Is China Buying Out the World?

As China’s economy stammers, its businesses avert their gaze and overseas mergers and acquisitions multiply. South Korea is of two minds when it comes to this would-be bride, and outsiders would be wise to pay attention since Korea could be an indication of things to come.

After faltering in the second half of last year, China’s economy is stabilizing, but the larger trend is that of rapidly growing overseas investments. For example, according to a 2012 statistical communiqué on China’s foreign direct investments, jointly released by the Ministry of Commerce and the National Bureau of Statistics, outward foreign direct investment (OFDI) by Chinese enterprises in the European Union blew right through the European debt crisis with scarcely a flutter, growing from $768 million in 2005 to $1.28 billion the following year, then reaching $6.29 billion in 2009 and $31.54 billion by 2012. Recently, China’s Haier bought General Electric’s appliance business last January and the Japanese electronics company Sharp was sold to Foxconn last month.

“According to the Korea Center for International Finance,” writes Lee Ho-jeong of Korea’s JoongAng Daily, “China’s overseas mergers and acquisitions last year reached $118.1 billion, the largest ever. And this year, as of February, it has already hit $85.1 billion.”

Lee notes that a study by the Korean antitrust Fair Trade Commission shows that Chinese spending on acquisitions in Korea jumped 167 percent in 2015, compared to the year before. While Chinese investors previously focused on the manufacturing industry, which constituted 52 percent of their mergers and acquisitions from 2006 to 2014, they are now far more interested in the service industry, which last year accounted for 73 percent of China’s investments in Korea. This is presumably because China has mastered the former and is now seeking ways to improve upon the latter.

There is a debate, however, over whether or not this is a good thing for Korea.

When an affiliate of the Chinese production company Huayi Brothers bought a controlling stake in Korea’s Sim Entertainment last month, and when the Korean luxury clothing brand Agabang was purchased by the Chinese company Lancy Group, both Korean firms profited handsomely. But in many cases, these Chinese conglomerates merely suck foreign companies dry and leave them for dead.

“The most notorious case,” Lee writes, “is Ssangyong Motor, which once dominated the local SUV market.”

After buying a controlling stake in the Korean car company, China’s Shanghai Automotive Industry Corporation (SAIC) pulled out in 2009, allegedly taking vital technology with it. Ssangyong went bankrupt and had to lay off more than half of its employees. Lee also describes how Hydis, which specialized in liquid crystal display (LCD) panels, was sold in 2001 to the Shenzhen-based BOE Technology Group. The company later filed for bankruptcy after BOE Technology pulled out in 2006, again allegedly taking valuable data with it. While Hydis withered away, Lee says, “BOE then became the biggest LCD manufacturer in China,” and according to their website, they are now “the world’s leading supplier of semiconductor display technologies.”

Both SAIC and BOE deny these allegations, and Beijing similarly denies that its companies are currently on a so-called shopping spree.

“It is an overstatement to say Chinese companies are ‘buying out the world,’” Shen Danyang, a spokesperson for China’s Ministry of Commerce, said earlier this month.

On the other hand, partnerships with Chinese companies can in some cases grant access to China’s market, which is massive and otherwise challenging to enter, given the government’s protectionist policies.

When the American printer manufacturer Lexmark was tentatively sold for $3.6 billion this month to a consortium that includes two major Chinese groups, Apex Technology and PAG Asia Capital, Paul Rooke, Lexmark’s chairman and chief executive, said in a press release, “With the consortium’s resources, we will be able to continue to invest in and grow the business to more fully penetrate the Asia Pacific market for hardware, software and managed print service.”

Similarly, the record-breaking hit Korean drama, “Descendants of the Sun,” which is expected to gross 3 trillion won ($2.6 billion) all told, may have triggered a little panic in Beijing, but let’s not forget that the show was made with the help of a Chinese investor, Zhejiang Huace Film & TV. As a result, the drama aired simultaneously on the Chinese video platform iQiyi and was a massive hit in China. But, here again, we see the same pattern of appropriation, as China is now developing a Chinese film and TV version of the show in order to capitalize on the series’ attractive qualities while also defending against the possibility that its people may actually grow to admire Korean culture. As the Ministry of Public Security said in a statement last month, “Watching Korean dramas could be dangerous, and may even lead to legal troubles.”

This is troubling for two reasons. First, much of corporate culture today thinks in terms of short-term, high-yield profits. Many business owners therefore smilingly welcome Chinese investors. Second, in Korea and other nations, there are not the regulatory instruments to prevent China from snapping up as much as it wants. This can be bad for business, but also for the future of geopolitical balance. China might soon become a world leader in virtually every market.

In many instances, foreign businesses will profit alongside Chinese growth. We should work toward that goal. But we should also reflect on Chinese military aggression in places like the South China Sea, Xinjiang, and Tibet. Military and economic means are the double barrels of hard power, and if China’s handling of one is any indication of how it will handle the other, we should all be concerned.