China moves into Europe – a sign of things to come

A view from Q.

Nearly a decade ago, Q Wealth predicted that the next global economic power would be China. Since then there have been plenty of ups and downs, including the much-talked about recession from which the west is supposedly emerging. And now we have the Greek debt-crisis – which is just the tip of the iceberg.

During that time, Chinese expansion has continued apace. Chinese companies and government alike have been purchasing vast tracts of land in South America, cashing in their dollars for what they have seen as a safer bet and milking the mineral-rich soils of countries such as Brazil. Alongside that expansion has come greater exposure to the ups and downs of international markets. Recent events on the Chinese markets have been a classic example of what happens to an over-reaching economy.

Plenty of observers are seeing the writing on the wall, but our opinion is that China is still far better placed than any of the major western countries to not only ride through rough waters, but thrive. It still has the highest liquid asset levels of any country in the world, along with the highest amount of reserves.

Ironically, it may now be China’s exposure to western economies, particularly in Europe, that poses the greatest threat to its success, which is why the Beijing government is desperate for there to be no collapse in the Eurozone.

Over recent years, Chinese investment has been pouring into Europe at a rate of knots. It’s one reason why Premier Li Keqiang, during a recent visit to Brussels, called for a strong euro and united Europe as the region grapples with the latest chapter in the debt-ridden saga of fiat money.

From Cyprus to Sweden (and pretty much everywhere in between) Chinese companies are buying European assets like never before as China’s corporate titans they shift from buying in resource-rich developing countries to advanced economies.

Here are the numbers: Annual investment by Chinese companies into European Union member states has surged from around zero in the mid 2000s to 14 billion euro in 2014, according to a new report by Rhodium Group and the Mercator Institute for China Studies. And it’s set to grow as China – with almost $4 trillion in foreign currency reserves and $21 trillion in savings – opens its capital account.

china growth

In the period from 2000 to 2014 there were more than 1,000 Chinese greenfield projects and acquisitions in the EU worth more than 46 billion euro. The most sought after sectors include food, real estate, energy and automotive.

“We are entering a new era of Chinese capital,” said the report’s authors Thilo Hanemann and Mikko Huotari.

Demand is being driven by private companies and investors from China’s east coast provinces, a departure from times past when government-owned conglomerates dominated foreign investment. That shift reflects broader changes as China makes room for the private sector and encourages companies to expand overseas.

The European investments are spread across the region with more than 50 percent having gone into the UK, Germany and France. Asset purchases in Portugal, Ireland, Italy, Greece, Spain and Cyprus have risen from 10 percent of the total before 2011 to over 30 percent between 2012 and 2014.

The wave of cash will pose a challenge for European politicians as they balance receiving much-needed investment with likely criticism of China’s political system and lack of transparency, the report’s authors said.

The investment “boom will be the first test case for EU leaders’ ability to respond to the new era of Chinese capital,” said the report’s authors.

What it means, in effect, is that whilst up to now China has pretty much had the west by the short and curlies, the tables are a little more evenly balanced at this present moment in time, with China becoming more dependent on economic stability or growth in the countries it has been able to ignore over the past decade.

Another side effect is that, with immediate responses to global markets, individual western markets must now keep more than a weather-eye on how the Chinese market is performing. We live in changing times and there are plenty of ups and downs to come, but one thing is for sure: China is not so dependent on the main central banks as many of its competitors, which we believe is the essential defining factor in maintaining our prediction that the future belongs to Beijing.

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