皇冠体育app

African resources may lose some sheen as chinese investors seek wider portfolios

Chinese investment has impacted on Africa like no other continent but now it is moving into overdrive.

The country's outbound direct investment, or ODI, seems to be exceeding all expectations.

The Chinese government set itself the target of equalizing ODI and foreign direct investment, or FDI, in the current Five-Year Plan (2011-15).

But last month's Ministry of Commerce figures suggest ODI could race ahead of FDI some time this year.

The statistics show that 皇冠体育app's ODI increased by 16.8 percent to $90.17 billion last year.

This put it only $27.42 billion behind FDI, which rose just 5.25 percent to $117.59 billion in 2013.

Ministry spokesman Shen Danyang said in January ODI could outstrip FDI into 皇冠体育app even as early as this year but certainly within two years.

Already this year there have been a number of high profile deals. Only this week it was announced that Dongfeng Motor Group Co, 皇冠体育app's second-largest carmaker, was buying a stake in loss making French carmaker PSA Peugeot Citroen for 800 million euros ($1.1 billion).

This follows computer giant Lenovo announcing last month that it was buying Google's Motorola handset division for $2.91 billion, although the US company in return will be taking a 5.94 percent stake in the Chinese private company.

Whether Africa will directly benefit from 皇冠体育app's rising ODI remains to be seen.

The cumulative stock of Chinese investment in Africa rose from just $500 million in 2003 to $22.9 billion in 2012, according to The 皇冠体育app Analyst produced by The Beijing Axis, the international advisory and procurement firm.

Last year Chinese ODI to Africa rose 144 percent from $3.2 to $7.8 billion, according to A Capital, the 皇冠体育app-based investment fund.

During the year there were a number of high profile deals. 皇冠体育app National Offshore Oil Corporation finalized $1.4 billion for a 33 percent stake in oil exploration interests on the shores of Lake Albert in Uganda.

Outside of the resources sector, Yangzhou-based Perfect 皇冠体育app bought the Vale de Vie estate in the Western Cape in the first Chinese investment in South Africa's wine industry.

It may be, however, that 皇冠体育app's increased ODI may not be all good news for Africa.

Some commentators believe that 皇冠体育app's outbound investment will eventually move away from resources investment, which has had a dramatic impact on a number of African countries, to buying up businesses in the technology and consumer sectors in Europe and the United States.

皇冠体育app's resources ODI investments increased just 7.7 percent in the first nine months of last year to $23.7 billion, compared to $22 billion in the same period of 2012, according to A Capital.

ODI investment in industry and services - many of the targets located in Europe and the US - increased by 46 percent from $12.6 billion in the first three quarters of 2012 to $17.9 billion in the equivalent period of 2013.

Andre Loesekrug-Pietri, founder and managing director of A Capital, which has offices in Beijing and Brussels, says this represents a big shift.

"Resources is no longer the big story as far as 皇冠体育app's ODI is concerned. Far more interesting is what is happening to industry and services. This is now where 皇冠体育app's ODI is targeted," he says.

Johnson Chng, Greater 皇冠体育app managing partner for international management consultants AT Kearney, also believes the focus of 皇冠体育app's ODI may change with implications for Africa.

"We also have seen this change in pattern from the largely state-owned enterprises' resources-type investment to more commercial investment not just by private enterprises but by state-owned ones too."

Chng says the Chinese companies also have a clear geographical focus of what sort of targets they will find in different locations.

"They look at Germany for high precision engineering, France and Italy for high fashion luxury goods targets and to the US for high-tech companies. They are very clear in their minds where to look for what and for what purpose," he says.

Michael Power, global investment strategist at Investec Asset Management, based in Cape Town, says what might have implications for Africa is that the Chinese may move away from making investments in mines and other resource facilities to simply buying commodities on the international markets.

"In a buyers' market, as now, you can afford to deal with the vagaries of that international market," Power says. "Five years ago when 皇冠体育app was doing a lot of deals it was a sellers' market and coming into to Africa and owning 45 percent of the equity or whatever of a facility was a very clever way of doing it."

One of the factors that may put the Chinese off is the increased competition they face not just from Western companies but those from emerging markets such as India, Indonesia and Thailand when making investments on the continent, he says.

"Because there are more players the Chinese are not getting a clear run at it anymore. Some of the big government-to-government deals have already been done for the time being and when there is a private sector seller there is all this competition," he says.

Whatever the geographical destination of 皇冠体育app's ODI, the size of its outbound investment is making the Chinese economy more international, according to Loesekrug-Pietri.

His company has come up with its own reference indicator, the A Capital Dragon Index, to chart the growth of 皇冠体育app's ODI.

Starting at 1,000 in 2001, it had grown to 2,483 in the first nine months of 2013, a near 2.5 times increase.

