|
What one trillion dollars can buy:
China poised for more foreign investment
Michael Hlinka
Some stories just don’t get the attention they deserve.
A few weeks back, Chinese authorities announced their equivalent to the Canada Pension Plan will start investing in foreign companies. Regulators are allowing their plan to invest up to 20 per cent of its money in non-Chinese businesses.
Right now, that amounts to only one billion dollars—which in the grand scheme of things, isn't a heck of a lot of money. You might be surprised to learn that it wasn't until 1999 that our Canada Pension Plan invested in anything except Government of Canada Bonds, so you might think the story here is China's rapid maturation as a sophisticated player on the world economic stage.
That's not the real story. A billion dollars isn't a great deal of money. But one trillion is. Which is how much the Chinese government—right now—holds in foreign reserves, the vast majority of which are American dollars. At the moment, they're content to buy US treasury bills as interest-bearing vehicles.
This suits the strategic interests of both nations. The US's conspicuous consumption binge can continue, and Chinese manufacturing and the jobs that come with it are allowed to develop. However, this arrangement won’t go on forever. It can't. It won't be very long before the Chinese decide to really make their money work for them. It won't be long before China begins to buy shares of North American companies in a big way.
Powerful investor
The precedent will already have been set with their national pension plan. Here's what they could do right now with one trillion dollars. The Chinese could buy each and every share of every company listed on the Toronto Stock Exchange, and still have a couple of hundred billion left over. They could achieve a controlling position in all of the 30 companies that make up the Dow Jones Industrial Average. That includes tech giants Microsoft and Intel, aircraft manufacturer Boeing, and energy behemoth Exxon Mobil. And here's where it could get very interesting.
The owners of the company—that is, the shareholders—determine who sits on the board of directors. They, in turn, choose management and make the other strategic decisions. If the board wants to move corporate headquarters, or for that matter, all the company’s operations, there’s nothing to stop them, at least under the current rules. And let’s not forget that this is our game. We made up the rules!
Before we know it, China is going to be an important international investor. And in the one dollar, one vote democracy of the publicly traded company, the Chinese and their national interest will be able to buy a great deal of influence.
Michael Hlinka, based in Toronto, provides daily business commentary to CBC Radio One and a bi-weekly column syndicated across the CBC network. He also conducts financial planning courses.
|
