China snubs debt in European spending spree
Posted: 05 February 2012 1235 hrs
BEIJING: Chinese companies and funds have ramped up investment in crisis-hit Europe, buying utilities, energy firms and even luxury yacht makers, but are steering clear of eurozone debt.
Analysts say bargain-hunting -- and not the secret hand of Beijing -- is driving the recent wave of acquisitions as Chinese companies seek to expand overseas and the country's sovereign wealth fund diversifies away from US bonds.
Chinese direct investment in Europe more than doubled to $6.7 billion in 2010 from the previous year, latest official figures show, and analysts expect the recent flurry of deals to continue as eurozone economies deteriorate.
"At a time of severe economic and financial stress in the eurozone there are inevitably some great buying opportunities for cash-rich Chinese firms," said Alistair Thornton, an analyst at IHS Global Insight in Beijing.
Chinese firms have been targeting a range of sectors, including engineering, high-tech, energy, finance and utilities, as intense domestic competition forces them to look for new markets around the world.
The investment has fuelled concerns in Europe that Beijing could gain too much influence over debt-stricken economies. But Premier Wen Jiabao said Friday China had neither the ability nor the intention to "buy Europe".
China is "willing to cooperate with Europe to fight the current crisis. Some people say this means China wants to buy Europe", Wen told a German-China business forum in the southern city of Guangzhou.
"This a concern and doesn't fit reality. China doesn't have this intention and doesn't have this ability."
Mark Williams, an economist at Capital Economics in London, said the recent deals were fuelled by cheap credit offered by Chinese banks and the fact that China's foreign asset managers were "stuffed to the gills with bonds".
"This isn't China Inc ordering the overall strategy," Williams told AFP. "Most of China's recent purchases are exactly the sort of deals you'd expect any big investors to be doing."
In the latest deal, China State Grid has agreed to pay 387 million euros ($508.2 million) for a 25 percent stake in the national electricity grid of debt-stricken Portugal, Treasury Secretary Maria Albuquerque said Thursday.
Earlier this week, Chinese construction equipment giant Sany Heavy Industry agreed to acquire German family-owned engineering firm Putzmeister for an undisclosed sum.
That came hot on the heels of China Investment Corp, the country's $400-billion sovereign wealth fund set up in 2007 to invest some of China's huge foreign exchange stockpile, buying a stake in British utility Thames Water.
China Three Gorges in December beat competitors to a 21.35 percent stake in Energias de Portugal, paying 2.7 billion euros as Portugal sold assets to bolster state coffers.
And Shandong Heavy Industry agreed last month to pay 374 million euros ($491 million) for a 75 percent stake in debt-laden Italian luxury yacht maker Ferretti Group.
But Jonathan Holslag of the Brussels Institute of Contemporary Chinese Studies cautioned that total Chinese investment in Europe still lagged far behind that of other countries such as the United States and Japan.
"If one factors in Hong Kong, China might have invested around $40 billion since 2007 ... (but it) still represents only one to two percent of total investments," Holslag told AFP.
Commerce Minister Chen Deming said in November that the government would lead an investment delegation to Europe this year, signalling Beijing was more interested in owning real assets than risky sovereign debt.
"Some European countries are facing a debt crisis and hope to convert their assets to cash, so we will push forward more Chinese companies to acquire European enterprises," Chen was quoted by state media saying.
European leaders have called on China, which has the world's largest foreign exchange reserves, to invest in a bailout fund, but China has so far made no firm commitment to provide financial assistance.
German Chancellor Angela Merkel began a three-day visit to Beijing on Thursday aimed in part at boosting confidence in the eurozone after a sovereign debt crisis that has seen a wave of credit-rating downgrades.
Premier Wen said Beijing was looking at ways it could contribute to Europe's bailout funds and warned of an "urgent" need to solve the region's woes, after holding talks with Merkel.
Christopher Hughes, an expert in international relations at the London School of Economics, said Beijing might be more willing to buy eurozone debt "if the Europeans got their act together but that seems a long way off".
"It is hard to see why anybody would want to buy eurozone sovereign debt -- even the Europeans do not want to do it," Hughes said.
"So why should they risk that when they can carry on buying US debt and when buying into profitable EU companies is much less risky."