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Chinese To Buy Stocks In Different Countries

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China’s government is authoritarian, its economy has slowed from the torrid pace of recent years, and it has more than its share of accounting scandals. It is not just foreign companies buying assets that is the problem ─ it is the state-owned and massively subsidized companies of China that are dangerous because China uses its state-owned enterprises as a strategic tool of the state. By pretending they are private companies abiding by free-market rules makes us the biggest chumps on the planet. As per the report.

 

People’s Bank of China (The Chinese Central Bank ) has bought 1,74,92,909 crore shares, or 1.01 percent of the shareholding, in HDFC, according to exchange data. China has been buying stakes across major financial institutions in Asia amid the stock market crash in major economies. China, in recent years, has also significantly increased its investments in Asian countries, including Pakistan and Bangladesh, mainly in infrastructure projects and technology companies.

 

In a Fortune article titled  “The Biggest American Companies Now Owned by the Chinese,” Stephen Gandel provides the following list of American companies acquired by Chinese investors:

 

Starwood Hotels acquired by Anbang Insurance, a Chinese insurance company that is rapidly buying up U.S. hotels…It is the latest hotel acquisition by the Chinese insurer, which last year bought the company that owns New York’s Waldorf-Astoria. Starwood would add 1,300 hotels around the world to Anbang’s portfolio.

 

Ingram Micro, which is No. 62 on the Fortune 500, bought by Tianjin Tianhai Investment Development Co., a Chinese firm that specializes in aviation and logistics.

 

General Electric Appliance Business was bought by Qingdao Haier Co.

 

Terex Corp., an 83-year-old Connecticut-based company that makes machinery for construction, agricultural, and industrial purposes, was bought by Zoomlion Heavy Industry Science.

 

Legendary Entertainment Group, which has co-financed a number of major movies like Jurassic Park, Godzilla, and Pacific Rim, was bought by Dalian Wanda

 

Dalian Wanda also bought AMC Entertainment Holdings, the U.S.’s second largest movie chain at the time of purchase, but now #1.

 

Lenovo Group Limited and IBM announced the completion of the acquisition of IBM’s Personal Computing Division by Lenovo.

 

The acquisition of American companies by foreign corporations isn’t something new. Many prominent companies founded in America were bought by corporations from the United Kingdom, France, Germany, Italy and other European countries in the latter half of the 20th Century. Most Americans don’t realize that such iconic American companies as BF Goodrich and RCA are now owned by French corporations, and that Carnation and Gerber are now owned by Swiss corporations.

 

Many foreign countries don’t allow 100% foreign ownership of their businesses, but sadly, the United States does not exercise the same prudence. We allow sales of U. S. companies to foreign companies unless there are national security issues, and they almost never sell theirs to us. The Chinese government limits foreign ownership to very few selected industry sectors, that can change annually, and requires joint ventures with Chinese corporations for most industry sectors.

 

China is primarily a manufacturing hub and an export-driven economy. Trade data from the U.S. Census Bureau shows that China has been running a big trade surplus with the U.S. since 1985. This means that China sells more goods and services to the U.S. than the U.S. sells to China. Chinese exporters receive U.S. dollars (USD) for their goods sold to the U.S., but they need Renminbi (RMB or yuan) to pay their workers and store money locally. They sell the dollars they receive through exports to get RMB, which increases the USD supply and raises demand for RMB. The Chinese do own a lot of U.S. debt — about $1.1 trillion as of early 2020.

China could spend billions buying stocks if the coronavirus panic continues. China’s central bank (People’s Bank of China – PBOC) carried out active interventions to prevent this imbalance between the U.S. dollar and yuan in local markets. It buys the available excess U.S. dollars from the exporters and gives them the required yuan. PBOC can print yuan as needed. Effectively, this intervention by the PBOC creates a scarcity of U.S. dollars, which keeps the USD rates higher. China hence accumulates USD as forex reserves. As per Investopedia.

 

China has steadily accumulated U.S. Treasury securities over the last few decades. As of May 2019, the Asian nation owns $1.11 trillion, or about 5%, of the $22 trillion U.S. national debt, which is more than any other foreign country.

 

As the trade war between the two economies escalates, leaders on both sides seek additional financial arsenal. Some analysts and investors fear China could dump these Treasurys in retaliation and that this weaponization of its holdings would send interest rates higher, potentially hurting economic growth.

 

In China, American companies are basically keeping their heads down and making contingency plans. Finally, until China and the US reach a new understanding about how they will operate in each other’s markets, lots of companies are going to stay flexible and non-committal. It is a bad for business and for [foreign direct investment] in particular.

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