While for the last few years China has been yearning to sell its shares in the US market, this trend looks to be changing. For example, Focus Media Holding Ltd. chairman announced its intention to buy back its American traded shares, privatizing its Shanghai-based advertising company. And this is not the only company moving in this potential direction; smaller companies seem to be following suit while receiving help to ensure this happens. Indeed, according to one source, the China Development Bank is even shelling out $1bn in loans to help companies abroad seal the deal. Further, a few months ago, a traffic management technology company – China TransInfo Technology Corp – said it would be going private with the support of the bank’s branch in Hong Kong. And Harbin Pacific Electric Company withdrew from Nasdaq with a CDB loan.
So the question is, why is China losing faith in America? One argument is that there have been accusations of questionable accounting alongside a Catch-22 between Washington and Beijing over whether American regulators have the capacity to supervise their China-based auditors. These concerns have also resulted in decreasing share prices, costing several billion dollars to investors. Moving out of America – these Chinese companies believe – would result in much less investigation. Right now, there is speculation over whether US inspectors will be given the authority to investigate the work of the China-based audit firms. For example, while Washington is pushing auditors to hand over paperwork on the companies being investigated, the authorities in China are refusing to release part of this. If this doesn’t get sorted out, audits from the firms might be rejected by the SEC which will make companies find new ones.
China’s Increased Stability
China’s economy is something it can be proud of these days. Indeed, according to KPMG LLP, it looks like this stability trend will continue during the second part of the year. In somewhat contrary recent foreign investment news, Chinese-based companies are transferring their merger and acquisition ambitions to EU and US markets, primarily in energy, mining and power industries. As well, Sinopec – China Petrochemical Corporation – a few months ago acquired a third share in American-based Devon Energy Corporation’s five shale gas assets. According to analysts, this is quite a milestone for the company, since it is the first time it is venturing into gas and oil exploration and development in America. As well, China is very much looking toward attracting foreign investment (such as that from the US) due to how its capital inflow is structured, moving in the direction of industrial optimization, improving business conditions to companies from abroad.
It’s not all bad news for America’s economy though. Due to government support, both China’s and America’s sector has been encountering a boom. With competitive international wage rates, a weaker dollar and an increase in emerging markets, things are on the up.
Is China Moving to Europe?
Now the question is, if China is taking its investments out of the US, where is it going? Some would argue that Europe is benefiting from the issues the eastern superpower is having with America. For those investors moving out of energy and into finance and technology, Europe is more attractive than the US, irrespective of the region’s economic problems. Indeed, according to a survey conducted by Ernst & Young, 32% of Chinese companies felt that the best investment opportunities would be in western Europe over the next three years. That’s almost a third. The region offers an open business environment. But still, it’s not all going to be plain sailing since a lot of private equity fund projects could not offer investor protection – something potential Chinese investors need to consider.
Ultimately while America might currently be less attractive to China than it has been in the past and Europe is becoming more attractive, there are pros and cons to both regions that potential eastern investors need to bear in mind before putting their money with their mouths are.