Here comes Chinese FDI in a very public way

This NYT story today really jumped out at me, and the Chinese just bought, in a signature Foreign Direct Investment move, the second-biggest movie chain in the US:  

The Wanda Group, a Chinese conglomerate with extensive interests in the entertainment business, has agreed to acquire AMC Entertainment, North America’s second-largest movie theater owner, in a deal that is valued at $2.6 billion, including roughly $2 billion in assumed debt, the companies said Sunday.

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David Gray/Reuters

Gerardo I. Lopez, AMC’s chief executive, left, exchanged documents with Zhang Lin, vice president of the Wanda Group, during a ceremony in Beijing on Monday.

The acquisition creates the world’s largest theater group, the companies said. It also represents a significant expansion of Chinese influence in the American film industry. The industry has been looking to China for a vast new reservoir of ticket buyers for Hollywood movies, while joining Chinese investors to produce films like the planned “Iron Man 3” and teaming up to build studio facilities and a new Disney theme park in China.

The usual motives apply:  Chinese firm looking for know-how in an industry that's booming across China but isn't being as monetized as it could be - by Western standards.  For the US company, a crucial sub-plot emerges a few paras down the story:

In addition to the $2.6 billion value assigned to AMC’s debt and equity in the deal, Wanda is expected to invest $500 million for what the companies called “strategic and operating initiatives.” Mr. Wang said that the money would generally be used for renovation and other needs, but that specifics were up to Mr. Lopez and his team. Mr. Lopez said there was no plan in place for the money. But, he said, it might be used to retire debt, acquire new theaters or fix up old ones.

To me, this is a very positive development, and it's one we're going to read about countless times over the next decade. And yes, it will look and feel like Japanese money "buying up everything!" across America in the late 1980s/early 1990s.

But, of course, America has "suffered" these invading waves of FDI throughout our long history as a multinational economic union.  Chinese money will be just as good and useful as those of the other countries that preceeded it, and the further intertwinning of our economies will mitigate the craziness out of the Beltway crowd as they pine for a "near peer" competitor to justify the dropping floor of the defense budget.

You know, the Chinese were going to be the featured villain in the remake of "Red Dawn," but then Hollywood realized they'd be shutting themselves out of the Chinese box office, so they subbed in the North Koreans, which - of course - makes the film a complete and utter fantasy.  But it just goes to show you what all this financial connectivity leads too - cooler heads prevailing everywhere save among those fiercely dedicated fear-mongers in DC.

Chart of the Day: China's capital stock compared

From the Economist, with arguments not exactly settled by the comparison.

Reality/fear is that too much of China's growth is via capital investment. Compared to other economies, that part seems undeniable.  But like with India, we're talking continental-sized economies where hundreds of millions of rural poor are still left behind, so investment is clearly in order for a very long time.

The per capita comparison, however, shows how China remains a poor country by modern standards.

Another interesting tidbit:

China's rising investment and falling consumption as a share of GDP are commonly portrayed as an economic anomaly. Yet this pattern is normal in a rapidly industrializing country. In a traditional agricultural economy farmers consume most of their income, but once industrialisation gets under way a rising share of national income goes to owners of capital, who invest it in factories and the like. Investment rises as a share of GDP, and consumption falls. During their peak periods of industrialisation, South Korea and Japan saw an even sharper rise in investment relative to GDP than China has seen over the past 20 years.

You can call this the glass-half-full argument on China's long-term growth, and it's just as true or no more false than the half-empty variant:  coastal China must shift from extensive to intensive growth, and there the labor crunch and demographic aging will force evolutions very similar to a developed economy.  But interior China is another whole economy ready to take off - again - like China Coastal has for 2-3 decades. Of course, not being coastal will make this a far harder task in terms of attracting FDI and the manufacturing it enables.

But that just speaks to a certain economic slowdown that is inevitable.  We have a strong West Germany economy (Coastal China) being forced to bring along/accommodate/prioritize somewhat an East Germany (interior China).  Coastal China/Beijing will do this for political stability reasons, but slow down the overall economy it will - even as it assured plenty of long-term growth and development (all that urbanization, for example).

Ah, the complexity of modern China.

WPR's The New Rules: U.S. Needs Chinese Partners in Asian Century

While America has begun an economic recovery of uncertain strength and staying power, we Americans nonetheless face a far longer-term and more substantial national rebuilding project. This daunting task has placed us in a contemplative space, in which we nervously toggle between bouts of renewed self-confidence and crippling self-doubt. But the same thread runs through both cycles of this national bipolar disorder: the assumption that we must bear this burden alone.

Read the entire column at World Poliics Review.

Obama says US wants Chinese FDI, but East Asia needs AirSea Battle Concept too!

What's wrong with this picture?  It comes from a WAPO article that says China is still wary of putting FDI in US, even though Obama claims he wants it for job creation.

Hmmmm.

Where to begin?

AirSea Battle Concept?

New national security strategic guidance that says US military force-sizing should be toward high-end warfare requirement in East Asia - namely China specifically?

Gosh, you wonder where the Chinese feel like we let national security fears trump economic opportunities.

