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"The coming wave" of Chinese takeovers: the big picture

Marketplace Staff Nov 15, 2010
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"The coming wave" of Chinese takeovers: the big picture

Marketplace Staff Nov 15, 2010
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TEXT OF INTERVIEW

JEREMY HOBSON: Turning now to the mergers and acquisitions department — a big deal to tell you about this morning. Caterpillar says it is going to buy the mining company Bucyrus for $7.6 billion.

And get ready for some more deals. This is expected to be the biggest week of initial public offerings in a couple of years. GM goes public on Thursday, and a Chinese automaker is expected to be one of the big buyers of GM shares.

The coming wave of Chinese takeovers is the cover stories of the latest edition of the Economist. And we’re joined now by the guy who wrote the story. Patrick Foulis, thanks for joining us.

PATRICK FOULIS: Thanks for having me.

HOBSON: So in the latest issue of the Economist you write that China’s share of the world’s foreign direct investment is rising very quickly. How fast is it rising?

FOULIS: This year so far China’s accounted for about 10 percent of global deals. So we expect that number to move up quite sharply this year and over the long term it could move up a lot.

HOBSON: And meanwhile other country’s shares, I assume, are dropping.

FOULIS: Yes, so if you look at America for example, the U.S. owned about half of the world’s foreign direct investment in the late 1960s and that’s already dropped very sharply into the sort of 20 to 30 percent range. So we expect that trend to continue with emerging economies going up, and China particularly getting a lot bigger.

HOBSON: And what’s the affect of all this?

FOULIS: One affect is political contrariety as we outlined in our article. Many of the Chinese companies are directed by the government in some form. So I think that will continue to create trade frictions. The other element is obviously that it’s another way for China’s excess savings to find a way into Western investments. And at the moment, most of their investments is put into U.S. government bonds.

HOBSON: And you write in the article that there are a lot of questions about how ready China is to manage some of these companies.

FOULIS: Well that’s right. We spoke to just over 10 firms anonymously that had been bought by Chinese businesses. And the picture we got was although they were often very good technically, for example at mining or the geology of oil for example, their ability to manage foreigners was limited. And that comes back to the idea that often the most successful international companies are those which sort of transcend their nationality. And if that’s true, China still has a long way to go.

HOBSON: Patrick Foulis, banking editor of the Economist. Thanks so much for talking with us.

FOULIS: Thanks.

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