(Chinese) Government Motors

by Bertel Schmitt

November 10th, 2010 11:22 PM

When the all new GM share starts trading on 11/18, the bulk of the new issue will most likely not be owned by widows and orphans, but by foreign governments and their proxies. One of the largest new shareholders could be Chinese. GM is in the final negotiation stage to sell a good chunk of their new stock to their old pals and Chinese joint venture partners SAIC, reports Reuters, citing the usual “two people familiar with the matter.” And don’t think they are just talking percentages, there is much more on the table.

GM and its investment bankers have been and are busy schmoozing overseas sovereign wealth funds (read governmental investment arms) to take $2b of the $13b offering. If they take more, please, they can have it. “GM and its bankers have not set a maximum value for investment by sovereign wealth funds,” Reuters reports.

One of these anchor investors will definitely be SAIC. SAIC’s Vice Chairman Chen Hong is in the U.S., and a deal could be finished by this weekend, Reuter’s sources say. The “single digit” stake originally contemplated could grow another digit. And of course, it’s not just about stock appreciation and dividends. In the choice words of Reuters:

“The two government-funded automakers are currently finalizing how much of a stake SAIC would buy in the top U.S. automaker after discussions involving technology sharing and SAIC’s ambitions to move beyond the China market.”

In less opaque words: SAIC will drop cash on GM, but apart from shares, the real price will be cheap (or free) patents, and access to GM’s markets for made-in-China cars with a Buick or Chevy (or why not Cadillac) nameplate. Selling Sails to South America, or letting SAIC ride into India in a Trojan horse built by GM are simply templates for more things to come. As if ceding control of the world’s largest growth markets is not enough already.

That should give the “who cares where the money comes from as long as it goes to America” crowd at least a second of its short attention span.

The many years of U.S. howling about a higher rate of the Chinese yen, to which China recently relented a bit, and the current weakness of the dollar in the international currency markets (which made German economy minister Bruederle –yes the same that turned off the money spigot for Opel – brand the U.S.A. as a currency manipulator) make the investment even more attractive. Cheaper dollar, cheaper GM. Wasn’t it supposed to buttress U.S. exports and dampen Chinese ambitions?

Of course, any deal between GM and SAIC would need Chinese government approval, and at least a nod from inside the Beltway. With both companies being on tight governmental leashes, they will only do what their masters allow.

#BertelSchmitt #China #GM #Ipo #SAIC

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2 of 11 comments

Jimboy on Nov 11, 2010

Americans need to be very careful about who owns what in the future. China already owns a huge amount of U.S. debt. Here in Canada, most of our resource industry is foreign owned, and our governments call the shots in name only. That is a scenario I think most Americans would prefer to avoid.

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Alex Nigro on Nov 11, 2010

The teabaggers won't like this one bit...

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