We started this blog way back in 2006, and — needless to say — much has changed since then, including the attitudes our international lawyers have about China and things China. I have taken to quickly skimming old blog posts to see issues that have died, things that have changed, and issues we that need updating. I am starting with 2006 and it is in January, 2006, that I found what turned out to be a prescient post regarding incoming Chinese foreign direct investment (FDI). The post is entitled The Chinese are Coming — China FDI and it took the then almost revolutionary position that we should expect a massive increase in Chinese investment into the United States:
With the exception of the Wall Street Journal, the English language press is not giving enough coverage to China’s increasing liberalization of outbound foreign investment. Massive Chinese overseas investment is coming and those ready for it will profit.
For the last year or so, the Chinese government has been increasingly talking about ramping up outbound foreign investment. The government recognizes that few Chinese companies have the skills required to be true global players and that acquiring foreign assets and operating overseas will hasten the learning curve, just as it did for Japanese companies in the 80’s and Korean companies in the 90’s. It also makes for good world politics.
One of our Chinese clients heads the industry council of a mid-sized Chinese city. Around four months ago (just around the time the Chinese government increased the overseas investment limit) the government informed the council that its member companies should be investing overseas and that the government would match their investments. This past week, the Chinese government announced that sometime in 2006 it will end limits on foreign currency purchases by Chinese companies and do even more to encourage investment overseas. This will accelerate the buying binge among cash-rich Chinese companies looking to expand abroad. Many already are familiar with CNOOC’s failed bid earlier this year for Unocal and Lenovo’s purchase of IBM’s PC division, but there are smaller asset purchases and buy-out attempts going on all the time. Just this past week, Onyx Software Corporation, a publicly traded customer management software company in the Seattle suburb of Bellevue, Washington, turned down a buy-out offer from CDC, one of China’s leading enterprise software companies. The Yuan’s value will eventually increase, making foreign assets cheaper for Chinese companies and further accelerating their foreign investments.
Our sources in China tell us to be on the particular lookout for Chinese individuals looking for foreign real estate and Chinese companies looking to expand overseas in electronics, auto parts, software, and heating and air conditioning. Our law firm’s foreign investment lawyers are already seeing and getting some of this work.
In 2005, China foreign direct investment (this is Chinese companies investing outside China) totaled around $19 billion. In 2006, it more than doubled to nearly $42 billion. And in 2017, it was nearly $280 billion. But here is why this 2006 post/prediction seems so quaint now: Chinese foreign direct investment plunged to $180 billion in 2018 and it would not surprise me one bit if it falls below $100 billion in 2019.
I am also pretty certain that the numbers for North America and the EU are falling even faster and harder than for Africa and the Middle East and Latin America. All I know is what we see and what we are seeing in both the United States and in Spain (these are the countries outside China in which our law firm has offices) is that the number of potential incoming China deals is down and — perhaps most importantly — the number of deals that actually close are down even more. Far too often Chinese companies that want to do foreign deals are being blocked by the Chinese government from doing so. See China’s Economic Downturn AND the US-China Trade War AND their Impact on YOUR Company, where we talk about the increasing difficulty in getting money out of China.
What are you seeing out there?