The investment that Chinalco made in Rio Tinto (RTP) suggested that China was becoming aggressive in investing outside the country. The government has run a surplus long enough to still have the capital to deploy aboard. The concerns that the international economy might continue collapsing may have made foreign investments look risky for China. But, recently it has claimed that its own economy has turned the corner.
But, at this point, China has capital that most other countries do not, and its sovereign fund appears to be willing to take advantage of that.
According to The Wall Street Journal, “China Investment Corp. plans to expand its international investment this year, including in European countries that it had shunned because they tried to set limits on its investments.” Now Europe and many of the largest companies based there could use the money. As Japan did thirty years ago, China plans to take advantage of the fact that many assets are as cheap as they have been in decades.
European regulators will have to decide whether they want to block money to many of the cash-starved industries or allow the Chines to take positions in a number of sectors, like banking, that are considered “strategic” and, therefore, not ones that the EU would like to see outside investors control.
If the economy gets much worse, Europe many not have much choice. Money from China may be all that keeps some large companies competitive, or, in some cases viable.
Douglas A. McIntyre
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