Last week, China’s Anbang Insurance Group announced its acquisition of the Waldorf Astoria New York from Hilton Worldwide Holdings for US$1.95 billion in what is by far the largest deal ever made by a Chinese investor to buy a US building.
The transaction has raised some eyebrows around the world because the building is a landmark luxury New York hotel that has catered to numerous politicians and celebrities over the past 100 years. That Chinese investors are snapping up a famous Manhattan building might leave many Americans feeling somewhat confused.
The record-setting purchase underlines China’s growing influence as Beijing expands its reach abroad to enhance its international standing and its businesses continue a global buying binge.
Earlier last month, Alibaba Group Holding’s US$25 billion initial public offering on the New York Stock Exchange became the largest stock debut in history, while last week, French holiday firm Club Med said its board recommended shareholders to accept a US$1.08 billion bid by China’s Fusun International and its allies.
Other examples that Chinese businesspeople have been increasingly looking beyond their borders in recent years include the WH Group’s purchase of Smithfield Foods in the US last year, making it the world’s biggest pork company; Ping An Insurance Group’s acquisition of the famed Lloyd’s of London building for US$387 million last year; Dalian Wanda Group’s takeover of US cinema chain AMC Entertainment for US$2.6 billion in 2012; Lenovo Group’s purchase of IBM’s PC division in 2005 and the acquisition of its server business this year; as well as a wave of overseas mining and energy acquisitions by Chinese parties over the years.
The current buying spree by Chinese investors is reminiscent of Japan’s economic imperialism in 1989, when Mitsubishi Estates bought the iconic Rockefeller Center building in Manhattan and New York Sony acquired Columbia Pictures Industries.
However, in 1996, Mitsubishi Estate disposed of the Manhattan property after the bubble burst in Japan, while Sony last year sold its US headquarters building on Madison Avenue in New York as part of a huge restructuring. Given this, one has to wonder if this is the same fate awaiting Chinese investors, now that China’s lavish bank lending over the past five years has boosted the economy, but also pumped up markets as speculators scooped up stocks, real estate and some commodities.
It is difficult to judge if this is an accurate prediction for Chinese investors and hard to figure out who is creditworthy and who is more likely to fail, but it is certain that China’s economic development is not totally risk-free. This is illustrated by the housing bubbles developing in some Chinese cities, and the rapid growth in local and regional government debt in recent years, threatening stability in the country’s financial sector.
Taiwanese banks are sensing the growing credit default risks in China, with 10 major banks seeing loans to Chinese firms fall by a combined 19 percent to US$14.7 billion in the first eight months of the year, compared with US$18.2 billion in the same period last year, data compiled by Bloomberg showed.
Nine Taiwanese banks are facing difficulty in recouping a US$150 million syndicated loan to debt-ridden China Lumena New Materials made earlier this year, while another six might sue financially strapped Ultrasonic for defaulting on a US$60 million syndicated loan.
Some have said there is no need to view Chinese investment as a threat, as long as it adheres to global rules. However, Chinese credit risk is increasing as the county’s macroeconomic conditions weaken and its companies show off their wealth overseas.
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