Posted by
Gabrielle Cusumano on Monday, May 21, 2007 6:48:39 PM
[...] "The Chinese government alone holds more than one trillion dollars in U.S. and other securities, and these could be used to purchase more than five percent of the value of publicly trade U.S. companies. This should give Americans real pause about Chinese government intentions to diversify its foreign exchange holdings. "
Dr. Peter Morici: 2006 US Current Account Deficit hits record; Chinese Government could purchase Five Percent of US Stocks
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In strategy shift, China to buy a stake in Blackstone
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The Chinese government said Sunday that it would acquire a $3 billion stake in the Blackstone Group, the private equity firm, in the country's first effort to diversify its $1.2 trillion in foreign-exchange reserves beyond United States Treasury bills and into commercial enterprise.
The deal, which is set to coincide with Blackstone's $4 billion initial public offering this year, will give China a roughly 8 percent stake in Blackstone, which owns companies that have 375,000 employees and $83 billion in annual sales.
It would also represent a watershed for the booming private equity industry as it tries to gain a foothold in China.
"It's a historic change. It's a paradigm shift in global capital flows," Stephen Schwarzman, a co-founder of Blackstone, said in an interview. He called the Chinese government's decision "huge" and even "surprising" to him.
China will invest in the Blackstone firm itself, not in its funds, which invests in companies. However, the relationship opens the door for China to invest in Blackstone's funds in the future.
China has been grappling with how to invest its foreign reserves more aggressively. In March, China said that it would set up a special investment arm — the State Foreign Exchange Investment Company — to handle a portion of those reserves, which are now held by the central bank, in the hopes of earning a higher return.
The agency is not yet operating, but the Blackstone deal suggests that the Chinese government is eager to put its vast reserves to work outside of China. Still, as Blackstone begins to invest in emerging markets like China, the deal offers the prospect that at least some of the money could find its way back to China. Indeed, Blackstone is planning to open offices in Hong Kong and Beijing this year.
For years, China has invested in foreign currency, particularly United States Treasury bonds, which have earned a safe but modest return. But now, with the American dollar in decline and the Chinese government willing to take on more risk to earn higher returns, the new agency is being modeled, in part, on Temasek Holdings, Singapore's state-owned investment firm, which has invested billions of dollars around the world, particularly in China.
A similar investment agency in China would effectively create the world's largest hedge fund. Some analysts say that the China fund's investment of billions of dollars in the global financial markets could push global asset prices higher, affecting American and European stocks, bonds and interest rates, as well as the value of energy and natural resources in Africa and the Middle East.
The Blackstone Group, which is based in New York, has been moving aggressively in recent months to find investments in China. Blackstone is trying to catch up to the Carlyle Group, which has a large operation in China.
In January, Blackstone hired Anthony Leung, the former Hong Kong financial secretary, to run the group's business in China, Hong Kong and Taiwan. And last month, Reuters reported that Blackstone was seeking to acquire a stake in the Guofeng Group, one of China's largest makers of plastic products.
Under the terms of the Chinese government's investment in Blackstone, it will buy nonvoting shares as part of the firm's initial public offering at 95.5 percent of the public-offering price. It has agreed to keep its stake for at least four years.
China may reduce its ownership after the public offering so that it would hold less than 10 percent of Blackstone's shares. The public offering is expected to value Blackstone at as much as $40 billion.
While the investment may presage further Chinese investment in private equity firms in the future, China has promised not to invest in a competing private equity firm for a year.
Blackstone — which has led multibillion-dollar buyouts of Equity Office Properties, Freescale Semiconductor and Michaels Stores — manages a $15.6 billion buyout fund, the second-largest in the industry. In its prospectus, it reported $2.3 billion in profit in 2006.
http://www.iht.com/articles/2007/05/21/business/21yuan-web.php_
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Dr Peter Morici: 2006 US Current Account Deficit hits record; Chinese Government could purchase Five Percent of US Stocks
By Professor Peter Morici, Robert H. Smith School of Business, University of Maryland
Mar 14, 2007, 13:22
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| Peter Morici is an economist and professor at the Robert H. Smith School of Business at the University of Maryland. He is a recognized expert on international economics, industrial policy and macroeconomics. Prior to joining the university, he served as director of the Office of Economics at the US International Trade Commission. |
Today, the US Commerce Department reported the 2006 current account deficit was $856.7 billion, up from $791.5 billion in 2005 and setting a new record. The deficit was 6.5 percent of GDP.
In the fourth quarter, the current account deficit was $195.8 billion, down from $229.4 billion in the third quarter. The reduction was mostly attributable to lower oil prices during the latter months of 2006, and this situation reversed in the first quarter of 2007.
The current account is the broadest measure of the U.S. trade balance. In addition to trade in goods and services, it includes income received from U.S. investments abroad less payments to foreigners on their investments in the United States. Those net payments turned negative for the first time in many decades, and confirm that borrowing to finance huge trade deficits have reduced the world’s largest economy to the status of a debtor nation.
To finance the trade deficit, Americans are borrowing and selling assets at a net pace of $856.7 billion a year. Consequently, in 2007, the United States paid to foreigners more interest, dividends and profits than it received, recording a net deficit on income payments of $7.3 billion. Valuing the net investment position of the United States is difficult, but this negative flow of payments is the clearest evidence of the debtor status of the United States.
The Chinese government alone holds more than one trillion dollars in U.S. and other securities, and these could be used to purchase more than five percent of the value of publicly trade U.S. companies. This should give Americans real pause about Chinese government intentions to diversify its foreign exchange holdings.
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| US Bureau of Economic Analysis |
The current account deficit imposes a significant tax on GDP growth by moving workers from export and import-competing industries to other sectors of the economy. This reduces labor productivity, research and development (R&D) spending, and important investments in human capital.
