Chinese money is part of global plan

US Department of Agriculture economists said China’s overseas investments in farming, fishing and forestry assets increased fivefold between 2010 and 2016 to reach US$26 billion.
Chinese officials first encouraged companies to go global in 2006 as food imports began to rise steeply.
The spending splurge was backed with cheap loans from foreign exchange reserves rapidly being added to by a boom in Chinese manufacturing sales to the West.
But while the Far and Near East, Africa, Australia and NZ were targets, the US was largely bypassed, despite it being China’s single largest source of food imports.
Between 2010 and 2015 North America supplied 31% of China’s agricultural imports, yet accounted for only 2% of Chinese agricultural investment overseas.
By comparison Oceania, including Australia and NZ, accounted for 11% of imports but received a proportionately higher 14% of its investment in agricultural assets.
The report by Elizabeth Gooch and Fred Gale of the USDA’s Economic Research Service noted $672m of investments in the NZ dairy sector alone by Chinese companies in that time.
It also notes China’s massive transport infrastructure project known as One Belt One Road.
The multi-trillion dollar project aims to improve trade with Europe and the rest of Asia and Africa but largely excludes the US.
The report notes that in favouring other countries for investment it is potentially laying the groundwork for cutting US producers out of supplying China altogether.
“For example, Chinese investments in NZ dairy, Australian beef and Ukrainian corn may bolster the share of commodities China imports from these countries versus competing US commodities.”
However, the report’s authors are confident the US will hold its own in the Chinese market.
“The US’s abundant endowment of farmland, leadership in agricultural technology, efficient management and marketing and skilled and experienced managers are all advantages that may help it retain its role as China’s leading supplier of agricultural products, regardless of where Chinese companies choose to invest.”
By contrast, Chinese companies reported low or even negative profits on their overseas investments as they struggled to overcome inexperience in those markets, language difficulties and trade barriers imposed by Beijing itself which hampered exporting back to their home market.
However, the report maintained returns are of secondary importance to their state backers.
As well as guaranteeing food security the investments could give China greater bargaining and price-setting power for its imports.
But Chinese companies are being forced to tread carefully in target countries.
One example was when long-term supply contracts were signed between Synlait Milk and China’s New Hope in 2014 with a quid pro quo of a 25% stake in the latter’s distribution business in China.
“The company has pursued joint ventures with local companies rather than outright acquisitions, a strategy designed to build goodwill with the public in NZ and Australia – where opposition to Chinese investment has risen – and to reduce the need for investment capital.”
The report also noted Synlait majority shareholder Bright Foods’ 51% stake in Silver Fern Farms for $197m in 2016.
The acquisitions of stakes in companies like Synlait and SFF is part of a shift in strategy by Chinese companies which had initially focussed on greenfield investments, building their operations from the ground up.
But as Chinese investors realised their shortcomings they are now more inclined to enter overseas markets through mergers and joint ventures with companies with existing sales, processing and logistics networks and local managers already in place.