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Go easy on overseas assets

(China Daily)
Updated: 2009-05-31 14:30

Many multinationals have seen their market value plummet since the global financial crisis broke out. Discussions over whether China should start buying up overseas assets at much cheaper rates through mergers and acquisitions (M&As) are becoming heated. But an article in www.china.com calls for discretion over such plans. Excerpts:

The call for Chinese enterprises to purchase "cheap" overseas assets started in 2007, when the US subprime mortgage crisis emerged, and became stronger after the global financial crisis broke out last year.

Related readings:  Overseas assets in 2008 soar to $2.92t  Strict rules to manage overseas assets on cards  Chinese energy firms should target overseas assets now  Easier loans lead to more mergers and acquisitions

Advocates of such an idea include both domestic economic experts and those working for international investment banks.

The value of overseas assets has never stopped shrinking, some at a shocking rate, and there seems no end to the stark reality.

Since the beginning of this year, assertions have risen that the global economy is bottoming out. Some experts and investment banks have again tried to hallucinate Chinese enterprises into making those overseas purchases.

Chinalco is negotiating with Rio Tinto over a $19.5-billion deal to buy stakes in the Anglo-Australian miner, while PetroChina proposed this week to spend $1 billion on a 45.5 percent stake in Singapore Petroleum Co. It is worrying that PetroChina's latest move will spark a new round of overseas M&As.

It is still too early to say that the time is ripe for China's overseas purchases given the severity of the current crisis. The United States and some developed European countries are still struggling with their economy in a jittery market and there is no clear sign they are bottoming out from the recession.

Some of the US economic entities, including its financial institutions, are still suffering from losses, and are fast becoming burdens on the country's economy. If Chinese enterprises blindly seek to buy overseas assets in such an unstable and opaque economic and financial situation, they may quite likely end up with trash, instead of gold.

There have been no successful examples for China's overseas purchases. Extreme discretion must be applied.