Monday, March 23, 2015

U.S. couldn’t corral AIIB due to soaring Chinese investments in Europe


Stopping a stampede isn’t easy – as that old cowpoke Uncle Sam is finding as more European nations bolt to join China’s Asian Infrastructure Investment Bank (AIIB).

The weak Euro’s drawing a conga line of Chinese investments to Europe. The money’s being plunked down not only in “typical” Chinese sectors of historic interest like resources or transportation. It’s focusing geographically across the entire European opportunity and capability spectrum.

The uplifting effects of this investment hasn’t been lost on the European countries who are now eager to climb on board China’s AIIB.

Ever since Europe embarked on their QE, and China has maintained stability in the yuan. As we have noted, this is viewed as pre-condition for the non-convertible yuan to join the IMF’s SDR currency basket later this year. And the yuan has increased in value against the Euro almost 25% in one year – a trend likely to continue through the year with  the long-term policies of the respective central banks likely to stay in place for the foreseeable future.

According to the EU Observer: “Even before the crisis, these flows surged, tripling from less than US$1 billion per year in 2004-8 to roughly $3 billion in 2009-10. As the Eurozone crisis kicked in, Chinese investment tripled again to $10 billion in 2011. And last year, Chinese investors doubled their money in Europe to a record $18 billion.”

Chinese capital’s typically poking around for each European country’s relative market advantages. In the UK as with many foreign investors, the Chinese have focused on prime property, while in Germany they look for advanced technology.

“The UK is the top destination for Chinese investment at $5.1 billion, followed by Italy at $3.5 billion,” the Observer said.

As the capital needs of Southern Europe grow, Chinese capital has focused on privatisations and distressed opportunities, from the Greek ports connecting to their new Silk Road to Europe, to Portugal’s Espirito Santo Bank and Spain’s real estate foreclosures.

And the road is not one way. The weak Euro has opened up significant competitive advantages to European exporters, who now view China, with Russia, Emerging Europe and Latin America faltering, as their clear growth market of priority.

As Bloomberg reports in “China Prevails as Land of Opportunity for European Automakers”, “China’s density per 1,000 people lags far behind more developed nations at 54, compared with 531 in the U.S. and 404 in Germany. A one-person increase in vehicle density in China translates to almost 1.4 million additional autos in the country, amounting to almost 7% of total volume sold in the U.S. in 2014.”

To grasp the size of this opportunity, note that China has 480 cars per 1,000 people less density. The Chinese auto market is expected to grow 10% per annum to 40 million units annually by 2020 or more than twice the current size of the U.S. market. Asia Times


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