China Deal Watch

Chinese companies are buying up overseas assets at the fastest pace on record. This graphic, updated weekly, takes a close look at what China is acquiring, and where. The numbers reveal a lot about the country’s growing global ambitions.

On Dec. 21, China’s Jiangsu Shagang Group Co Ltd & others agreed to buy a minority stake inGlobal Switch Holdings Ltd for $3 billion. Here’s how this deal compares to China’s other overseas acquisitions:

Rank18thlargest foreign acquisition by a Chinese company this year

2016 Total$245.6Bin foreign mergers and acquisitions

Growth145%increase from the same period in 2015

China’s overseas dealmaking started as a hunt for the raw materials needed to feed steel mills, support industrial production and keep the nation’s factories humming—the so-called old economy.

As China grew, so did its appetite for foreign acquisitions. They’ve shifted focus to acquiring the brands and technology China needs to transition to an economy driven by domestic consumption more than exports, labeled here as the new economy.

Total volume of China’s overseas deals

As China’s dealmaking exploded, the types of companies it’s buying have changed. That change is easy to spot when you look at the industries of the target companies.

Deal volume by industry

Before 2013, China’s overseas dealmaking was dominated by state-owned companies acquiring iron ore deposits in Australia, energy producers from Canada and copper mines in Africa. More than half of the purchases were of energy and commodities companies. Now private entrepreneurs are snapping up marquee assets like Italian football teams, American film studios and French fashion houses while government-backed buyers purchase chipmakers and crop technology. For a better sense of how China’s targets have changed, let’s look at annual deal volumes by industry.  

Total deal values 2006 to 2016

Traditional Energy

Total: $148.4B

Finance

$90.5B

Mining

$73.6B

Property

$56.9B

Chemicals

$56.7B

Internet/Software

$43.5B

Utilities

$43.1B

Logistics

$30.2B

Environment/New Energy

$24.1B

Retail/Wholesale

$19.0B

Automotive

$18.8B

Health

$16.8B

Entertainment

$16.2B

Home/Office Products

$13.8B

Manufacturing

$13.3B

Construction

$13.1B

Semiconductors

$12.9B

Food/Beverage

$12.2B

Commercial Services

$11.3B

Telecom

$10.4B

Agriculture

$8.1B

Media/Ads

$7.5B

Aviation

$5.9B

Electronics

$5.3B

Favorite destinations

The charts below show China’s favorite destinations have shifted over time. Every deal of at least $100 million since 2006 is displayed.

China has made energy acquisitions across the world, with the biggest being Cnooc Ltd.’s 2012 agreement to buy Canada’s Nexen Inc. for $14.3 billion following smaller deals in Central Asia, Europe and South America. In recent years, it has started buying more consumer companies, with a $4.7 billion deal for U.S. pork producer Smithfield Foods Inc. in 2013 and this year’s $821 million purchase of Italian soccer team AC Milan. China has also made bolstering its technology prowess a national priority, leading to purchases like an IBM server business and chip designer Spreadtrum Communications Inc. See all

ChadTraditional Energy

China’sKunlun Energy Co Ltd

Agreed to acquireEnCana International Chad Ltd

For$203M

North America

Western Europe

Asia Pacific

Latin America/Caribbean

Eastern Europe

Middle East/Africa

Can China keep buying at this speed?

The short answer: yes—unless something gets in the way. The growing number of deals is attracting close government scrutiny within China and around the world. Here are several potential roadblocks that could slow the pace of acquisitions:

Western governments step in to block purchases

The Committee on Foreign Investment in the U.S. has rejected some transactions in the technology industry and is wary of any potential acquisition that could affect national security. In Europe, German politicians expressed opposition to a Chinese takeover of robot maker Kuka AG, and the new U.K. government plans to create its own process for reviewing large investments in sensitive industries.

