Signs Of Wealth Transfer In US-China Car Sales

This should be a milestone. Car sales in China has surpassed the US.

According to the Economist,

(all bold highlights mine)

``CHINA'S car market has overtaken America’s in sales volume for the first time, several years earlier than analysts had predicted before the financial crisis. Plummeting demand in the West is to blame. Earlier this year, as the American government was buying 61% of General Motors and 8% of Chrysler to prevent them from collapsing, the two manufacturers’ sales in China were rocketing. GM’s sales in China in August more than doubled on a year earlier. For 2009 as a whole the company predicted a 40% rise. Sales of all car brands in China in August were up by about 90%, helped by a cut in the purchase tax on smaller, more fuel-efficient cars. There is also huge pent-up demand as a new middle class takes to the road."

Additional observations:

-the economic orientation of the West had been built mainly on policy induced culture of dissaving and debt financed consumption spending, whereas China has revolved around savings, thrift and production. The difference is that the West consumed its capital whereas the East accumulated capital. The eventual outcome: a dynamic of wealth transfer

-GM's iconic Hummer is still in the process of being sold to a lowly heavy machinery outfit called Tengzhong, this adds salt to injury.

-the apparent dynamics of wealth transfer is now being manifested in the car sales above where China has supplanted the US.

-yet this is a clear sign of decoupling, from which globalization hasn't totally eliminated.

Chinese Are Fishing in Troubled Waters

In every crisis there are always opportunities.

And Chinese companies have made good use of this truism to snare iconic landmarks in the US amidst today's crisis.

Last night news wires reported that a Chinese company was reportedly buying into GM's Hummer lines...

Picture from New York Times

According to the New York Times (bold highlight mine), ``General Motors has reached a preliminary agreement for the sale of its Hummer brand of large sport utility vehicles and pickup trucks to a machinery company in western China with ambitions to become a carmaker.

``The buyer is the Sichuan Tengzhong Heavy Industrial Machinery Company, based in Chengdu, G.M. said Tuesday. The price was not disclosed, but industry analysts had estimated that the Hummer division would sell for less than $500 million.

``The deal, expected to close in the third quarter, would make Tengzhong the first Chinese company to sell vehicles in North America, though Hummer’s operations would remain in the United States.

``“The Hummer brand is synonymous with adventure, freedom and exhilaration, and we plan to continue that heritage by investing in the business, allowing Hummer to innovate and grow in exciting new ways under the leadership and continuity of its current management team,” Yang Yi, the chief executive of Tengzhong, said in a statement released by G.M. “We will be investing in the Hummer brand and its research and development capabilities, which will allow Hummer to better meet demand for new products such as more fuel-efficient vehicles in the U.S.”

``Hummer is one of four brands that G.M., which filed for bankruptcy protection Monday, plans to drop. The company also plans to close or sell Saturn and Saab later this year and to eliminate Pontiac in 2010. G.M. revealed Tuesday that it had 16 bidders for Saturn and three for Saab."

Last week, the NBA team Cleveland Cavaliers also sold a minority stake to Chinese investors.

Picture From New York Times

Again according to the New York Times (emphasis mine), ``The deal that may give a group of Chinese investors a minority stake in the Cleveland Cavaliers and its arena signals the first significant investment in a major American sports franchise by investors from China.

``The Cavaliers, who are led by LeBron James, the N.B.A.’s most valuable player this season and perhaps its biggest star, said they agreed over the weekend to sell a 15 percent stake in the franchise and its Quicken Loans Arena to the group, which is led by Kenny Huang, a Chinese-born investor who has also brokered marketing deals with the Yankees and the Houston Rockets, and a Hong Kong conglomerate.

``The deal must be approved by the league’s board of governors.

``If the sale is approved, it may be the most ambitious move yet in an American sports landscape full of leagues, teams and players striving for a foothold in the expansive and largely untapped Chinese marketplace. The N.B.A. has been aggressively expanding its presence in China with exhibition games and a joint venture that aims to develop a Chinese basketball league and professional arenas.

``Major League Baseball and the National Football League have also been seeking talent and business prospects in China. Nike and Adidas are doing the same. Prominent athletes like Kobe Bryant and Serena Williams have tried to capture part of the Chinese audience with endorsement deals.

``The N.B.A. is already enormously popular in China. N.B.A. games are telecast here and there are at least a half-dozen magazines devoted to the N.B.A. and its stars. Part of the popularity is attributed to the Rockets’ Yao Ming. Last summer, James and Yao appeared in an advertisement for Coke that ran on Chinese television during the Olympics. But other players, like the Los Angeles Lakers' Bryant, are just as popular among Chinese youngsters"

My comment:

Aside from US treasuries, here we see that the Chinese aren't just buying conventional companies, they are buying into hallmark American brands.

They are buying into America's pride and prestige.

And they are buying at the most opportune moment when Americans are direly in need of moolah.

In a classic Chinese military handbook depicting the 36 strategems of war, one of the recommended tactic to achieve superiority against the adversary is to employ maneuvers for confused situations or To Fish In Troubled Waters. These actions exemplify the execution of such maneuvers.

Nonetheless the Chinese has been steadily working to expand their influence overseas.

Chart from Heritage Foundation

Although, officially the Chinese government has done more political and economic deals with Africa and Arab compared to the rest, including East Asia.

But this could change-depending on the political winds.