Chinese Investment in Africa

Arab Spring Ramifications

China is showing less “enthusiasm” for making investments in various parts of Africa which has likely been caused by the “ramifications of the Arab spring.” Investments in the past have been extremely popular, due to what has been seen as very attractive conditions such as “lots of autocrats and presidents-for-life, very few rules and regulations, little concern for life or environmental impact.” According to a recent article on the matter, pretty much anything has been possible “as long as the money kept showing up in the appropriate offshore accounts.”

But this was the situation in the past and things are now changing. With a new five-year plan from the country’s Ministry of Commerce (which is still being finalized), investing in Asia just isn’t “what it used to be, according to a quote from the Economic Observer. For example, it is just much harder now to open a mine there as factors such as the environment, employment and economy need to be taken into consideration.

China in Libya

Looking to Libyan investment (which has been a more recent popular jaunt for Chinese investment), there is an anticipated expected surplus of $3bn loss due to the repatriation of approximately 36,000 Chinese employees. As well, over the last four years, Libya has “contracted some 50 engineering projects to Chinese companies, including several image projects to mark the 40th anniversary of the 1969 revolution.” According to the article, being a contractor however, China has been able to manage its “direct losses in the unrest.” Nonetheless, some of its assets in Libya (such as Sinopec) did encounter destruction in the aftermath of the Libyan unrest. In general however, Beijing has had to somehow cope with a big mess of “compensation claims, third party debts and the re-employment of all returned workers.”

Chinese Investment Drop

Figures released from the Ministry of Commerce have shown a huge plummet of new Chinese contracts in North African countries for the first quarter. In Algeria this drop was 70.8 percent and in Libya, 46.9 percent for the same timeframe of 2010.

Abu Dhabi Success

Booming Economy in Abu Dhabi

Before the world financial crisis hit, Abu Dhabi was faring pretty well. This situation has not changed and it is now anticipated that the country will experience a financial growth of 4.5% in GDP in 2011. This was the message taken away from the Abu Dhabi Investment Forum in China, attended by over 600 senior official and businessmen from the Chinese Tianjin. According to the chair of Abu Dhabi Department of Economic Development (DED) Nasser Al Suwaidi, what has been witnessed over the last two years is that Abu Dhabi has become the “second most attractive city for direct foreign investments in 2010, totaling AED 2.7 bn” out of the whole Middle East region.

Strength of Abu Dhabi

Because Abu Dhabi has been showing such strength vis-à-vis goods transport business and the promotion of its “development projects in the international markets,” Al Suwaidi noted that the country is indicating “promising signs for prosperity and a more positive future.” The DED is trying to push the role of Abu Dhabi’s Competitiveness Bureau in a way to lead to economic growth and stability, in an attempt to “bolster positive and growing ties with businessmen and investors whilst helping drive the economic welfare and positive performance as per the international competitiveness indexes.”

UAE Pride

The UAE also has much of which to be proud, ranking in as the China’s second biggest trade partner within the GCC as well as the Arab world’s “largest market for the Chinese exports.” Trade (non-oil) between Abu Dhabi and China increased from $7.2bn to $13.4bn in four years between 2005-09. In addition, as noted by Al Suwaidi noted how the UAE has paid substantial interest to “boost investment ties with China” in areas like real estate and finance, “leading the UAE’s investment in China to grow to $220 million.” In addition UAE “tops Arab Countries in attracting Chinese investments with forecasts showing that there are 3,000 companies operating in the UAE in multiple sectors such as real estate, construction, trade, services and tourism.” The Forum is a great way of encouraging cohesion between Abu Dhabi and China while looking at where there could be interest for the two countries in major sectors, and developing greater trade relations.

Asian Mega Wealth

Rich Get Richer in China

It seems if you want to go where the wealth is, China is where it’s at. Today there are over a million millionaires living there; financial growth having escalated in the last year, alongside a thriving currency. Statistics from a BCG Global Wealth Survey show an increase in China of 31 percent of millionaires to 1.11 million from the previous year, placing China “in third place for millionaire households.” In addition, in worldwide figures, China is at number 8 vis-à-vis households having assets at a value of more than $100m.

Inaccurate Stats?

These figures however, only give part of the picture since monies earned from private businesses did not figure in the survey, nor did yachts, art, or fine wines. According to a partner at Hong Kong BCG, Tjun Tang, “this grossly underestimates true overall wealth in China.” As well, only around 5 percent of wealth is held offshore and there is a limit on the amount of products that international wealth management companies are able to offer inside the country.