China’s own government cracks down on some types of deals

The Chinese securities regulator has sought to block pricey backdoor listings on domestic exchanges. Since many Chinese acquirers wanted to make money by relisting their purchases on a domestic bourse at a higher valuation, the additional scrutiny could upset their plans.

China puts limits on overseas fund flows

China’s currency supervisor has started to hold up overseas money transfers as it seeks to manage yuan outflows. Once a rubber stamp, the decision to approve cross-border fund transfers can now take weeks and delay M&A deal closures. The purchase of Qihoo 360 Technology Co., the largest privatization of a Chinese company listed in the U.S., missed its initial deadline after getting caught up in the process.

Banks curb their easy lending policies

Chinese banks have shown no lack of willingness to provide funding for acquisitions from both state-owned companies and private enterprises, with some forms of lending more than doubling this year. Any move to reign in credit to such buyers would hurt their ability to make splashy purchases.

China’s currency declines in value

Chinese companies expect the yuan to depreciate more, which would make overseas dealmaking more expensive. That’s encouraged them to make acquisitions now while their greater purchasing power lasts. If the Chinese currency has a serious decline, it could make domestic purchases more attractive again.

Source: Data compiled by Bloomberg

Credit: Yue Qiu, Mathieu Benhamou, Ben Scent, Cynthia Hoffman, Jonathan Browning, Cedric Sam, Parker Leung and Adrian Leung

Methodology: Target and acquirer names are as of today. All other data are as of the deal announcement date. All deals involving the acquisition or sale of control of a company or asset for strategic purposes, as well as minority purchases, private equity investments and venture capital rounds of financing, are included. Both pending and completed deals are shown.

Aggregate volume figures are calculated using enterprise value, which is equal to the equity value plus the target’s net debt. Individual deals display the equity value. Geographical references are based on country of risk, which may differ from country of domicile.

Deals where the acquirer is a Chinese private equity fund managed by a general partner whose country of risk is outside China have been excluded. This accounts for the small difference in aggregate deal volume between this story and figures shown in the MA<Go> function on the Bloomberg Professional service, which classifies deal data in greater depth and includes these deals.

Bloomberg classifies companies by tracking their primary business activities as measured by their primary source of revenue. Target companies are classified under one of 73 industry groups as shown on the MA<Go> Bloomberg function. This graphic regroups the 73 industries into 25 broader categories.

Old Economy:
Agriculture
Chemicals
Construction: Building Materials; Engineering & Construction; Home Builders; Shipbuilding
Home/Office Products: Home Furnishings; Household Products/Wares; Housewares; Office/Business Equipment; Office Furnishings
Logistics: Packaging & Containers; Storage/Warehousing; Transportation; Trucking & Leasing
Manufacturing: Hand/Machine Tools; Machinery-Diversified; Metal Fabricate/Hardware; Miscellaneous Manufacturing; Textiles
Mining: Forest Products & Paper; Iron/Steel; Machinery-Construction & Mining; Mining
Utilities: Electric; Gas; Water
Traditional Energy: Coal; Oil & Gas; Oil & Gas Services; Pipelines

New Economy:
Automotive: Auto Manufacturers; Auto Parts & Equipment
Aviation: Aerospace/Defense; Airlines
Commercial Services
Electronics: Electrical Components & Equipment; Electronics
Entertainment: Entertainment; Leisure Time; Toys/Games/Hobbies
Environment/New Energy: Energy-Alternate Sources; Environmental Control
Finance: Banks; Closed-end Funds; Country Funds-Closed-end; Diversified Financial Services; Insurance; Investment Companies; Private Equity; Savings & Loans
Food/Beverage: Beverages; Food; Food Services
Health: Biotechnology; Healthcare-Products; Healthcare-Services; Pharmaceuticals
Internet/Software: Computers; Internet; Software
Media/Ads: Advertising; Media
Property: Lodging; Real Estate; REITS
Retail/Wholesale: Apparel; Cosmetics/Personal Care; Distribution/Wholesale; Retail 
Semiconductors
Telecom: Telecommunications

Other: 
Holding Companies-Diversified
Unclassified

For multi-target deals, the full value of the transaction is credited to the industry and region of the first target company listed in the deal entry shown in the MA<Go> function on the Bloomberg Professional service.

