Volvo may end up in China

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China is buying into foreign real estate and metals companies. It is expanding the reach of its oil field holdings and investing in foreign energy companies. One area where it has not made significant progress in getting ownership of overseas assets is the auto sector. That may be about to change.

One of China's largest car companies, Geely, is actively considering buying Volvo from Ford (F). Geely would probably make a bid with help from the Chinese government , which has a tremendous sovereign fund that holds $300 billion. The nation also has $2 trillion in foreign currency reserves. In other words, Geely will not have trouble getting financing for the transaction if the central government approves it.

Geely CEO Gui Shengyue told Reutersin an interview, "I believe if Volvo is for sale and Ford has a global announcement, then our parent company will participate. It is interested in Volvo's sedan business and not trucks."

The issue of China's expansion into large industries outside its borders has been a bone of contention among many governments and leaders in private industry. There is a real concern that China will use its huge capital pool to buy assets inexpensively now that the recession has cut the value of many companies. Some governments do not want China to invest in what they view as "strategic" sectors, including tech and metals. Whether that includes the automotive industry remains to be seen.

What does not remain to be seen is China's appetite to expand its financial and industrial interests around the world. That is almost certain to cause a political fire storm in some countries and a sort of protectionism that could put large developed nations at odds with the Chinese government.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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