Siah Hwee Ang looks at China's global shopping spree and concludes New Zealand is not the apple of China’s eye

Siah Hwee Ang looks at China's global shopping spree and concludes New Zealand is not the apple of China’s eye

By Siah Hwee Ang*

Capital has continued to flow into China in recent months. 

In the first four months of 2016, non-financial foreign direct investment into mainland China stood at US$45.3 billion, up 4.8 percent year-on-year. 

The service industry accounted for 70.2 percent - US$ 31.9 billion of this influx of investments. Notably, high-end technology services attracted US$5.1 billion, a year-on-year surge of 108.6 percent. 

Meanwhile, there are signs that capital is starting to flow outwards from China, after a few months of anxiety during which capital outflows were curbed by the Chinese authorities.

China’s outbound direct investment stood at US$60.1 billion in the first four months of 2016, up 71.8 percent from the same period last year. 

China’s investment in the US surged by 236 percent, while investment in the European Union decreased by 44.8 percent. 

Investment in property 

Chinese total investments in overseas property markets amounted to US$93.8 billion in 2015, a 45.2 percent increase from US$64.6 billion in 2014. In 2013, this figure was only US$38.4 billion.  

The share of investments into commercial property has risen over the years, from 18.2 percent in 2013, to 26.2 percent in 2014, to 31.3 percent in 2015. 

In 2015, the US$30 billion commercial property investment market came close to doubling 2014’s figures. The bulk of the investment went into office space (42 percent), development sites (27 percent) and hotels (18 percent). 

Chinese nationals also became the largest foreign buyers of US houses in 2015.

Shopping for assets and technologies 

Chinese companies’ forays into foreign markets through acquisitions have made some progress in the last months. 

This drive is supported by mechanisms put in place by the country’s push for its enterprises to become more global. 

After all, a common attribute of developed countries is having a decent number of multinational corporations to fly their country’s flag abroad. 

In this, China is still short of global household names, despite the rise of major global players such as Huawei, Haier, HNA, Wanda and Alibaba. 

Nonetheless, despite some failures in the US and also in Australia and New Zealand, Chinese companies can claim many successes over the past year. These include stakes in Rotterdam’s port terminal, Virgin Australia, a German industrial robotics supplier, a Singaporean logistics provider, US hotel chains, European football clubs, Japanese and US electronics and electrical companies, and even US entertainment companies. 

The broad picture shows that a larger number of Chinese acquisitions are made in technology, media and telecommunications, as well as in real estate. Energy, mining, and agricultural products follow. These areas have also seen the largest dollar amount involved, with the largest acquisition amounts coming from technology, media and telecommunications, and agricultural products. 

NZ not the apple of China’s eye 

High net worth individuals from China are forecast to raise their overseas assets from 16 percent to 30 percent of their total in the next 10 years, amounting to US$463 billion.

So we should expect more investment approaches coming out of China. The introduction of more restrictions on foreigners borrowing from banks in New Zealand is welcomed. This is consistent with recent crackdowns in Australia surrounding repayments on loans to foreigners. 

In the year to June 2015, foreign direct investment into NZ was US$3.55 billion. Investments of Chinese origin only constituted a small part of this total. In light of the extent of Chinese companies’ and individuals’ global investment spree, New Zealand’s slice of the pie has been very small so far. 

Nonetheless, it will be good to see that New Zealand is receiving its fair share of foreign direct investment coming from China, and from Asia as well given that these countries will drive most of the world’s economic growth in the next couple of decades.

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*Professor Siah Hwee Ang holds the BNZ Chair in Business in Asia at Victoria University. He writes a regular column here focused on understanding the challenges and opportunities for New Zealand in our trade with Asia. You can contact him here.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Even the small percentage is good enough to wreck small island like New Zealand.

Yesterday a property agent mentioned that they sold 300 Section to Chinese and today this news. What else Does our PM wants though have enough data in public domain to suggest that the chinese money is creating Havoc with NZ Housing Crisis but still the denial.

To be honest I have never seen such Thick skin people who just refuse to see the obvious and all data/news that is coming but to trust only one overseas data that was announced earlier this year and why do the trust that data as was faulty (The agency conducting it admitted by themselves that the data cannot be trusted as is not inclusive).

Had heard that politicians are Thick Skin but ours cake the cake.

For them even the acceptance of the fact by Australia and Canada and our banks( in subtle way) is wrong.

How Blind can one be.

Real Shame.

Exactly. China has so many millionaires and even billionaires that even 1% of them can buy our country 30 times over.

I wonder what we up to already in the count to 30

But the question is why would they want too. New Zealand does not have major mineral wealth - it has some but not enough to support any major economy for than extended peirod. New Zealand doesn't have that much in the way other resources that foreign company's may want and is a long way from many markets for the products that it does produce. What I am saying is New Zealand is to small and isolated to matter to many foreign investors. Most investors would seek a better ROI from the US or Europe.

But at least we have fresh air to sell (For now). ;)

A New Zealand company's cans of 'Pure New Zealand air' are blowing consumers away in China, and they could soon be available on shelves closer to home.

https://nz.news.yahoo.com/top-stories/a/31871230/breath-of-fresh-new-zea...

Now that is a fool and his money....

NZ is so small that a percentage which may be small from China will be too big for NZ economy to Handle.

Just Imagine what would have happened if NZ was apple of the China's eye.

Well, yes, but Professor Siah Hwee Ang as a lecturer at VUW of course does not have New Zealand's best interest at heart. He is obviously commited to furthering the economic and foreign policy goals of the Chinese government.

For my part, his partiality is so obvious that it is counterproductive, but maybe he can impress the rest of the audience.

