So after a string of Chinese international takeover bids since the CNOOC-Unocal incident back in 2005, financials in China hit high ground yesterday: the state-owned Industrial & Commercial Bank of China (HKG:1398) announced that it was purchasing a 20% stake in Standard Bank (JNB:SBK), South Africa's largest bank by assets, for $5.51 billion.
Obviously, earlier this week we had the on-and-off Citic-Bear Stearns arrangement, and last month we had China Development Bank's deal with Barclays, but the current acquisition we're dealing with is different in two aspects: 1. the sheer scale of deal ($5.51 billion is a lot of money - compare that to the $3 billion paid for Barclays and Blackstone); and 2. China's interest in commodity-rich Africa (think oil and metals, especially PetroChina in Sudan).
How do we weigh all these issues?
First of all, the Chinese is not on the path to enacting yet another CNOOC-Unocal episode. National security doesn't appear to be as scrutinized in South Africa as it is in the US (3Com's takeover by Bain and Huawei Tech prompted this response: "It would be a grave error for U.S. regulators to approve a deal that permits minority ownership in 3Com by one of the least transparent companies operating in China, a firm with shadowy ties to Chinese army and intelligence services").
Besides, China is Africa's best friend (or rather the emerging market's best friend), with mutual agreements and Hu Jintao going back and forth to make everyone happy. No one really minds or notices that China now has leverage over Africa's finances. Jealous Western countries may call China a "neo-colonialist" all they want (isn't America's entry into Iraq equally imperialistic?), but no one is hearing that call.
But more importantly, is China finally overextending itself? Are its companies bidding for everything in sight while losing steam at home? Economic growth shows some signs of slowing down this quarter and international investment hasn't been as lucrative for China as she may have anticipated.
But that's not what some academics are saying. Rule of thumb from the Wall Street Journal: "The U.S. turmoil has left banks elsewhere in the world facing a cash crunch, and the costs of acquisitions have risen, notes David Li, director of the Center for China in the World Economy with Tsinghua University in Beijing. 'In contrast, the stocks of Chinese banks keep on rising,' he said. 'Liquidity is very strong. What do you do when you have cash? Invest.'
And that's particularly true with Beijing's help (or pat on the back) in entering Africa. There is no doubt that both sides have initiative to do direct business with each other via commodity trade, so why not invest in each other to improve the synergy? Diversify Chinese investments in international opportunities with revenue streams leading back to China: that is how to invest the Chinese way.
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