China's ever-expanding U.S. footprint
A group of investors led by China's Anbang Insurance Co. jolted the stock market Monday morning when they announced an unsolicited $14 billion offer for Starwood Hotels & Resorts (HOT), the latest sign of the growing appetite Chinese companies have for U.S. assets.
According to Rhodium Group, Chinese companies spent $15.7 billion on 171 deals in the U.S. in 2015, a record. So far this year, Chinese firms are already involved in $20 billion worth of announced or completed deals, not including the Starwood transaction. Investments by Chinese businesses have grown by 30 percent to 40 percent every year for the past six years, according to the company.
"It's very likely that we will have another record," said Thilo Hannemann, a Rhodium Group economist.
Starwood, the parent of brands such as Sheraton and St. Regis, is already in a merger agreement with Marriott (MAR), but the Anbang bid could upend it. The offer comes less than two years after Anbang acquired New York's landmark Waldorf Astoria Hotel for $1.95 billion.
In a separate transaction, Abanag announced plans to acquire Strategic Hotels & Resorts, whose high-end properties include Ritz-Carlton locations in California, for $6.5 billion.
Anbang's acquisition spree underscores a shift in Chinese companies' investing approach. Instead of just getting raw materials from the developing world, they're now moving to establish footholds in more advanced countries. Indeed, foreign direct investment into China is expected to lag investments by Chinese companies outside their borders for the first time this year.
"The Chinese economy is slowing at a pretty fast pace," said William Wilson, a senior research fellow at the Davis Institute for National Security and Foreign Policy. He added: "There is no indigenous innovation in China. If you can't innovate yourself, you have to go out and acquire the expertise to do it from elsewhere."
China-based companies are now the largest investors in new ventures, or greenfield projects, in the U.S. and have diversified their investments across many industries.
For instance, China's Dalian Wanda Group acquired movie theater operator AMC Entertainment in 2012 for $2.6 billion and recently doubled-down on that business by announcing plans to buy rival movie house operator Carmike Cinema for $1.1 billion. In January, it acquired a controlling interest in studio Legendary Entertainment.
Chinese firms also have unveiled plans to buy construction equipment manufacturer Terex (TEX) and tech company Ingram Micro (IM) in recent weeks.
But they've recently walked away from plans to acquire Philipps' Lumiled's business and Fairchild Semiconductors (FCS) and a 15 percent stake in Western Digital (WDC) because of concerns about regulators rejecting them.
Of course, theft of intellectual property in China remains a huge issue for companies. According to a 2013 report, between 50 percent and 80 percent of all IP theft occurs in China, and it noted that the country's "national industrial policy goals" encourage the practice.
Worries about Chinese companies are similar to the concerns about Japanese companies during the 1980s when they went on a bigger acquisition spree, according to Roy Smith, a former Goldman Sachs investment banker who's now a professor at New York University.
"Most of the Japanese deals ended up being overpriced, and the companies had to go through difficulties, but (they had) no adverse effect on the U.S. economy or labor force," he wrote in an email. "In a political year, this may appear to be an issue, but, like so many other things said, it isn't."