow into the hands of foreign countries and companies through trade and account deficits, some of those dollars are recycled back as foreign acquisitions of US assets. Now it’s the Chinese turn, and they are looking to buy our oil companies.
The report, if confirmed, would mark the most significant overseas acquisition by a Chinese company ever, well exceeding Lenovo's high-profile $1.75 billion buyout of IBM's PC business last month.
A potential agreement would also signal Beijing's concerns about energy shortages and a desire to secure new resources to fuel its booming economy, which grew at over 9% last year.
"It does play into the overall strategy to try and achieve growth even in a market that is not very favourable," said Scott Roberts, an analyst at Cambridge Energy Research Associates based in Beijing.
Detailed talks have yet to take place on Unocal and the Chinese group is reportedly also looking at other overseas targets, the Financial Times said.
Xiao Zhongwei, a spokesman for CNOOC, refused to comment on the report,
saying only that the company was looking to expand its business, as it had
in a $348 million natural gas deal in
Record high oil prices last year led to a reluctance on the part of many of the world's oil companies to sell assets piecemeal, especially oil and gas fields.
"Chinese companies are trying to grow quickly and going for a big bag approach is another way to do it," Roberts said.
As the world's second-largest oil consumer after the
It is reliant on overseas producers for one third of its supplies and in turn accounts for about 7% of world oil demand.
At the government's urging, Chinese oil and gas companies have over the last few years scoured the globe in hopes of tapping new energy sources.
Chinese oil demand is expected to keep growing at or above forecast economic growth of 8% this year, Zhang Xiaoqiang, vice-chairman of Chinas National Development and Reform Commission, said on Thursday.
but it was not the only mainland company looking at the under-performing
"A number of Chinese companies have been thinking about this deal for a while," Roberts said.
Buying all of Unocal, which is valued at about $11 billion and at the end
of last year was carrying debt of $2.68 billion, could prove financially
However, the Chinese group, whose market value is around $21.5 billion and had some $1.6 billion in cash at the end of 2003, could count on state backing for financial help, the newspaper said.
People close to the situation said the was interested in Unocal’s Asian
assets and had asked bankers to study a takeover of the whole company followed
by a subsequent sale of the
People close to the negotiations warned that they were at an early stage and detailed talks had yet to take place. It is understood the Chinese group is also looking at other overseas targets.
CNOOC’s plans are the latest sign of Beijing’s determination to push its flagship commodity companies to acquire natural resources to fuel the country’s rapid industrialisation and economic growth.
Chinese oil demand is expected to keep growing at or above forecast gross domestic product growth of 8 per cent this year, Zhang Xiaoqiang, vice-chairman of China’s National Development and Reform Commission, said yesterday. CNOOC’s plans also underline the recent emergence of Chinese companies on the global merger and acquisitions stage, with private and state companies attempting to exploit their domestic strengths to expand overseas.
An acquisition of California-based Unocal would represent a change in strategy
Industry experts said buying the whole of Unocal, which is valued at about $11bn and had net debt of $2.68bn at the end of last year, would be difficult for CNOOC, whose market value is about $21.5bn and had cash resources of $1.6bn at the end of 2003.
However, the Chinese company would be able to draw on financial help from
its state-owned parent China National Oil Offshore Corporation and on the
proceeds of any sale of Unocal’s