China's on a global buying spree
The second largest economy is investing big in famous brands
Sunday 20 April 2014
What do the following companies have in common: Volvo; Manganese Bronze; Smithfield Foods; Weetabix; House of Fraser? They are all famous brands that belong to Chinese companies.
China has, in case you haven’t already worked it out, been on a buying spree. Over the past few years, the world’s second largest economy has been spending some of its foreign reserves, which total over $3trn (£1.8trn), on buying up overseas businesses. Or, as far as China is concerned, if you have the money, then why not invest it in something useful? Why would you want to keep it tied up in US Treasuries earning next to nothing in interest?
China’s foreign acquisitions can be divided into four distinct groups. The first category is food producers. Currently, China owns around a 10th of the world’s farmland. However, it consumes around a fifth of the world’s food supply. Those numbers don’t quite add up, which is why Chinese companies are increasingly hunting and gathering food companies overseas.
It has already snapped up Smithfield Foods, making it one of the largest pork companies in the world. The £3bn takeover of Smithfield by Shanghui International isn’t the only high-profile acquisition that Chinese company have made. Two years ago, Shanghai’s Bright Food acquired 60 per cent of Weetabix. The Chinese food conglomerate is now said to be setting its sights on a £1.7bn deal for Israel’s cheese maker, Tnuva.
It would seem that no company is immune from a Chinese acquisition. In the UK, there are 27 quoted food producers. They include the £380m sausage-skin maker Devro; indebted food processor Premier Foods; and the Anglo-Dutch food giant Unilever. Any of those could be at the receiving end of a Chinese bid. The pick of the bunch, though, could be sugar-maker Tate & Lyle.
Apart from food, China also needs resources. It is reckoned that last year, China bought about £3bn worth of Australian- owned mining and energy assets. Last year’s acquisitions added to the £11bn worth of purchases that the company has made over the past five years in the resources-rich country. The Australian acquisitions were trumped only in Canada, where Chinese companies splashed out more than £25bn on the purchase of resource companies.
Energy is another area into which China is likely to buy. The country is the second-largest consumer of oil after the US. In the past China has been heavily reliant on coal. But with pollution high on the country’s agenda, China is likely to switch its focus to cleaner oil and gas generators. Price is unlikely to be a barrier, following China National Offshore Oil Company’s £10bn purchase of Canada’s Nexen. In the UK, there are 90 quoted oil and gas firms. They range from yet-to-be-profitable oil explorers to cash-generating integrated oil firms such as BP.
Global brands are another area in which Chinese firms are keen to buy. Hence the acquisition of Volvo, MG and House of Fraser.
What is undeniable is that China is going global. That has to be a positive for Western markets, as the Eastern Dragon that has been sitting patiently on its pile of cash starts to spend some of its closely guarded hoard.
David Kuo is director of fool.co.uk
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