 

BERNSTEIN: China's insane spending on robotics is fundamentally changing capitalism

• Oscar Williams-Grut
 

• Dec. 5, 2016, 7:55 AM
• 37,374

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Workers exchange spools of thread as a robot picks up thread made from recycled plastic bottles at the Repreve Bottle Processing Center, part of the Unifi textile company in Yadkinville, N.C., Friday, Oct. 21, 2016.AP Photo/Chuck Burton

Analysts at global investment manager Bernstein believe the "age of industrialization is coming to an end," with robots set to destroy manufacturing jobs globally.

That may not sound seismic. After all, the industrial revolution happened hundreds of years ago and manufacturing jobs have been the minority of all jobs in the West for decades. But Bernstein is arguing that the nature of capitalism is undergoing a fundamental change.

Analysts Michael W. Parker and Alberto Moel argue that Adam Smith's Wealth of Nations, the foundational textbooks of economics, is becoming redundant because of two trends: the rise of robotics and China's modernising economy.

Parker and Moel say Smith's book, published in 1776, "remained broadly relevant to capital allocation decisions globally" for the last 240 years but is fast becoming out of date. They say:

"Smartphones and online-to-offline apps give unskilled workers options for making a living that do not involve setting foot in developing market factories. Automation is making manufacturing activity cheaper and less labor intensive. Income inequality in developing markets will rise when work means competing against other unionizing."

Bernstein's central argument is that manufacturing jobs are effectively disappearing globally, replaced by robots. China is leading the way but the trend is global and it means promises made by politicians like Donald Trump to bring overseas industries back to America are unlikely to benefit working people generally.

'China is not getting rid of the work. It is just getting rid of the workers.'

Parker and Moel's argument hinges on Adam Smith's Wealth of Nations, a key textbook for any economics course. To understand what they're saying you have to understand what Smith said.

A bust of Adam Smith.Adam Smith Business School/Wikimedia Commons

Smith argued that: "If an individual, a company, or a country has an advantage in producing something, then that individual, company or country should specialize in producing that one thing, and trade for everything else," Parker and Moel summarise.

These forces of specialisation, combined with differing average wages globally, led to the industrialisation of Asia over the last 50 years as the production of more and more goods was outsourced to cheaper manufacturing bases. Where exactly depended on the stages of industrialisation and development. Bernstein says: "Low-cost manufacturing has bounced around (mainly) Asia for decades to take advantage of this deep pool of low-cost labor."

It was this "bouncing" around that helped drive economic development in emerging markets as different countries became specialists in producing everything from radios to t-shirts.

But that bounce of labour could be coming to an end. Bernstein says: "China is taking a different approach when it comes to how to deal with the mismatch between high-cost employees and low-cost manufacturing. Specifically, China is not getting rid of the work (or not all of it). It is just getting rid of the workers."

Parker and Moel point to this chart highlighting China's huge spending on robotics — around $3 billion annually:Bernstein

This investment is already filtering into fewer manufacturing jobs. Foxconn, a key manufacturing partner for Apple, Google, Amazon, and the world's 10th largest employer, has already replaced 60,000 workers with robots.

But Bernstein has been tracking the Chinese jobs market for the last year through a vacancy listings website. It says vacancies and wages have shot up — by around 68% and 4.5% over the last year. On the surface, that would be a positive thing for China. But Parker and Moel say, "The more complex manufacturing tasks are being automated, and the workers are moving into the services sector" and not the manufacturing sector. Manufacturing jobs simply aren't being created any more because they are all being taken by China's burgeoning army of factory robots.