Asian Affluence

Singapore isn’t a bad place to live either if you want to be bringing in the money. A staggering 15.5 percent of those living in Singapore are millionaires. Qatar came in at 8.9 percent which isn’t anything to be ashamed of either. In general, if you are anywhere in the Asia-Pacific region, the rate for growth wealth has an anticipated growth of 11.4 percent in the next four years. When compared to worldwide figures for the same time-frame, the growth rate is around half of this. Japan wasn’t included in the Asian anticipated economic growth for these years. India isn’t doing too badly either, coming in ahead of Canada with its 190,000 millionaires. Things are going to be getting even better for India too, with an anticipated wealth increase of 14 percent per year over the next five years alongside China’s 18 percent. But China seems to look good no matter which way you turn, as, according to the Bloomberg Economic Momentum Index for Developing Asia, it ranks “first among 22 emerging Asian economies as the country most likely to maintain steady and rapid growth over the next five years.

Good Times Ahead for China

Property Peaks in Beijing

It looks like China is set to witness a property peak in the few months. According to experts in foreign real estate funds, this sector is due to “tighten” during this time frame. Grosvenor Asia Pacific manages $16b in assets and is setting out to raise “at least $270 million for a fund that will invest in Chinese properties as part of its expansion in Asia.” According to CEO of Savills Greater China, Raymond Lee, “a good opportunity will emerge for long-term investors in the coming six to 12 months, and what foreign real estate funds are doing now is finding a legal fund vehicle that can get their money into the country.” Indeed, substantial funding is expected to get to China before 2012 as well.

Increase in Investment

News from the Commerce Ministry is the increase in “utilized foreign investment” by 27 percent, reaching $17.8b by February 2011. Of this, $4.15b was in the real estate sector. In an effort to curb this, local authorities were ordered to “halt the approval of some foreign property investments to stop speculative purchases, it said in a Nov 22 statement.” Local authorities will have to “strengthen their reviews of foreign exchange inflows for real estate transactions and documentation for land rights.” Right now there are two principal channels for foreign capital that “flow into the Chinese mainland’s property market”: participating in development with local partners and cooperating with Hong Kong-listed real estate companies.

Real Estate Firms Future

According to President of CB Richard Ellis China, small- and medium-sized real estate firms are likely to feel an additional squeeze by June that will result in more “equity investment opportunities for foreign institutional investors.” This is due to banks making it harder to borrow money and dropping property sales. Prices of residential projects will be “more competitive.” As well, for those medium- and high-end homes which witnessed “excess short-term price growth,” are being impacted by government real estate “tightening” policies. The advice by experts thus is to avoid these sectors to protect your investment. Ultimately, even though foreign investors have expressed concern about the potential risks in China, a “clear long-term picture through the 12th Five-Year Plan” is still what’s keeping confidence high and bringing investors back to China all the time.

New Zealand New Hotspot

Chinese NZ Investment

New Zealand is becoming an increasingly more attractive to investors. This has been especially evident in China which has been purchasing more NZ bonds than ever. Recent reports show that investments from China could amount to $6b which will have an impact on the kiwi dollar that could increase to 81 cents (which would be a three year peak) “against the greenback.” According to Craigs Investment Partners market analyst Peter McIntyre, “there have been reports that the Chinese foreign exchange reserves are looking to diversify around about 1.5 percent of their assets into New Zealand denominated assets like government bonds, companies and dairy farms.”

Nice New Zealand

That is one way of describing the country. Nice. New Zealand is definitely “nice” for investors since in terms of financial security, it is very stable. There is also a “high domestic inflation rate” with large returns too. It seems to be the whole region is finding New Zealand attractive, most notably Singapore and Hong Kong which are looking into government bonds.

These changes have been happening for a few years now. Countries in Asia are boasting “very large reserves.” There is likely to be additional investments ahead too. China will see an increase in investment from BUD, the Brazilian-Belgium owned Anheuser-Busch InBev and intends to establish a “brewery to make Budweiser in the mainland by the third quarter,” according to Carlos Brito, CEO of the company. The intention is to put in “several hundred million dollars this year.”

Better Beer

The three “top-priority markets” set to “drive the volume growth of the global beer industry,” are: Brazil, China and the USA. Indeed, China alone drinks around 30 liters of beer per annum, rendering it “responsible for around 25 percent of global beer consumption.” Just last week the first brewery was launched by AB InBev in Sichuan, a southwest China province, which according to the company’s Asia Pacific president Miguel Patricio, “aims to better serve the 200 million consumers in the region.” So if you happen to be visiting the Great Wall, consider quenching your thirst with a barrel of beer.

