Caution in investing

Chinese businesses looking for investment, mergers and acquisition in the US should be cautious.

Some suggest the global economic slowdown is a great time for Chinese businesses to seek investment opportunities in the US market, since cash-strapped companies can be snapped up at bargain prices.

But Chinese companies have a spotty record of merging and acquiring US companies in the past, owing to poor judgment of industrial and market trends, a lack of comprehensive research and analysis of the US market and Chinese businesses overestimating their abilities.

Japanese businesses' experience in the 1980s should serve as a warning. The exchange rate between the dollar and Japanese yen was 1 to 250 in September 1985. Cash-rich Japanese companies rushed to invest in the US. Mitsubishi bought the Rockefeller Center and Sony bought Columbia Pictures. But the wealth bubble soon burst. Mitsubishi eventually sold the Rockefeller Center back to the original seller for half its purchase price.

Many Japanese firms suffered because they bought into fading industries. But the injection of cash from Japan helped the US quickly develop new industries.

The US economy shows signs of recession. But it is hard to predict whether the worst has come and whether the economy has bottomed out. Such uncertainty means there are great risks in taking action now.

Some say the US capital market is sure to welcome funds from China. But the problem is whether Chinese businesses really have the power and ability to profit from the US market. Chinese companies may get burned by the US market instead of benefiting from it.

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(China Daily 05/11/2009 page2)