In turn, that means roles that would have been shipped overseas to cheaper markets are being done by robots, domestically. Bernstein say: "The ability of new emerging markets to grab these jobs and the export activity that comes with them will be eroded [and] ... will militate in favor of automation and staying in China."

That means other countries that once could have expected to add jobs that service the Chinese manufacturing sector will now never see those jobs — because they're being done by robots inside China.

'The activity may come "home", but there are simply no jobs to steal'

It's not just emerging markets that will feel the change. Bernstein believes the rise of robotics will hit America too.

President-elect Donald Trump has promised to on-shore many industries and bring back well-paid manufacturing jobs. But the economics simply aren't there, argue Bernstein.

If a company is forced to start making T-shirts in the US rather than, say, Bangladesh where the wage and other costs are cheaper, the company will look to cut costs to make it economically viable. Tariffs on competing imported goods would have to be huge to eliminate the benefit of both lower labour costs and increased automation going on abroad.

So what's the easiest way for a company to reduce costs? Invest in robotics and eliminate the need to pay wages. Automation is the easiest way to cut costs. 

Parker and Moel say:

"It is still possible to force the relocation of production through the introduction of tariffs and quotas. However, if the point of the exercise is to restore well-paying, middle-class jobs in manufacturing in the process, the result is going to disappoint. Any such effort today is likely to result in greater and greater degrees of automation. The activity may come 'home', but there are simply no jobs to steal. Mandating a physical task be carried out in a high-cost labor market in 2017 is simply going to increase the chances the task is automated."

Trump may struggle to fulfil his promise to bring well-paid manufacturing jobs back to the US — they don't exist anymore.AP Photo/Charles Krupa

Increased automation and robotics are already happening in the US. Two of the world's ten largest employers globally — Walmart and the US Department of Defence — are using drones, for warehouse delivery and surveillance respectively.

America has lost more than 7 million factory jobs since manufacturing employment peaked in 1979, the Associated Press reported. At the same time, factory production more than doubled over the same time to $1.91 trillion last year, according to the Commerce Department.

All of this suggests that "the widely-held belief that Adam Smith's 18th-century observation about specialization can be reversed," Bernstein say. In the new global economy, the winners will be those with the best robots who can serve all their domestic needs, not countries who can develop a marketable specialism.

The Fourth Industrial Revolution

Bernstein's analysis may seem alarmist. But is not a lone voice.

The World Economic Forum (WEF) predicted a "Fourth Industrial Revolution" at the start of this year as automation and robotics transform the global economy and the way we work.

It will likely be a painful change — WEF expects 5 million jobs to be destroyed by 2020 by the trends. An in-depth study by Citi and Oxford University predicted that 77% of all jobs in China are at risk of automation and 57% of all jobs across the OECD.

It's not simply manufacturing jobs either. IBM's artificially intelligent computer Watson is apparently better at diagnosing cancer than humans and the Associated Press is trialling automated reporting of company results, pointed to the automation of middle-class jobs once seen as unassailable by technology. Lord Adair Turner, the former vice chairman of Merrill Lynch Europe and ex-head of the Britain's financial watchdog, told Business Insider he believes we could be "at a turning point in the nature of capitalism" driven by technology.

Deliveroo drivers protesting low wages outside the company's London headquarters.PA Images

The key question that has not yet been answered is whether this "Fourth Industrial Revolution" simply changes the jobs market or leads to fewer jobs.

Past industrial revolutions have destroyed jobs but also created better-paid roles: the horse and cart driver moved into the Ford factories to build cars. Bernstein's analysis of the Chinese jobs market is encouraging — more service sector jobs at higher pay.

But not everyone is so optimistic. The Citi and Oxford study found that: "Today’s technology sectors have not provided the same opportunities, particularly for less educated workers, as the industries that preceded them." They predicted that "inequality between the 1 percent and the 99 percent may widen as workforce automation continues."

Lord Turner echoed these findings, telling BI: "There’s a certain sort of equality of citizenship that requires that everybody does OK. I think that may breakdown. I think it may breakdown because of the fundamental nature of technology."

