National Debts Crisis : A Turning Point For China?
By Tahuy CHHAN, Consultant, China Specialist
The current crisis of national debts offers major expansion opportunities for China and its big public companies.
The current crisis of national debts in Western developed countries has created a favorable period for China to strengthen its position in overseas markets. In particular, it offers opportunities in North America and in Europe, the markets most traditionally difficult to conquer for emerging actors.
China strengthens its positions as an investor
With strong commercial surpluses and high national savings, China is at the heart of current events by massively investing in industrial assets and public securities. This is especially the case within American and European markets; contributing to financing the public deficits of States in trouble and in boosting industrial projects. In terms of direct investment, the 2010 episode of the Port of the Piraeus , a 3,3 billion dollar contract concession, signed between Greece and China via its public entity Cosco, is illustrative of Chinese ambitions. The level of direct Chinese investments in Europe remains relatively low in comparison to the other countries such as Brazil, but has seen a strong growth since 2008, and in 2009, exceeded the levels invested in Africa according to the Chinese Ministry of Trade. Chinese foreign surpluses, more than 3 200 billion dollars in exchange reserves this year alone, are especially held in the form of public securities: Treasury bonds and government bonds.
The development Chinese investments abroad has also aroused certain anxieties in the regions and sectors where it invests. For some, China constitutes a threat to local companies, employment, and the social structure; for others, this development offers opportunities important for the financing of projects. China operates abroad in ways targeted by means of its big public enterprises, serving as sort of opera-tional "tentacles" of Beijing decision making.
The "success story" of the State Banking Model
Most of the big Chinese companies which operate on the international stage are public and remain controlled by the central government. They want to forge "national champions ", capable of competing with the big multinationals already in place. The current context of the crisis offers them new operational opportunities, propping-up ailing firms, through infusions of capital, or repurchase, both creating strategic alli-ances. The Chinese firms are experiencing a major change in direction as their international expansion accelerates. Having built their economic development in a large-scale national base, big representatives have arisen out the energy sector (PetroChina, Sinopec), financial services (Industrial and Commercial Bank of China) and in consumer consumption: computer technology (Lenovo, TCL), electronics (Changhong), household electrical appliances (Haier) and telecommunications (Huawei, China mobile).
The Chinese model of international development is also connected to the hegemony of its big public commercial banks, who are supporting the development of the big companies. Quoted on local and the New York Stock Exchange, these big Chinese commercial banks are following the example of the Industrial and Commercial Bank of China. They have became "monsters" in terms of market capitalization, upsetting the hierarchy of the big World North American and European Banks, who find themselves struggling in the context of this current crisis . So, with this crisis of national debts, China’s model of international development has entered a pivotal stage, the scale of which will probably continue to grow in the 2010 decade .
By courtsey of ©primexis 2011
