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By Nick Edwards
February 15, 2012 8:49 AM EST
China has the motive, the opportunity and the money to spend $560 billion (356 billion pounds) on overseas investments in the next five years, a sum dwarfed by the near-term financing needs of it two biggest trading partners that should leave Beijing spoiled for choice.
A raging euro zone sovereign debt crisis needs hundreds of billions of euros worth of asset and bond sales to solve it, European banks will probably offload 3-5 trillion euros ($3.9-$6.5 trillion) of assets to meet tight new capital rules, and the United States has a $1 trillion (636 billion pounds) fiscal deficit to close.
But the reluctance of foreign governments to accept the acquisition of stakes in strategic assets by entities ultimately controlled by the Communist Party of China and a patchy track record in dealmaking is likely to lead to frustration all round.
"There are clear and powerful obstacles to investments of the scale necessary to reach and hold over $100 billion (63 billion pounds) in outward investment in the short term," said Derek Scissors, a research fellow with the Washington-based Heritage Foundation, who tracks China's global investment hits and misses.
"One obstacle is still the maturing capacity of Chinese firms to conclude sophisticated transactions," Scissors said. "A bigger obstacle is unease with a rush of Chinese money which co-exists with the desire for Chinese financing."
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That seems particularly true in the European Union, where the need for funds is the most urgent, the political barriers among the most complicated, and China's shopping list selective.
A two-day EU-China Summit in Beijing this week seemed to deliver nothing substantive to boost investment beyond a bland pledge from European Commission President Jose Manuel Barroso to develop a bilateral investment agreement.
However, Australia may have shown a way forward in navigating deals with Chinese buyers after outlining its preferences for foreign investment in big companies in 2009, pointing to the types of deals which would succeed and which wouldn't.
Australia Resources Minister Martin Ferguson said last year that Chinese dealmakers now understood how to navigate mergers and acquisitions in Australia after years of frustration.
Transactions have indeed soared since and the Heritage Foundation says Australia is the single biggest recipient of inward investment from China.
Europe could certainly use all the help it can get. China's foreign direct investment into the EU was just $4.3 billion (2.7 billion pounds) in 2011, according to Ministry of Commerce data. And that was a 94 percent increase over 2010.
UNION RESISTANCE, POLITICAL OPPOSITION
When it comes to barriers, take Italy, which some analysts say could be forced to sell as much as 400 billion euros of the 1.8 trillion euros of state assets it owns to tackle a crushing public debt burden.
European government debt expert Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, says Italy's most valuable assets are those that it would be most politically difficult to sell -- such as oil and gas companies, the railways and the postal service.
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