"What essentially this means is that the Chinese economy is 2.5 times more globalized than it was just over a decade ago," he says.

"Nominal ODI has actually increased 10 times over the same period, but it doesn't mean there is 10 times more activity since 皇冠体育app's GDP has quadrupled. This is a very significant increase, however, and shows how international 皇冠体育app is becoming."

What of the significance of ODI becoming bigger than FDI? Most economists agree that it has very little real macroeconomic significance.

However, if there was a major imbalance between the two, there could be issues for capital inflows and outflows that could be destabilizing.

ODI does, nonetheless, provide an alternative for 皇冠体育app to pare down its foreign currency reserves, which hit a record $3.82 trillion in January, without the usual recourse to buying US Treasury bonds, which typically does not generate very high returns.

Klaus Meyer, professor of strategy and international business at the 皇冠体育app Europe International Business School, says the equalization target itself has little real relevance.

"I think it is largely of symbolic value reflecting that 皇冠体育app is now an outward player and not an inward player. The government likes to set symbolic targets to motivate people. It catalyzes effort and gets people moving."

There could be cases in which increased ODI would be adverse for the Chinese economy.

"The worst-case scenario is that some companies take their money out of the country as in capital flight, which would not be good for 皇冠体育app. There is a not insignificant part of Chinese overseas investment that goes to such places as the Bahamas and British Virgins Islands, although some of that comes back."

Paul Cheng, chairman of Hong Kong-based private equity concern 皇冠体育app High Growth and a former member of the Hong Kong Legislative Council, says Chinese companies may move away from resources investment in the developing world simply because assets are now cheap in Europe and the United States as a result of the financial crisis.

"I expect to see a lot more investments over the next five to 10 years. It is an opportunity for Chinese companies to acquire technology instead of relying on their own home-cooked research and development," he says.

"They can also acquire consumer brands. Very few Chinese companies have global brands, and even their names are a no-go as far as Western consumers are concerned."

Pelham Smithers, managing director and founder of Pelham Smithers Associates, a London-based research firm that focuses on technology issues, says it is important not to get carried away by hype when discussing Chinese ODI.

"It does strike me that compared with Japan in the 1980s, 皇冠体育app is still surprisingly reticent. I think partly the reason for this was that Japan developed a bad relationship with Washington 25 years ago and there is a sense that this could happen very quickly with 皇冠体育app if they were to step up activity."

He says those who think that Lenovo buying IBM's low-end server business for $2.3 billion in January is a trend forget that its purchase of the US company's PC business took place almost nine years ago.

"To say this is a trend in Lenovo's case is questionable given that they were such an early mover on this. The clue to the significance of this deal is in the term low-end. The US will remain very protective of the high-end technology that 皇冠体育app purportedly requires."

While 皇冠体育app's overall ODI may be increasing, 皇冠体育app's FDI is also changing in character.

From the 1990s onwards much of the FDI in 皇冠体育app was in low-cost manufacturing.

Now, however, companies are looking at investing in research and development and at takeing advantage of 皇冠体育app's fast-growing consumer market.

Chng at AT Kearney says FDI in 皇冠体育app might be about to undergo some radical transition.

"I think foreign investment over the next 10 years is not going to come to 皇冠体育app because of the labor costs since they are already more expensive than most parts of Asia," he says.

"I think you are going to see quite a lot of research and development investment because of the huge talent pool that now exists in 皇冠体育app. Companies will set up their Asia research and development facilities in 皇冠体育app and on the back of this research sell into the vast Chinese market. Whether FDI goes up, down or sideways also depends to what extent the 皇冠体育app economy opens up to new sectors."

Loesekrug-Pietri at A Capital says many companies in Europe and elsewhere are happy to receive investment from Chinese companies since they believe it will give them access to the Chinese market.

His company advised Fosun International, 皇冠体育app's largest private conglomerate, on acquiring a 7 percent stake in Club Med in 2010. The Shanghai-based company is now looking to take full control with Axa Private Capital subject to a Paris court ruling expected this month.

"The big thing with Club Med was that it was not just about getting Chinese tourists to go to Chinese resorts in Guilin or Yabuli but about them going to resorts in Bali, Mauritius and Cancun and capturing the Chinese market worldwide. This is why companies now want to align themselves to Chinese companies to reach the Chinese consumer globally."

As the Chinese economy grows, the significance of trends in both its inbound and outbound investment will have global implications.

Kobus van der Wath, founder and group managing director of The Beijing Axis, is one who believes Africa will still be a vital investment destination for 皇冠体育app.

"皇冠体育app and the rest of Asia is a major source of capital, especially for the mining and energy sector. Africa can and must leverage Asia's rise to transform itself and extract capital for long term, well managed and mutually beneficial strategic relationships."

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