The next stage of the Chinese economic assault

With $1.3 trillion in foreign reserves and not content to be 'the

world's workshop,' China shopping for Western multinationals.

Le Monde, France

With $1.3 Trillion On Hand, China Targets Western Multinationals ...

"China's foreign exchange reserves - $1.3 trillion at the end of June - which had primarily been used to finance American deficits via the purchase of Treasury Notes, are now being invested in multinationals."

Translated By Sandrine Ageorges

France - Le Monde - Original Article (French)

Between communism and capitalism, China is moving forward. Barclays just announced that the China Development Bank, one of Beijing's financial arms, will acquire stock in Barclays [€2.2 billion or $3.04 billion - about 3.1 percent of Barclays]. The Chinese Communist Party has thus become an investor in one of the jewels of global finance. The symbolism is striking and especially revealing of the new role China wants to play on the financial scene. Several days ago, one learned that, with annual growth exceeding 11 percent, China has supplanted Germany to become the third largest economy, after the United States and Japan. At the end of May, a Chinese state company acquired 10 percent of Blackstone [$3 billion], the most important American investment trust fund .

From an economic point of view, the deal marks a radical change in China over recent months: this nation-continent, which believes in capitalism, has decided to resolutely make the most of the situation. It has set about to emerge from its exclusive role as workshop to the world and provider of cheap labor, to become an investor. It has the means to acquire Western companies. Its reserves of foreign exchange - $1.3 trillion at the end of June - which had primarily been used to finance American deficits via the purchase of Treasury Notes, are now being invested in multinationals. This represents the stock market capitalizations of the top three American companies: Exxon, General Electric and Microsoft. With just China's surplus reserves forecast for 2007 and 2008, China could acquire two of America's banking giants: Citigroup and Bank of America.

For the time being, Beijing won't risk this type of assault on such incarnations of American success; and this is even more true since up to now, foreign enterprises have had only limited access to their Chinese competitors. China has already paid a price for the economic patriotism of Washington: in June 2005, an offer by the state-run China National Offshore Oil Corporation's to acquire Unocal was rejected for this very reason. Pragmatically, China got the message. In choosing to buy stock in Blackstone, it isn't mounting a frontal assault on the American company. In the same way, in Europe, it is betting on Barclays. [China acquired a "non-voting stake" in Blackstone of just under 10 percent].

Contrary to Paris or Berlin, London has yet to embrace economic nationalism, and is flattered to attract foreign investment of all kinds. The United Kingdom doesn't appear concerned by the financial opacity of Chinese companies, in particular the banks, several of which are in the midst of corruption scandals.

German Chancellor Angela Merkel, however, has on several occasions warned against foreign government stock. European Trade Commissioner Peter Mandelson is known to favor action by the European Commission in Brussels, “that would guarantee European control of vital sectors.”

Western countries should demand reciprocity from Beijing in terms of the transparency of accounts for allowing China to take stakes Western companies.

Original article posted here.