When Japan was at the height of its economic power in the 1980s, the United States was scared. Japanese cars were clogging U.S. roads and Detroit was bleeding jobs. Japanese steel exports were turning the industrial states into rust belts. Then the Japanese went after the symbols of Americana itself.
In 1989, Mitsubishi bought Rockefeller Plaza, perhaps the greatest American architectural icon. Japan added another American icon to its trophy case when Sony bought Hollywood's Columbia Pictures, maker of On The Waterfront and Easy Rider. Newspaper editorials and talk show hosts became studies in xenophobia-tinged paranoia. The Japanese were taking over. Remember Pearl Harbor. Would Columbia turn war movies into Japanese propaganda? Was McDonald's next?
The whole thing became silly. Then it went away. Mitsubishi and Sony took multibillion-dollar baths on their investments, making them look like amateurs who could be suckered as easily as the French or the Germans. Today, Japan is just another foreign investor in the United States. Globalization has become the great leveller.
Now it's China's turn. China, like Japan did in the 1970s and 1980s, is becoming an economic powerhouse. As Japan did, China is reaching into the Western world. Its products are ubiquitous. Wal-Mart buys more than $12-billion (U.S.) a year of Chinese products. Britain in its entirety doesn't spend that much in the country. Now China is buying companies.
Last month, China Minmetals, the metals trading arm of the Beijing government, agreed in principle to buy Noranda for about $7-billion (Canadian). Noranda, 42 per cent owned by Brascan, controls Falconbridge, meaning the Chinese are bagging two of the country's top mining and smelting players in one fell swoop. Chinese oil companies are on the prowl. Sinopec is thought to be stalking Husky Energy, controlled by Hong Kong billionaire Li Ka-shing. The Chinese government reportedly controls 53 big companies, each of which has been authorized to buy anything it needs anywhere on the planet. Red scare redux?
The National Post, normally a shill for capitalism, has urged the federal government to block the sale of Noranda to the Chinese, citing human rights abuses. Several MPs support the call, even though using human rights to screen foreign investors would block the inward flow of capital from most countries.
Not to be outdone, Canadian Auto Workers leader Buzz Hargrove urged the feds this week to impose "rules around how they invest in Canada," apparently referring to China's secret plan to gut Noranda and Falconbridge and ship the employees to Chinese work camps, where they will be forced to make fortune cookies that say: Capitalist dogs aren't so smart.
Relax. Minmetals has no intention of launching a series of rapid-fire acquisitions. Minmetals can't simply use the Chinese government as an ATM. In an e-mail from China, Frank Xu, Minmetals' Noranda project manager, said: "Minmetals is a very disciplined investor. We assess every business opportunity on the merits presented."
It's highly unlikely Minmetals will make another major acquisition in North America until they can prove they've made a success of Noranda. That could take several years because the Chinese have no experience in owning and running Western companies. In the meantime, it doesn't appear Noranda jobs are in jeopardy. Minmetals, in fact, has been busy writing new employment contracts to keep the talent around. Derek Pannell, Noranda's CEO, thinks Noranda under Chinese control is likely to be a jobs generator because the Chinese want to build.
But the point is, so what if Minmetals and other Chinese companies were to go on a buying spree? For every buyer there's a seller. Sellers deal with buyers who provide the best value for the shareholders. If the Chinese want to pay too much, God bless them. We can all get rich. If they pay too much and the company goes in the tank, then Canadians can buy back the assets on the cheap.
There is no doubt that more Chinese companies will make North American acquisitions. They need commodities of every sort. The International Energy Agency yesterday said Chinese demand for oil is expected to rise by 15 per cent this year. Feeding China's oil beast has helped to propel oil prices to $55 (U.S.) a barrel. A Chinese oil sands investment in Alberta is probable.
In a decade, Chinese investment in North America will be a non-event. The Chinese will own mines, oil companies, refineries, smelters and real estate, some public, some private. Some of the purchases will be successes. Others will be duds. Like Japan, their goal is to become just another global investor.