I mean, shouldn't we be able to take their money AND target them for great-power war down the road?  What's so weird about that?  According to Kagan, everything you need to know about China and America is told in the fable about the frog and the scorpion.

This is not the world America made; these are merely the fears we prefer over change - and it's fairly pathetic.

Wikistrat's "The World According to Tom Barnett" 2011 brief, Part 3 (Flow of Money)

This section of the brief focuses on the rise of the global middle class, the evolution of national economies, why China won't "rule the world" for all that long, and what the future evolution of East Asia holds.

Time's Battleland: Think outside the defense budget: the real cost of keeping China our enemy

Mark Thompson picks up on Chins's cheeky advice to visiting Chairman of the Joint Chiefs Admiral Mike Mullen regarding our coupling of world-class defense spending with our world-class national debt/faltering economy.  We can brush it aside, of course, seeing that it's coming from our #1 excuse for defense spending (Mustn't let those Chinese . . . ).

Read the entire post at Time's Battleland.

The other two charts described in the post:

The Kevin Bacons of emerging markets: still HK and Singapore

chart from here

Played this game in one of my NewRuleSets.Project "economic security exercises" (sorry, but I haven't yet reconstructed those pages on the new site--soon!) atop World Trade Center 1 back in 2001 with Asia, using the example of the Kevin Bacon game.   The KBG says you can link anyone in the world to Kevin Bacon in six steps or less (six degrees of separation notion I demonstrated in Great Powers (between me and John Adams--as in me to my grandpa to TR to John Hay to Abe Lincoln to John Quincy Adams to John Adams).  The chart above links Indiana U alumni to Bacon in five steps.  

We presented all the players with a list of every emerging market in Asia and then had them rank-order their top picks for desirable free-trade agreement groupings from the perspective of the US, EU and Japan.  The winner, or most often top ranked, was Singapore.  All three sides wanted it in any FTA they could access.  On that basis, we dubbed Singapore the Kevin Bacon of foreign direct investment in Asia, meaning you wanted to put your money there because it presented the tightest possible financial connectivity to the most amount of regional emerging markets.

Now, in our exercise, we didn't break HK out from China, something we skipped in deference to several prospective Chinese guests at the request of Cantor Fitzgerald.  In the end, they didn't show up anyway because their visas were rejected (right after the EP-3 spy plane incident).  It was a bad choice on my part to give in on that, because virtually all of our players told me later that Hong Kong would have been right up their with Singapore for the same reasons--a highly desirable third-party on any investment deal because they brought local knowledge and the best local rules.

Anyway, check out the tables from a recent FT full-pager on emerging markets:

China is clearly the biggest overall magnet/deal-maker, but note the high numbers of deals for HK and Singapore--way out of proportion to their size.  That's because they're supreme pass-through FDI conduits, both into and out of Asia.

That's why, whenever I hear of small states in the PG or around Africa (like Mauritius) expressing the ambition to position themselves as the next Singapore or Hong Kong, I spot a player that's looking to get in front of a big money flow--like Asia into Africa.

In fact, that's one of my mantras shared with Steve DeAngelis:  whatever the globalization trend, you want to "get in front of the money"!

China will only go deeper into Africa, staying for the very long haul

Pic here

Couple of FTs and a WSJ story on China defending itself from critics.

China does the usual oil-for-infrastructure implied swap in Nigeria:

China has agreed to spend up to $23bn (€19bn, £16bn) to build oil refineries and other petroleum infrastructure in Nigeria, potentially strengthening its hand in the country as it seeks to secure 6bn barrels of crude reserves.

Emmanuel Egbogah, special adviser to the president of Nigeria on petroleum matters, told the Financial Times that China State Construction Engineering Corporation signed a memorandum of understanding on Thursday.

In spite of being Africa’s leading energy producer, Nigeria imports almost all its fuel – and pays a subsidy equivalent to its entire annual capital spending – because existing refineries are in disrepair.

Crude but sweet.

The fund, China Africa Development Fund, is supposed to have a bunch of deals in the pipeline and an initial $5B to spend.

China also announces its largest investment into South Africa, "entrenching its position as the resource-rich continent's most important economic and commercial partner.  China is now South Africa's single biggest trade partner.

No doubt about that, and it is overwhelmingly to the good.

So naturally China bristles at criticism from outside observers, although it will need to grow ever more sensitive to such criticism growing within Africa.

As J.R. Wu notes in the WSJ piece:

... concerns persist that China is preying on the continent's resources to feed China's economy, while contributing little.

Beijing has put in place some mechanism to deal with issues surrounding its investment and trade on the resource-rich continent, and has asserted that its presence in Africa is increasingly being shaped by nongovernment forces.

Meaning more laws and protections must be put into place, says China's vice commerce minister.

China has set up joint government commissions to work these issues in 43 African countries.  Trade now sits around $100B a year, and is expected to skyrocket in coming years.

As a globalization expert and soon-to-be father of both Chinese and African daughters, my fascination with this process knows no bounds.  I have, in the past, vastly underestimated the potential for China to positively alter Africa's development trajectory.