Economist Guy Standing coined the term "precariat" to refer to people in precarious, low-benefit, and low-paid employment, often driven by technology. Think of Uber drivers and Deliveroo couriers.

Whether the tech "precariat" becomes the new normal or simply a transitional phase during these economic ructions remains to be seen.

NOW WATCH: How much money you need to save each day to become a millionaire by age 65

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More: Robotics automation of work automation Fourth Industrial Revolution 

What Makes You Click (Video)

What Makes You Click

Your likes, passions and habits are best known by people you've never met. They have the power to read your mind, mold your thoughts, and determine where you spend your hard-earned dollars. They're the capitalistic kings of the new digital age - the online persuaders - and they're the subject of the new documentary What Makes You Click from the renowned VPRO Backlight series.

Every day, billions of people around the globe are transfixed by their computers, tablets and smart phones. All the while, their online behaviors are being monitored, studied, and interpreted for the benefit of hugely profitable business interests. Consumerism is no longer driven by roadside billboards and 30 second television advertisements. Every click of the mouse can help to determine your next purchase, shape the cultural perception of an important issue, occupy every moment of our free time, direct social discourse, or even influence the outcome of a presidential election.

Our addiction to technology may seem benign on the surface, but it can ultimately spell disaster for the tenants of humanity we hold most dear. Free will, if it exists, could buckle under the pressure of unfettered corporate manipulation, and the notion of privacy could become nothing more than a pipe dream.

How much power is too much? Just ask the architects who operate behind the cyber curtain. Throughout the course of the film, several of these mystery figures speak about the dangers inherent in their chosen field of work, and express a need to be bounded by greater oversight and stricter regulations. In their arena, online users aren't viewed in humanistic terms; they're merely numbers on a spreadsheet that must be programmed to bend to the will of corporate interests. Ethical boundaries can easily be crossed when influencers are allowed to operate with such complete anonymity and omniscience. The desires of a few can come to define the future of millions.

What Makes You Click is both a fascinating psychological study and a gripping cautionary tale. The filmmakers navigate these uncharted new realities from an informed and probing point of view, and introduce a series of dilemmas our society is likely to grapple with for many years to come.

Directed by: Martijn Kieft

China is behind the latest bitcoin craze

• Jonathan Garber
 

• 4h
• 3,744

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Bitcoin had a great 2016. The cryptocurrency rallied 120% to $952, threatening to break the $1,000 mark for the first time since 2013. While bitcoin has seen a consistent bid throughout the year, its 57% gain (in US dollar terms) over the past three months has been particularly impressive.

So what's behind the move?

China.

In his latest edition of "Greed & Fear," CLSA's Christopher Wood notes, "Daily turnover in Shanghai-based BTC China, the world's largest bitcoin exchange by volume, has risen from around Rmb1bn in late September to a peak of Rmb27.8bn on 22 December and Rmb16.4bn on Wednesday (see Figure 11) while the Bitcoin price has risen by 70% over the past three months to Rmb6,927."

CLSA

The increased volume in the cryptocurrency comes as money continues to rush out of China. The country saw its foreign-exchange reserves shrink by about 8% in 2016 to $3.05 trillion as of November. The drop in reserves has occurred as China's currency, the yuan, weakened by 6% against the dollar in 2016. The currency is threatening to weaken below 7.00 per dollar for the first time since Q1 2008.

Things aren't expected to get better anytime soon, either.

Deutsche Bank strategist Gautam Kalani recently called the yuan "the most expensive" currency in the world on a trade-weighted basis. While he didn't go into specifics, his call most likely has to do with the fact that as the dollar strengthens on expectations for Federal Reserve interest-rate hikes, the yuan gets weaker and money pours out of China.

Additionally, Bloomberg economist Tom Orlik wrote, "China's corporates continue to hold on to almost half of their forex earnings — a sign that yuan depreciation expectations remain high."

