Chinese regulator’s latest crackdown: companies holding major foreign assets
In a recent revelation, the Chinese regulator, CBRC (China Banking Regulatory Commission), has ordered an inspection of potentially risky loans issued to major Chinese companies with significant interest in foreign assets. Chinese companies including Anbang Insurance Group (SSE: 1083236D), Dalian Wanda Group (DWNDF) (SSE: 0489737D), HNA Group (SSE: HNAGRZ), Fosun International Group (FOSUF) (SSE: 038547D), and Rossoneri Sport Investment Lux, are currently caught in the crosshairs of the Chinese regulator. “The China Banking Regulatory Commission (CBRC) ordered banks this month to carry out credit and risk analysis at the firms that engaged in in ferocious overseas investment and had relatively large bank exposure,” Dalian Wanda posted on its official Weibo account. A look at the biggest foreign assets held by Chinese companies (FXI) (YINN) and investors, at this point, seems warranted.
Overseas investments from China have soared over the past decade
Until recently, China seemed poised to become the perennial leader in overseas investments. Chinese investment in foreign assets has been surging over the past decade (see chart above). In 2016, China’s net foreign assets stood close to $3.9 trillion. To some extent, the surge in Chinese investment overseas has been a result of diversification initiatives, and as a hedging mechanism being employed by Chinese investors against slow growth and a depreciating yuan on the domestic front.
Chinese companies’ overseas acquisitions and investments
Below is a list of some of the biggest asset purchases by Chinese companies and investors abroad:
|Company||Acquirer||Deal Value ($ billions)|
|Strategic Hotels & Resorts (BEE)||Anbang Insurance||6.50|
|Hilton Worldwide (HLT)||HNA Tourism Group||6.49|
|Ingram Micro (IM)||Tianjin Tianhai (SSE: 600751)||6.07|
|GE Appliances (GE)||Qingdao Haeir (SSE: 600690)||5.60|
|Smithfield Foods (SFD)||Shuanghui International||4.72|
|Legendary Entertainment||Dalian Wanda Group (DWNDF) (SSE: 0489737D)||3.50|
|Motorola Mobility||Lenovo (LNVGY) (LNVGF)||3.1|
|AMC Entertainment Holdings (AMC)||Dalian Wanda Group (DWNDF) (SSE: 0489737D)||2.64|
Additionally, China Investment Corp (SSE: CHIVCZ) has a 10% voting stake in the Wall Street investment bank Morgan Stanley (MS). Similarly, the Chinese state-owned energy company, Sinopec Group (aka China Petroleum and Investment Corp.) (SNP) (SSE: 600028), has taken a $1 billion stake in Chesapeake’s (CHK) Mississippi Lime shale formation.
With its involvement and investment in projects tied to the troubled state investment fund 1Malaysia Development Berhad (1MDB), China has also gained prominence as a foreign investor in Malaysia (EWM).
US commercial real estate has been a big recipient of Chinese investments
Chinese investment abroad, currently, is a mix of portfolio and direct investments. And, there is also, a definite preference towards overseas real estate investments.
Chinese investors are already the single largest group of foreign investors in US commercial real estate (VNQ) (IYR), accounting for 29% of the total. Between 2015 and 2016, more than half of all investments by Chinese investors in US commercial real estate were by Chinese insurers. Anbang Insurance Group bought Strategic Hotels & Resorts (BEE) in September 2016 in a $6.5 billion deal. Let’s take a quick look at the 10 largest foreign assets owned by the Anbang, in the next part of this series.