Chinese Government Gives 6 Foreign Companies a Helping Hand
It looks like China wants to attract more business from multinational giants.
The government just gave six foreign firms the right to move more capital across Chinese borders, according to a Reuters report. Western companies have invested billions of dollars in Chinese facilities because the local economy's expansion is seen as a massive growth-driver. But the Chinese government has placed strict limits on what you can do with profits gained in the country, which leaves a lot of money locked up in Chinese bank accounts.
The Great Wall around Chinese money is starting to spring leaks. Image source: Wikimedia user Jakub Halun.
The easing of money-transfer rules starts with a small batch of very large businesses. Some are Chinese corporations with significant business interests abroad that will now be able to bring more cash back into their home country. And then you have six handpicked foreign companies, presumably interested in moving money in the opposite direction.
The test batch includes two Dow Jones components, namely chip giant Intel and construction machinery expert Caterpillar . Intel recently reminded analysts that "China is still outgrowing any other large economy in the world," and CEO Paul Otellini is particularly pleased with server sales in the region.
Caterpillar's current guidance assumes that the Chinese government will encourage economic growth in 2013, with GDP forecast to expand by roughly 8.5%. If so, management expects "a more favorable environment for construction and higher commodity demand," which will contribute to revenue growth this year. This money-transfer change plays right into that assumption.
The other non-Chinese businesses in this program are Dutch oil supermajor Royal Dutch Shell, French-American network-gear builder Alcatel-Lucent , all-French power-management specialist Schneider Electric, and South Korean electronics giant Samsung .
Samsung has more than $2.3 billion in Chinese assets and collected $21.5 billion of revenue in the nation last quarter. It's the company's second-largest market by revenue after Korea itself, and 20% larger than North and South America combined. It's a far less significant market for Alcatel, but the troubled networking expert will take whatever help it can get. The company is in full-on turnaround mode with a brand-new CEO and a questionable balance sheet.
Looser money controls might encourage all of these current and former blue chips to increase their presence in China, as they can expect easier access to the money they make there. And the virtuous cycle turns, or so China hopes.
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