A trade delegation of about 200 Chinese entrepreneurs led by Commerce Minister Chen Deming arrived in Germany yesterday as the first leg of their four country tour. Following Chinese Premier Wen Jiabao’s Europe tour earlier this month the trade delegation will also visit Switzerland, Spain and Britain and is expected to sign a series of deals worth up to $15 billion. The delegation consists of joint ventures, state-owned and private companies and plans to sign deals for automobiles, machinery, aircraft engines, railway equipment, and foodstuffs.
After trying to consolidate its domestic automobile industry by encouraging mergers and acquisitions China’s central government has recently restated its plans to cut the number of major auto-making groups from currently 14 to no more than ten. The plan did not specify a schedule for the mergers nor did it name any enterprises in particular. China’s automobile industry has suffered under the slowdown in demand growth with car sales plunging more than 14 percent year on year in January. Last year total sales and production grew only 6.7 percent to 9.38 million vehicles, a sharp slowdown compared to the previous years.
China and other cash-rich nations such as Qatar or Singapore are expected to use their sovereign wealth funds (SWFs) to raise their stake in commodities and oil. Traditionally, Chinese and other SWFs chose conservative investments in dollar reserves, treasuries and shares in large U.S. and European companies. This investment strategy has seen significant losses during the economic slowdown and many SWFs are now considering moving into commodities and oil. According to industry insiders, many of the funds are just waiting for the commodities price slump to bottom before they channel their huge reserves in resource sectors. This shift in investment strategy will have significant implications for global commodity prices.
John Watkins, head of the American Chamber of Commerce in China expressed concerns that U.S. firms could be losing out on opportunities in the Chinese market. He emphasized the potential of the Chinese market and pointed toward the Chinese government’s economic stimulus package expected to reignite domestic demand. Divesting from the Chinese market now would mean missing out on significant development opportunities in the future.