Plunge into Pakistan

Gilani Asks for Chinese Investors

Just a few days ago, Yousuf Raza Gilani, the Prime Minister of Pakistan, asked firms in China to “invest in his country’s energy sector,” in an attempt to boost his suffering economy that is facing crisis following last year’s massive floods as well as in general, “weak Western investment.” But he’s not asking this from a charitable point of view. Gilani believes that Chinese companies can really benefit from making this investment, according to what he said last Thursday at a joint business forum held in Beijing. He added that, “joint ventures, with equity participation of Chinese corporations and financial institutions, can transform Pakistan’s economic landscape and would certainly prove to be a win-win scenario.” He also mentioned how beneficial it would be for these Chinese firms to look to Pakistan when developing their business strategies.

Osama’s Unraveling

Gilani made these statements on the third day of his China trip which is just a few weeks after Osama bin Laden was killed on Pakistani soil. This in and of itself is significant since it “rattled US-Pakistan ties and pushed Islamabad closer to Beijing.” Gilani met with his Chinese counterpart Wen Jiabao last Wednesday and the two have both been pushing the development of mutual ties between the countries at a time when his country is feeling the “pressure about whether its security services knew where bin Laden was.”

Economic Excellence

At the end of the day, there is also great potential for trading and profits between China and Pakistan. Indeed, just looking at figures for last year, trade between the day reached $8.7bn which was an increase of 27.7 percent on-year. There has also been substantial collaboration in the energy sector between the two countries. Indeed, just over a week ago, a nuclear power plant that was built with China was opened in Pakistan and Beijing has signed a contract to build an additional two reactors in an attempt to facilitate energy shortages. Since Pakistan has been dealing with substantial power shortages, production has been limited to approximately 80 percent of the country’s needs. Thus these kind of energy agreements are vital for boosting the economy.

Germany Goes to Chinatown?

Well, not exactly. But there will be some mega-German investments in China. BMW is currently planning to advance development of its work in China with “investments to increase manufacturing capacity.” According to the company’s board of management chair, Norbert Reithofer, the Chinese really like the BMW vehicles and “anticipate” more growth for the company for the future.

Mega Monies Investments

Hence the company in Germany is combining its efforts with their “joint venture partner Brilliance” in an effort to further develop the investment monies it announced before which was already significant at EU 560m. This will be taking place in Shenyang which is where their Chinese facility is. Now, the figure will be increased to EU 1bn.

This extra money will be split between BMW and Brilliance and be utilized for the construction of paint shop, press shop and to advance the Tiexi plant’s infrastructure in anticipation of greater production capacities hoped for the future.

German-Chinese Manufacturing Relations

Germany has had a good relationship with China vis-a-vis investments for a while now. For the last six years, there has been production in China of both the BMW 3 and 5 Series. Around a year and a half ago, BMW Germany said it was planning on constructing a second production plant in China “with the BMW X1 slated to begin production there in 2012.” Further, this renders China as BMW’s “third-largest market worldwide, with 167,116 vehicles sold in China during the last financial year.” The plan is that there will be an expansion of over 100,000 vehicles per annum at the first facility (Da Dong) and then at the second one, 200,000.

Awesome Asian Achievements? Coming Soon

Asian Job Creation Scheme

The economic climate and job potential in Asia is about to get a kick-start. A group of economic development officials led by Gov. Bob McDonnell just set out on an “11-day job creation and economic development marketing mission,” to China, Japan and South Korea at an estimated cost of $278,000. This scheme will be financed by taxpayers. He is being joined by Jim Cheng, Secretary of Commerce and Trade, Todd Haymore, Secretary of Agriculture and those connected with Virginia.

The group is Virginia Economic Development Partnership which will – through the efforts – be able to try and develop relations with various companies and potentially acquiesce new clients for their projects as their will be a promotion of various investment/business opportunities hopefully also resulting in “job creation initiatives throughout the Commonwealth.”

Project Gets First Lady Backing

Not only is First Lady Maureen McDonnell supportive of this great project, she is showing it by being part of the mission. McDonnell will be traveling to China and South Korea “focusing her efforts on promoting tourism and the Virginia wine industry.” Her husband believes they have much to offer, offering “a great tax, regulatory and litigation environment,” amongst other incentives.

