Deals & News

CHINESE COMPANIES INVESTING ABROAD 

Haier is doing well at the low end of the Indian market, in much the same way that its keenly priced mini-refrigerators are a big hit in U.S. student dormitories.

The telecommunications equipment manufacturers Huawei and ZTE Corp have also shown powerful growth without significant acquisition.

Rattled by rapidly rising global grain prices, China is looking at strategies to ensure long-term food security for its 1.3 billion people such as procuring farmland overseas and opposing the formation of any international grain price- fixing monopolies. To counter growing domestic challenges in ensuring food self-sufficiency, China is drafting a policy to encourage agricultural companies purchasing farmland abroad.

While Chinese state banks and oil companies have made numerous investments overseas, snapping contracts for oil and mineral resources, there has been little official incentive so far for Chinese agricultural companies to venture abroad.

Nevertheless, Chinese companies have forged a series of farming deals and taken land concessions in countries in Southeast Asia and Africa, harvesting oil palm, eucalyptus, teak, corn, cassava, sugar cane and other crops.

CHINA INVESTS IN FOREIGN TALENT 

As part of a movement to attract overseas Chinese professionals to fill jobs in various cities across China, a delegation of high-level officials from Jinan in East China's Shandong province interviewed over 50 candidates in New York last week.

A separate delegation of officials from Fujian province met earlier this month with candidates in San Francisco, New York, Boston and Washington DC. In November 2009, a job fair organized by the Shanghai government in New Jersey attracted over 700 candidates, with fewer than 10 candidates being of foreign descent, organizers said. (China Daily)

As the U.S.-China economic relationship has deepened over the years, the bilateral flows of capital, equipment and intellectual property, originally quite one-sided, have begun the long shift back to balance. It seems that labor trends are not far behind.

Chinese companies have always been on the leading edge of this shift. Several years ago, outward investments made by state-owned enterprises ("SOE"s) signaled that cash-rich China would venture outside the Middle Kingdom to secure supplies of natural resources. This was followed by deals made by private enterprises like Lenovo and, more recently, Geely.

Similarly, in the China intellectual property sphere, where cross-border IP flows used to be occupied solely by foreign companies, things began to change when Chinese enterprises with valuable brands, like Tsingtao Beer, Hai'er and Bank of China, began to venture abroad and protect their trademarks. Later on, acquisitions made by Lenovo and others signaled Chinese companies were now securing famous foreign brands and technology.

Labor does not flow as easily across international borders as does capital and IP, but even so, we are seeing a change in cross-border labor practices, with the shift again coming from Chinese companies. The job fairs noted above are organized by municipalities but involve private and state-owned enterprises, solidifying a trend that began several years ago.

Over the years, China has learned valuable business lessons from foreign invested enterprises, an education that helped to first build a solid export regime, and more recently to solidify Chinese firms' dominance over the domestic market.

As Chinese companies continue to move outward and, in addition to securing natural resources and infrastructure projects, acquire distribution networks, IP, and yes, even manufacturing facilities, their ability to draw upon a pool of global talent will be closely watched.

CHESAPEAKE WINS ASIAN PARTNERS 

U.S.-based Chesapeake Energy Corp. outlined a series of steps Monday to raise up to $5 billion over the next two years to reduce debt and attain an investment-grade rating, including investments from Singapore's Temasek Holdings Pte. Ltd. and a Chinese private equity firm.

The investments by Temasek, the Singaporean sovereign-wealth fund, and China's Hopu Investment Management Co. mark the latest attempt by Asian companies to grab a share of unconventional shale-gas drilling in the U.S. The technology has the potential to significantly add to U.S. natural gas supplies.

For Hopu, a $2.5 billion private equity fund started by top China dealmaker Fang Fenglei, the pact also marks something of a change, as it is the fund's first investment outside of China.

Hopu's investment in Chesapeake is a strategic play on clean energy, a person familiar with Hopu's strategy said. There is also some anticipation that Chesapeake may look to do something in China in the near future, giving Hopu an opportunity to act as a partner, the person said. Hopu recently advised Argentina's Bridas Energy Holdings Ltd. on its US$3.1 billion oil and gas production joint venture with Cnooc Ltd.

This is the second energy-related deal that Temasek and Hopu are jointly investing in. The two investment firms jointly invested in Iron Mining International, a Mongolian iron-ore mine previously known as Lung Ming Investment Holdings Ltd. Iron Mining is seeking an initial public offering in Hong Kong.

The firms recently jointly invested in China Yurun Food Group Ltd., a Chinese pork producer. Last year the two firms were part of a consortium that bought shares of Bank of China Ltd. and China Construction Bank Ltd. from Royal Bank of Scotland PLC and Bank of America Corp.

PETROCHINA PLANS $60B OF OVERSEAS EXPANSION 

PetroChina Co plans to spend at least $60 billion in the next decade on overseas acquisitions, challenging Exxon Mobil Corp and BP Plc in the race to control oil and gas fields.

"Ten years ago, PetroChina was a State-owned oil company, but now we have a goal of becoming an international, integrated energy company," Jiang Jiemin, chairman of the world's largest company by market value, said in an interview, where he announced the investment plan.

Beijing-based PetroChina spent almost $7 billion in the last year to buy refineries and reserves in Australia, Canada, Singapore and Central Asia. The expansion pits PetroChina against Irving, Texas-based Exxon, which agreed to pay about $30 billion for US gas producer XTO Energy Inc in December.

"Every five, 10 years or so, you'll get the occasional $30 billion deal, but this is at least $6 billion every year and that's significant for any major oil company," said Neil Beveridge, an analyst at Sanford C. Bernstein Ltd in Hong Kong. "This puts PetroChina on par or exceeding some international oil majors in spending."

Exxon is counting on gas to provide the bulk of its future growth with the acquisition of XTO Energy as well as new developments from the South Pacific to the Celtic Sea. BP, vying with Royal Dutch Shell Plc as Europe's biggest oil company, paid at least $8.3 billion to acquire assets over the past 12 months. PetroChina teamed up with Shell last week to buy Australian gas producer Arrow Energy Ltd for $3.2 billion.

Record spending

Spending by Chinese companies on mining and energy acquisitions reached a record $32 billion last year. China Petroleum & Chemical Corp, Asia's largest refiner, said on March 28 it will pay $2.5 billion to purchase a stake in an Angolan oilfield from its parent to boost production.

"A total investment of not less than $60 billion is needed to form our five regions of global oil and gas cooperation, by 2020," Jiang said. PetroChina spent between $2 billion and $3 billion annually in the past five years, so the planned investment "is clearly a step up," Beveridge said.

"Investors have been encouraged by what the company has had to say about acquisitions overseas," said Shi Yan, an analyst at UOB-Kay Hian Ltd in Shanghai. "They are putting forward a lot of money to buy assets and it also involves a significant increase in the production of oil and gas."

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