China's Bid for World Resources

This neat map from Forbes (click on link for the interactive version) shows Chinese purchases of energy and mineral resources over the last several years.

Seen in isolation, such purchases seem enormous. However, as Charles Wolf points out in The Wall Street Journal  (Jan. 24, 2011), the scale, compared with the acquisitions of other countries, has been modest thus far but is set to grow rapidly.

From 2007 through the first half of this year, Chinese buyers—state, private and in between—acquired 400 companies located outside of the country. The acquisitions span a wide range: mining companies in Australia, Vietnam and South America; oil and gas companies in Africa and the Middle East; banking, financial services and insurance companies in Europe; and electronics, telecommunications and lab testing companies in the U.S. The total cost? $86 billion.

That may sound like a big number, but in fact it's relatively small. The number of companies at play in global cross-border M&A markets during this period exceeded 12,400, with acquisition costs of more than $1.3 trillion. China's share of the total number was 3.2%, and its share of total acquisition value was 6.6%. China ranks sixth in both number of deals and in acquisition value: behind the U.S., U.K., France, Germany and Japan, though just ahead of the United Arab Emirates. Cross-border acquisitions by U.S. investors numbered over 5,000 (42.1% of all transactions), and nearly $400 billion by value (30.1% of aggregate value).

China's acquisitions beyond its borders are also modest compared with foreign investors' acquisitions within China. Currently, China's annual cross-border acquisitions are about half of annual foreign direct investments in the country.

What is significant about China's acquisitions over the past few years is the change they represent from the negligible amounts in the past. Prior to 2007, nearly all China's foreign investments involved buying U.S. debt, along with lesser purchases of euro and yen debt. China currently holds more than $1.6 trillion of U.S. government debt and an additional $1 trillion of non-U.S. government debt and other assets.

It didn't used to be in the business of acquiring foreign companies. That's changed, and I expect that China's acquisitions will at least double in the next five years, and perhaps quadruple by 2020.