Chinese Investment

Thesis: Investment by foreigners (notably China) damages the economy in many ways.

I was born and raised in metro Detroit, Michigan, and have been familiar with the economic situation of Detroit for many years. In 2013, the city of Detroit went through bankruptcy on the public front. However, in the private realm, there were (and still are) two major proponents for the city. Their names: Mike Ilitch and Danny Gilbert – two billionaires who have been pouring their money and resources into rebuilding Detroit. They have done everything from purchasing casinos, buying buildings, knocking down blighted homes, and creating jobs through their various entities. When one of these two billionaires acquire property in Detroit, they actively improve the buildings and surrounding area in an effort to help revitalize the city. But this is not the case for all investors. Many Chinese investors purchase real estate in Detroit simply due to the low cost, but then do nothing to improve the property. So while some activist investors are aiming to improve Detroit and revamp the local economy; other investors are simply buying and holding hoping others will do the work for them. In an article by Forbes titled, “China’s Newest City: We Call it ‘Detroit”” it discusses the attraction of Detroit properties to Chinese investors.

My first example was one that hit close to home and contained some economic impacts that are less robust than my next argument, but nonetheless prevalent. An article by Bloomberg titled, “China Wants to Buy Europe” discusses how aggressive Chinese investors are being in foreign markets. “Until 2011, China was mostly a receiver of European investment, but then the debt crisis drove down asset prices. Some governments became desperate to privatize, and venerable corporations got less picky about potential investors. Chinese buyers acquired Volvo in Sweden, a large stake in Peugeot Citroen and fashion house Sonya Rykiel in France, the Piraeus Port in Greece, Pizza Express restaurants and the upscale clothing maker Aquascutum in the U.K. Chinese investment increased exponentially” (Bloomberg). Essentially, before the financial crisis, companies were able to be picky about where they received credit. Once the credit markets dried up, they needed to look for outside investors where the Chinese were aggressively investing.

Chinese M&A activity

The preceding image taken from the Bloomberg article does an excellent job depicting Chinese investment. The large increase in investing in the EU is concerning, due to the current financial position of the EU. The increased investment by the Chinese will increase their net exports (thereby decreasing net exports of the EU) which will have a further compounding effect on the EU. So China’s increased investment in the EU is further crippling an area that is already struggling on many fronts as evince by the near parity of the U.S. dollar and the Euro. That being said, if the Eurozone does make it out of the crisis, it is quite possible that these Chinese investors bought at the bottom.

3 thoughts on “Chinese Investment

  1. Hongjun Yu

    So what you are saying is that struggling economies in Europe should not accept foreign investments because is it harmful to such economies? And that Chinese money is not on par as say, European money or American?

  2. Zach Schoettle

    While it is disappointing for foreign investors to purchase homes in Detroit and not improve it, it is not a terrible thing. Detroit has so many vacant homes already that any tax income would help the city. Furthermore, there are many large-scale investors like Matty Maroun that hold many properties and do not do much at all. This kind of investors seem to be a bigger fish to fry. Similarly, even dedicated investors like Mike Illitch has held onto certain vacant properties around the Fox Theatre to help him keep land prices low, so he could buy cheaper properties for his new arena. In conclusion, investors are complicated to deal with, but some are better than none.

  3. Zach Schoettle

    While it is disappointing for foreign investors to purchase homes in Detroit and not improve it, it is not a terrible thing. Detroit has so many vacant homes already that any tax income would help the city. Furthermore, there are many large-scale investors like Matty Maroun that hold many properties, and do not do much at all to these properties. These kind of investors seem to be bigger fishes to fry. Similarly, even dedicated investors like Mike Illitch has held onto certain vacant properties around the Fox Theatre to help him keep land prices low, so he could buy cheaper properties for his new arena. In conclusion, investors are complicated to deal with, but some are better than none.

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