Where Chinese Capital Finds a Home

We begin today with homage to politicians. They’re a reliable bunch. How so? They can be relied upon to say what they need to say when power beckons. Once they’ve got it, then they do what suits. As you can see, that’s usually themselves.

Consider the new Greek government. The Syriza Party campaigned on a ‘radical’ platform of rejecting the austerity measures imposed on them from the European Troika. As a part of that, they told the Greek people they would halt the planned privatizations of various government assets.

Syriza were elected on 25 January. Since then, they’ve made a lot of broad statements to their European peers about the mandate they’ve been given from the Greek people. Now, they haven’t even been in power for a month. But…what’s this I saw in The Wall Street Journal on Wednesday?

Greece will proceed with the privatization of the country’s main port of Piraeus, Greek Finance Minister Yanis Varoufakis plans to tell his eurozone counterparts at a meeting in Brussels on Wednesday, backtracking on previous statements from the new leftist government that had pledged to freeze the deal, senior Greek government officials said.

That was quick! What about the mandate from the Greek people? Maybe it was a ‘non-core’ promise? Do you remember those?

But it is our task in The Markets and Money to follow the money. I don’t know who will buy Piraeus, but if you asked for an educated guess, I’d say the Chinese.

One of the themes we’ve been following is the rise of a global ‘Chinatown’. You could say this is in the same vein as the Japanese international spending spree of yesteryear — but I don’t think we’re anywhere near the peak yet.

The Financial Times reported on a handy study this week. It showed that Chinese investors went ‘on a record spending spree’ in Europe in 2014, ‘pouring money into sectors from the UK property market to the Italian energy industry.

According to the article, the US$18 billion in Chinese foreign direct investment into Europe was double the 2013 level. But that trend has actually been running a lot longer than that. Currency expert Jim Rickards, who presented at our WWD conference, has said for years that Chinese money was going into Europe. Turns out he was right.

According to the FT, ‘Since the eurozone debt crisis began in 2009, Chinese groups have poured capital into the region, buying world-class brands as prices plunged because of fleeing investors.

We celebrate contrarian investors in The Markets and Money. And the Chinese are snapping up assets all over the world while everyone else seems to be constantly fretting about the next crisis.

It’s interesting to note that Britain was the top choice of European countries. The Chinese put in US$5.1 billion into the UK. Half of that went into property.

We’ll presume most of that went into London. According to the British Office for National Statistics, London property prices have risen by 50% in the past five years. The average house in London was £514,000 (AUD $1,021,183) in September 2014, according to The Guardian.

The Chinese know where to make money in the UK. It sure ain’t working for wages. The minimum wage in Britain is currently under £8 an hour ($AU15.90). Wages have gone nowhere for years. That is to say, British workers have seen their standard of living go backwards.

In fact, the growth in wages in the UK is so bad it’s becoming a problem for Prime Minister David Cameron. The FT reports that, ‘…low wages have become a big political issue and are seen by senior Tories as one reason why the party’s poll ratings have not risen in line with the economy.’

The paper says Cameron is going to:

‘…urge bosses on Tuesday to “give Britain a pay rise”… Mr Cameron will tell a business audience that companies can afford to pay workers more when they are benefiting

‘Downing Street said Mr Cameron was simply encouraging business to do the right thing.’

Don’t be deceived by this rhetoric. Cameron is a politician. They talk out of both sides of their mouth. He presides over the very system that condemns British workers to their dismal wages.

Remember, London property is up 50%. Wages up zero. Sound a bit like Sydney to you? Do you want to know why that is? Go here.

Callum Newman
The Markets and Money Australia

Join Markets and Money on Google+

Originally graduating with a degree in Communications, Callum decided financial markets were far more fascinating than anything Marshall McLuhan (the ‘medium is the message’) ever came up with. Today Callum spends his day reading and researching why currencies, commodities and stocks move like they do. So far he’s discovered it’s often in a way you least expect.

Leave a Reply

Your email address will not be published. Required fields are marked *

Markets & Money