Chinese investment keeps growing, but to what end?

04/28/2016

In the latest of what has become a non-stop barrage of Chinese money coming to North America, Chinese conglomerate HNA Group has announced it will buy Carlson Hotels, owners of the Radisson and Country Inns brands.

Purchase price has not been disclosed, but let’s just say it’ll be big. Very big, as Carlson owns has over 1,400 hotels in 115 countries around the world.

HNA Group owns a multitude of companies in the hospitality and travel sectors, including airlines, and airports. It also has arms in the financial industry and substantial real estate holdings.

This is not the first big ticket purchase from the Chinese mainland, and not even the first that tried to snap up a piece of the North American hotel industry. Anbang Insurance Group tried to buy up Marriott International recently. Vancouver’s Bentall Centre skyscrapers were snapped up by Chinese money last month, the Haier Group bought General Electric’s decades old home appliance business, Hollywood film studio Legendary Entertainment went to Wanda Group, and ChemChina has made a $43 billion bid for pesticide giant Syngenta.

Chinese companies have acquired over $2.7 billion in assets just in Alberta-based energy companies alone, with CNOCC, CPECC, and Petrochina behind the purchases. The Bank of China bought Smithfield Foods for $7 billion, the China Railway Group is building a $5 billion railway between LA and Las Vegas, and $3 billion has been invested in shale oilfields by Chinese outfits in the American midwest.

And then there’s the Vancouver real estate scene..

According to the Rhodium Group, real estate, technology and hospitality are the main investment targets over the last year. Chinese groups reportedly set up over 30,000 overseas businesses in 2015, with over $1 trillion spent for the first time in a calendar year.

And 2016 looks like it will quickly eclipse that.

So what does this mean to you?

Well, other than putting your Vancouver real estate on the market and waiting for the bubble to burst, that Chinese money hasn’t yet hit the public markets in a notable way yet, but with resources and energy companies still in a mostly depressed state (bar lithium, which is at madness levels of enthusiasm currently), it might be worth keeping an eye out for moves in those areas.

You won’t see Chinese money in the weed space, as rules against investing in that sector are pretty extreme on the mainland. But commercial office space, large retail, legacy brands.. you’ve got to think it’s only going to keep coming.

While some may object to this due to xenophobic reasons, that’s the wrong thing to look at. From a strategic perspective, losing large pieces of infrastructure to a company that is only moderately friendly with us and still working on figuring out this whole ‘human rights’ thing is a concern. Competitive advantage likewise, in an era where counterfeiting and ignoring copyright are still business staples in that part of the world.

Of course, the other side of that is to embrace it, welcome the premium being paid for assets, and get to work finding big opportunities in one of the most populous countries in the world. But somehow that feels short-sighted.

Meanwhile, plans for a Mandarin version of Equity.Guru continue at speed.

–Chris Parry

http://www.twitter.com/chrisparry

 

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