China has embarked on a buying spree of foreign companies and real estate that has reached well into the billions so far this year. But that's not the worrisome part.
The concern is over who and how the transactions are being made.
Much was made of Chinese insurance company Anbang's engagement in the discussions to acquire Starwood Hotels & Resorts. It ultimately bowed out, under dubious circumstances, but the question remained: Why is an insurance group so enamored by U.S.-based hotel companies and real estate?
Anbang has now made three big plays in the hospitality space: the failed attempt to acquire Starwood, the successful buy of the Waldorf Astoria in New York and the acquisition of Strategic Hotels & Resorts.
The third in the list has drawn questions, and if you are a conspiracy theorist, you'll like this.
Odd Circumstances
According to The Wall Street Journal, the head of Unite Here, which represents hotel workers, reached out to the Treasury, urging the Committee on Foreign Investment in the U.S. (CFIUS) to investigate Blackstone Group's $6.5-billion sale of Strategic to Anbang. According to WSJ, D. Taylor, president of Unite Here, sent a letter to U.S. Treasury Secretary Jack Lew that outlined concerns over the sale, including questions over surveillance and data protection. (Last year, President Obama elected not to stay at the Waldorf during the U.N. General Assembly.)
Taylor cited reports in The Wall Street Journal and other publications about Anbang’s opaque ownership structure and its ties to associates of Chinese government leaders.
Here's where it gets interesting. Late last night, an official at Unite Here reportedly told The Wall Street Journal that the organization is "no longer calling for CFUIS to investigate the sale of Strategic to Anbang."
Why, then, would they drop the matter as quickly as they brought it up?
Anbang is a murky company to say the least; a place where phone calls to the insurance conglomerate, with ties to the Deng Xiaoping family, regularly go unanswered.
Just the Beginning
Chinese outflows won't subside any time soon, and could only prove to get bigger. Slowing domestic growth has given Chinese companies reason to acquire international assets.
According to the South China Morning Post, the Chinese invested $30 billion in foreign real estate markets, including New York, London, Vancouver and Sydney, last year, nearly double from a year ago. In Canada, the Chinese invested 12.7 billion Canadian dollars last year, which accounts for about 33 percent of all of the country’s real estate transactions.
Here's partly why this is happening: China's Q1 was its slowest quarterly pace in seven years. GDP expanded by 6.7 percent in the three months ended March, following 6.8 percent in Q4 of last year.
Now, U.S. billionaire financier George Soros is warning that China's debt-fueled growth is bearing an "eerie resemblance" to the conditions leading up to the 2008 financial crash.
So, what does China do? Well, for one, it is taking measures to burnish its reputation. According to Reuters, five global public relations firms have made pitches to the Chinese government for a potential new campaign, as Beijing tries to communicate more effectively with the West. Some call it a ploy to impress and placate CFIUS, which goes back to the point above: Did Unite Here drop its claim against Anbang, or did the U.S. Treasury squash it?
As the year unfolds, there will undoubtedly be more Chinese capital placed on U.S. domestic real estate and companies. This can be great for the U.S., particularly if this M&A can incite jobs and other growth. Still, there needs to be a level of scrutiny involved. Transparency is what Americans expect.