There will be meetings with CEO’s and business executives from around the world who will be told about the benefits of investing in Virginia. It is essential that jobs are created for “our citizens” who need them he said and thus the company “will not sit by and watch as the jobs….are awarded to other states and countries that choose to be more proactive and visible.”

Worldwide Job Creation Competition

It seems that right now there is a lot of competition to try and get more jobs in the private sector area that is set to “power and define the 21st century economy.” McDonnell wants Virginia to “win that competition,” which will lead to extra “jobs and opportunities” for the citizens to ensure a “better and stronger Commonwealth in the years ahead.”

Escalating Chinese Exports

In terms of the export markets, things are going well for China now. In 2000, china ranked number 14 but now it holds the number 2 position. This is why it is now a great environment to receive McDonnell and his mission in an attempt to “promote Virginia’s location advantages to approximately key 100 business executives.”

There is a great chance that this mission will be successful since McDonnell has done it before when he went to Europe last year. At the time he “helped close a lucrative economic development deal that led to the company investing $28.3 million to expand its O’Sullivan Films operation in Winchester.” Over 150 new jobs were created there following this.

So let’s hope McDonnell does it again and Asia’s job market will really benefit too.

Foxy Financial Females?

Are Asian Women Financially Savvy Today?

Years ago the answer for sure would have been a resounding “no.” But today things are somewhat different. It seems that women in Asia (especially those married, 30+, in the workforce) know their won from their yen and their level of competence is likely to increase further “especially among the younger generation.”

For example, women from Thailand topped financial planning (87) and investment (69.3) scores for financial literacy but Vietnamese women also did pretty well, scoring 70.1 overall, placing them in fourth place. There wasn’t much to sniff at with women from the Philippines either (who did extremely well in Financial Planning), but those from Korea and Japan could probably learn a lesson or two on how to get more financially in-the-know.

Survey Assesses Savvyness

It was the MasterCard Index of Financial Literacy that took a survey of these countries. The questions were posed to 24 markets around APMEA (Asia/Pacific Middle East Africa). It looked at three main areas: Basic Money Management (budgeting, savings and credit responsibility); Financial Planning (their understanding of financial products and services as well as ability to make long-term financial plans); Investment (understanding of risks and products associated with investments). In general, Asian women as a whole did best in Financial Planning.

In developed markets it was women from Australia and New Zealand who were most successful in their financial knowledge. Females from Singapore are pretty good at basic money management but were pretty clueless vis-à-vis anything to do with investments. But when looking at financial literacy, India and China don’t seem to be all that with it.

According to VP of Communications for Asia/Pacific, Middle East and Africa, MasterCard Worldwide, Georgette Tan, “this new MasterCard Index has certainly provided us with fresh insights to women’s aptitude for and knowledge of managing their finances. While it is encouraging to see that women across Asia/Pacific have some degree of financial literacy, it is also apparent that there is still work to be done to improve levels across the board.” This is important as complexities increase in the financial world resulting in a necessity for women to become “more financially confident and competent.” MasterCard also seeks to give more power to these women.

A Bull in a China-Euro Shop?

How China Feels About European Investments

It’s nice that China Investment Corp (CIC) is in a good place financially, but it might be best advised to not put all its eggs in one basket. Established a mere four years ago to invest China’s foreign exchange reserves wisely, the multi-billion wealth fund (with estimated assets as of $532 billion as of two years ago) is seeking potential investment opportunities in Europe but is somewhat realistic about the area’s problems. This would make sense since just over 20 percent of its equity investments have been going into Europe.

Nonetheless, since the CIC has already had significant exposure to Europe, one would think it would be a little more cautious as things stand. Apparently not. Even though sentiment remains somewhat less than optimistic, plans may still forge ahead especially in the infrastructure sectors.

Global Economy

The Boao assembly where these issues were discussed is a gathering of government, business and academic leaders to “discuss pressing issues in the region and the rest of the world.” In recent times, China has been purchasing foreign currencies that are put towards its exports as a way of controlling the yuan value. In general they are put into sturdy US Treasury bonds but given the global economic fiasco, the CIC has been making efforts to “be more aggressive to improve returns.”

CIC and Asia Exporters

According to Asia’s largest thermal coal exporter Bumi Resources, talks were being held with CIC about the possible “swap of $600 million debt into equity” but this would obviously require the total support of CIC, according to Kenneth P. Farrell, the company’s director and CEO of Bumi Resources Minerals.

Nonetheless, the main priority of Bumi is to “repay a first tranche of $600 million in debt this October — two years earlier than scheduled — out of a total $1.9 billion it owes to China's sovereign wealth fund.