The Chinese are hurting, and they’re about to make their pain ours. With a sagging economy, China is investing in foreign businesses that offer greater growth potential than they can find at home. As Vikas Seth, head of emerging markets in the investment-banking and capital-markets department at Credit Suisse, told Business Insider earlier this year, “With the slowdown of the economy, Chinese corporates are increasingly looking to inorganic avenues to supplement their growth.”
Worryingly, it seems American and other international corporations are only too willing to oblige. General Electric’s sold its appliance business to Haier in Qingdao; Zoomlion has bid on Terex Corp., a heavy-lifting equipment maker; and China conglomerate HNA Group has declared its intention to buy technology distributor Ingram Micro for six billion dollars. Meanwhile ChemChina has cut a spectacular deal: forty-eight billion dollars for Syngenta, the Swiss seeds and pesticides group.
But the most controversial deal of all is Chongqing Casin Enterprise’s bid for – are you sitting down – the Chicago Stock Exchange. If successful, it would be the first time a Chinese firm would gain entrée into the twenty-two trillion dollar U.S. equity market.
Congress is not taking the pending deal lightly. Forty-five members have signed a letter to the Treasury Department’s Committee on Foreign Investment in the United States (CFIUS), stressing the need for a “full and rigorous investigation” of the proposed acquisition. In other words, as Business Insider succinctly puts it, “[I]t’s freaking lawmakers out.”
Last year, China sank fifteen billion dollars into transactions in the United States, almost a thirty percent increase over the previous year, and a new all-time high. As things now stand, 2016 looks to be another record year for Chinese investments in the U.S., according to a joint report of the National Committee on U.S.-China Relations and the research firm Rhodium Group. The Chinese have announced a total of one hundred billion dollars in mergers and acquisitions worldwide in just the first three months of this year, a frenzy of activity prompted by China’s concerns about the stability of the yuan.
Some analysts – and, of course, Donald Trump – see this trend as disturbing. The Chinese want to gain a foothold in high technology, space, biotech and infrastructure. The most efficient way for them to do so is to buy in.
Meanwhile, CFIUS is a bit stymied about how to handle the massive flow of bids from China for American companies. Should the congressional committee give special attention to security and high-tech issues? Or should they handle Chinese bids the same way the FDA handles drug companies’ requests to approve a new drug – simply on an ad hoc and random basis?
In addition, during an election year, government intervention is more problematic. Fairchild Semiconductor has already backed down from a two and a half billion dollar acquisition bid from the Chinese. The company didn’t want to chance regulatory intervention.
Right about now you may be understandably concerned that companies in which you hold stock could be snapped up by the Chinese. Not to mention the implications if they own the stock exchange…
As much as it’s always smart to minimize your vulnerability to the stock market, these new developments make it even more imperative that you honestly assess how much of your savings and retirement you have at risk. Congress isn’t going to help you, any more than it did when you lost thousands in 2008-2009.
Under the circumstances, it makes more sense than ever to think hard about securing a portion of your assets, especially those you’re relying on for retirement, with gold. Nobody can buy physical precious metals out from under you unless you choose to sell them. In a world of unstable currencies and alarming acquisitions, physical gold can represent a very reassuring bedrock for your ever-more-vulnerable portfolio.