In fact, it's possible that the yuan's depreciation kicks into a higher gear, causing money to flee China at an ever faster rate. That's because at its most recent policy meeting, the US Federal Reserve appeared to be a bit more hawkish than previously expected. The Fed said it had begun to expect three rate hikes in 2017, up from its previous forecast of two. If that happens, the dollar will get even stronger, and the yuan will get weaker.

Of course, that will be even more positive for bitcoin.

SEE ALSO: 2 years after everyone said it was toast, bitcoin is going crazy again

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Oil is holding at its highest level in one and a half years

• Will Martin
 

• 7h
• 775

I Nabil al-Jurani/AP

The price of oil is holding close to highs not seen in as long as 18 months on Friday as balance starts to slowly but surely return to the market after being blighted by a huge supply and demand imbalance for more than two years.

Prices for both major benchmarks are broadly unchanged in trade on Friday, but have gained a little despite a second consecutive week of crude oil inventory builds, with a U.S. Energy Information Administration (EIA) report on Thursday night showing an unexpected rise in crude stocks.

West Texas Intermediate crude, the US benchmark, is trading just below $54 per barrel, up less than 0.4% on the day, as of 8.40 a.m. GMT (3.40 a.m. ET). 

Here's the chart (note the black line showing that oil hasn't been this high since July 2015):

Investing.com

Brent crude, the international benchmark, is also hovering close to 18-month highs, climbing above $57 per barrel for the first time since July last year. Here's the chart:

Investing.com

Oil prices have gained substantially in recent weeks following the oil producer's cartel OPEC finally agreeing to cut production at a meeting in late November. The cut will be OPEC's first since 2008, and brings to an end a period where member nations have pumped as much oil as they wish. 

The move is designed to end the huge glut of the world's most important commodity that has helped drive prices down from more than $100 per barrel in mid-2014

According to a poll undertaken by Reuters on Thursday, oil prices will gradually rise toward $60 per barrel by the end of 2017, with further upside capped by a strong dollar, a likely recovery in U.S. oil output and possible non-compliance by OPEC with agreed cuts.

NOW WATCH: Bernie Madoff explains in rare interview from prison how he rationalized his crimes

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Tesla stock might close down for the year — and that could be a good thing

• Matthew DeBord
 
•   

• 15h
• 6,471

MarketsInsider

TSLA Tesla Motors

 214.76 0.05 (+0.00 %)

DisclaimerMore TSLA on Markets Insider »

The Wall Street Journal's Steven Russolillo tweeted Thursday that Tesla shares were down at the end of year for the first time since the carmaker's 2010 initial public offering.

It's an accurate observation, though one that should be taken with a rather large grain of salt. After all, the stock finished 2013 up by over 300%.

Tesla is indeed down just over 10% in 2016, after sliding by more than that for a time, but shares are also trading above $200, an important level if Tesla is to vindicate its more than $30 billion market cap and, even more important, establish a baseline that will make achieving Wall Street's more bullish prediction possible.

In fact, Tesla's slide in 2016 could be a positive thing. It was primed for a fall at the beginning of the year, starting at $240 and plunging to almost $140.

Tesla shares are down 10% this year, making 2016 the first time that $TSLA has dropped in a calendar year since its 2010 IPO.

— Steven Russolillo (@srussolillo) December 29, 2016

As 2017 begins, shares could be more correctly priced, though that's no comfort to investors who bought in at the start of 2016 (investors who bought at the bottom are probably quite happy, however).

The coming year will be an interesting one for Tesla investors. It's unclear whether the stock will repeat its historic volatility — or whether it will settle into a more stable pattern.

Bear in mind that Tesla could also be tricky to properly value in 2017, as it merges the car business with the solar business through its recent acquisition of SolarCity.

SEE ALSO: Here's why Tesla owners love their cars so much

NOW WATCH: Tesla reveals how your self-driving car sees the road

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