Innovation Blog

From “Made in China” to  “Owned by China”: Or What Can You Buy with Two Trillion Dollars?

By Shlomo Maital

 

 

 $1 b. in cash: now picture 2,000 piles

 

You have to hand it to the Chinese.  They have a multi-stage long-run business strategy for China Inc. that is working to perfection.  It is amazing that a group of former Communists have applied ‘modified free market’ strategy far better than the American blueblood capitalists, and have created an economy whose size will overtake America’s far sooner than we believed or expected. 

   Here is the simple version of the two-stage strategy ‘rocket’ China created.

   Stage One.  Attract huge resources from abroad, to create enormous state-of-the-art manufacturing capability, to generate a huge export surplus.  Use the export surplus to accumulate enormous financial assets (mainly US Treasuries).

  Stage Two.  Use the pile of American dollars (growing daily, now equal to $2.5 trillion) to buy equity interests in companies and real productive assets around the world, to acquire control of resources, brands, and competitive advantage.  Note: For only $1.5 b., Lenovo bought IBM’s Think Pad and leveraged it into near-market leadership in laptops.  The transition from Think Pad to Lenovo branding was flawless and powerful. 

   Writing in the Global NYT,  David Barboza says “flush with capital from its trade surpluses, China is spreading its newfound riches to every corner of the world..over the next decade, China could invest as much as $2 trillion to acquire overseas companies, plants or property”.  The shift is amazing, Barboza says; a decade ago, China’s yearly equity investments abroad averaged only $2 b. a year, an inconsequential sum.

    Just as we saw an almost panicky rush by global companies to shift production to China, we will now see a similar stampede by nations to vie for China’s money, by selling off national assets.

   How much of that equity investment abroad will go to America?  Very little, Barboza thinks.  The study he cites suggests that because of political rivalry, America will benefit little from the Chinese direct investment.   I hear a note of regret – alas, America will not ‘benefit’ from selling off its assets to China.   For a nation that chants “USA USA, We’re Number One”, President Obama’s declared passion for welcoming Chinese equity investment, implicitly accepting “We’re #2—and we don’t even try harder” is impossible to understand. 

    As a business, China is exceptionally well run. Can’t say the same for America.

* David Barboza, “China’s cash goes global, but maybe not to US”, Global NYT May 4/011, p. 14.

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