[ This comment is totally unacceptable. This is downright racist, and with zero basis in fact. It is nothing but an ugly smear. Your comment privilege is cancelled. Ed. ]

People need to study the background of other people that have influence. It simply is not possible to be impartial. People need to understand this or they will just be led around like sheep.

Yep, remember I'm a 24/7 on-call systems engineer. Gotta sleep sometime but still get paid...ka-ching!

This is racist nonsense - anyone who has a chair at Victoria (one of the top 250 universities in the world) deserves to be treated with respect. Secondly, what he is providing is statistical analysis and commentary - getting over your red-necked views of the world and read the facts. There is lots of evidence to suggest that the boom in auckland prices is driven by New Zealand speculators - many of who are going to be badly burnt when the inevitable collapse arrives. It is not driven by immigration or foreign investment, but rather a New Zealand mindset that property can never go down in value.

The boom in Auckland prices is driven by Auckland based speculators rather than NZ based speculators surely? But many Aucklanders, around 45% I think, are foreign born, thus immigrants. are they not? I'd say many immigrants have embraced the "property can never go down in value (in Auckland)" mantra. They could well be right though. The only people who have been badly burnt so far are those that held off buying, waiting for the crash.

Shortly overseas/ non resident buyer data will released and hopefully if done without bias will bring the truth out.

House prices going up is good and is welcome but not by percentage everyday which is harmfull and is fuelled by speculation.

Prefer truth over deniàl and lies just as Australia and most recentlyby Canadian PM.

Please remember that more than housing bubble it is the denial and lie that is more annoying. We expcept our leader to be upfront and even if they are in favourof overseas / non resdince boom should admit and not deny.

Just wondering about this little nugget of news from today's Shanghai Daily concerning Hong Kong's home foreclosure rates increasing. I wonder what impact this may have on our economy? Just how many of the unregulated lender loans may have wound up purchasing property here?

Sounds like a ticking time bomb to me.
http://www.shanghaidaily.com/business/biz-special/Pace-of-home-foreclosu...

Section taken from article: -

HOME foreclosures in Hong Kong have been rising and are likely to pick up pace as more owners default on high-interest loans from unregulated lenders in a weak economy, according to specialists in distressed property.
The city’s authorities don’t officially track foreclosures but data from the Hong Kong Monetary Authority show that there are a growing number of homes that are worth less than the amount paid for them. The number of homes underwater reached a five-year high of 1,432 at the end of March, and the HK$4.9 billion (US$631 million) of properties concerned is the highest since the global financial crisis in 2009. At the end of December, there were just 95 cases worth HK$418 million.
Non-bank finance companies have seen an increase in delinquent loans since the fourth quarter of last year and foreclosures are also now picking up. Members of the Hong Kong Property Finance Association now have about 10 delinquencies per 100 loans made, compared with five to six last year, and foreclosures are running at around four per 100, up from two to three in 2015, according to its Chairman Alfred Lam.

You need to read 90 @ 9 and follow the links there. You would have come across this earlier ...  ;)

Yes thanks David, just trying to get the rest of the herd to notice the cliff edge as they hurtle towards it. :)

In the first four months of 2016, non-financial foreign direct investment into mainland China stood at US$45.3 billion, up 4.8 percent year-on-year.

Meanwhile, there are signs that capital is starting to flow outwards from China, after a few months of anxiety during which capital outflows were curbed by the Chinese authorities.

China’s outbound direct investment stood at US$60.1 billion in the first four months of 2016, up 71.8 percent from the same period last year.

Isn't it more likely these flows are coincident with USD or other foreign borrowing being initiated and unwound at a later date via a currency swap mechanism?

Even when the idea of China’s short is allowed, it is still mistaken under traditional terms (such as “hot money”) that imply again “capital flows.” The wholesale version is far more nuanced and presents not just difficulties in perceptions but alterations in function and thus provides very different implications. For example, in the years just after the Great Recession, financial disparities and structural changes in China led to the growing use of currency swaps to fund international activities inside the country. As Reuters noted in July 2013:

Multinational companies said that they could raise more money, more quickly and more cheaply by borrowing in dollars and swapping the money into yuan than if they borrowed directly in yuan through the offshore yuan-denominated bond (Dim Sum) market in Hong Kong.

“We swap from euros into renminbi for the maturity we want, which is a very straight forward treasury technique and that means we can have a fixed rate interest loan into China,” said a regional treasury head in Asia at a multinational firm who declined to be named as he was not authorized to speak to media…

Another treasurer at a multinational company with extensive operations in China said he could raise 10 times as much in international markets than he could in the offshore yuan bond market, which was another reason to borrow in dollars and swap into yuan.

From the perspective of traditional exchange accounting, these dollar loans show up as foreign direct investment or “hot money.” In wholesale terms, these are not just a “dollar short” but doubly so. The first “short” occurs when the multinational takes the loan (which is assumed to be “capital” under traditional perceptions) and the second with what happens next. In a currency swap, the multinational deposits the dollars with a Chinese bank in exchange for yuan with the exchange rate for the principle settled for both the upfront and back end (maturity). The textbook claims that this removes currency risk, and on the surface that appears to be the case. In practice, however, it is much different. Read more

On the contrary, China will not drive world growth the next few years - it is a debt laden powderkeg. Growth is dead, cheap energy is dead, we are at peak everything - coal, oil, debt, fishing, and population. Theres only one direction from here.

Hyman Minsky's worth a re-read .....

Of course we are not the main course of the Chinese meal , we are but a small degustation Hors d 'oeuvres that is of excellent premium quality, highly desirable and easy on the palate

So.....what assets (private & public) and natural resources can I buy in China without too much hassle?

My point: Do we have an even playing field?

I saw on TV that the Chinese are buying our cans of fresh air, some think probably better to move here for the fresh air if they can afford to.