Anatomy of the Haemorrhaging Current Account
In 2006, the United States had a $70.7 billion surplus on trade in services. This was hardly enough to offset the massive $836.0 billion deficit on trade in goods and $7.3 billion deficit on income flows. Also, unilateral transfers contributed $84.1 billion to the overall current account deficit.
In 2006, the deficit on petroleum products was $271.0 billion, up from $229.2 billion in 2005; prices for imported petroleum rose about 23.9 percent from 2005, while the volume of imports rose 19.6 percent.
The American appetite for inexpensive imported consumer goods and cars was a huge factor driving the trade deficit higher. In 2006, the deficit on nonpetroleum goods was $547.0 billion, up from $538.3 billion in 2005.
The deficit on motor vehicle products increased 5.5 percent to $144.7 billion, as Ford and GM continue to push their procurement offshore and cede market share to Japanese and Korean companies offering better made and less expensive to own vehicles. Even when they assemble automobiles in the United States, Asian automakers import more parts than Ford and GM.
The Wal-Mart effect was broadly apparent. In 2006, the trade deficit with China was $232.7 billion, a new record. This was up from $201.7 billion in 2005.
This situation is likely to become worse in the months ahead. Crude oil prices are rising again, and an overvalued dollar continues to keep imported cars and consumer goods cheap. Announced production cutbacks at GM, Ford and Chrysler will result in more imported motor vehicles and parts. Rising gas prices are driving car buyers away from Detroit’s gas guzzlers and into the arms of Asian brands.
The dollar remains at least 40 percent overvalued against the Chinese yuan and other Asian currencies. Although China revalued the yuan from 8.28 to 8.11 in July 2005, and announced it would adjust the currency to a basket of currencies, the yuan continues to track the dollar very closely. Currently it is trading at 7.74
Other Asian governments must conform their currency policies to China, lest they lose competitiveness in U.S. and European markets. To sustain undervalued currencies against the dollar, foreign governments purchased $300.5 billion in U.S. securities in 2007. This created a 14 percent subsidy on their exports to the United States.
Financing the Deficit
The current account deficit must be financed by a capital account surplus, either by foreigners investing in the U.S. economy or loaning Americans money. Some analysts argue that the deficit reflects U.S. economic strength, because foreigners find many promising investments here. The details of U.S. financing belie this argument.
In 2007, U.S. investments abroad were $1045.8 billion, while foreigners invested $1764.9 billion in the United States. Of that latter total, only $183.6 billion, or 10.4 percent, was direct investment in U.S. productive assets. The remaining capital inflows were foreign purchases of Treasury securities, corporate bonds, bank accounts, currency, and other paper assets. Essentially, Americans borrowed $1.6 billion to consume 6.5 percent more than they produced.
Foreign governments loaned Americans $300.5 billion or 2.3 percent of GDP. That well exceeded net household borrowing to finance homes, cars, gasoline, and other consumer goods. The Chinese and other governments are essentially bankrolling U.S. consumers, who in turn are mortgaging their children’s income.
The cumulative effects of this borrowing are frightening. The total external debt now exceeds $6 trillion. That comes to $20,000 for each American, and at 5 percent interest, $2000 for each working American.
The Chinese government alone holds enough U.S. and other foreign reserves to purchase more than five percent of the shares of all publicly trade U.S. companies, and that figure increases by 20 percent each year. The U.S. trade deficit is the primary driver behind this phenomenon.
Consequences for Economic Growth
High and rising trade deficits tax economic growth. Specifically, each dollar spent on imports that is not matched by a dollar of exports reduces domestic demand and employment, and shifts workers into activities where productivity is lower.
Productivity is at least 50 percent higher in industries that export and compete with imports, and reducing the trade deficit and moving workers into these industries would increase GDP.
Were the trade deficit cut in half, GDP would increase by nearly $250 billion, or about $2000 for every working American. Workers’ wages would not be lagging inflation, and ordinary working Americans would more easily find jobs paying higher wages and offering decent benefits.
Manufacturers are particularly hard hit by this subsidized competition. Through recession and recovery, the manufacturing sector has lost 3.2 million jobs since 2000. Following the pattern of past economic recoveries, the manufacturing sector should have regained about 2 million of those jobs, especially given the very strong productivity growth accomplished in durable goods and throughout manufacturing.
Longer-term, persistent U.S. trade deficits are a substantial drag on growth. U.S. import-competing and export industries spend three-times the national average on industrial R&D, and encourage more investments in skills and education than other sectors of the economy. By shifting employment away from trade-competing industries, the trade deficit reduces U.S. investments in new methods and products, and skilled labor.
Cutting the trade deficit in half would boost U.S. GDP growth by one percentage point a year, and the trade deficits of the last two decades have reduced U.S. growth by one percentage point a year.
Lost growth is cumulative. Thanks to the record trade deficits accumulated over the last 10 years, the U.S. economy is about $1.5 trillion smaller. This comes to about $10000 per worker.
Had the Administration and the Congress acted responsibly to reduce the deficit, American workers would be much better off, tax revenues would be much larger, and the federal deficit could be eliminated without cutting spending.
The damage grows larger each month, as the Bush administration dallies and ignores the corrosive consequences of the trade deficit.
http://www.finfacts.com/irelandbusinessnews/publish/article_10009428.shtml_____________________________________________________________________________________
Top News April 5, 2007, 12:01AM EST text size: TT
Private Equity vs. China
How the Commerce Dept. crackdown on Chinese paper exports will help Cerberus Capital and friends
by Peter Coy and Michael Mandel
It's hard to think of an American product that's less strategically important than the coated paper that magazines, annual reports, catalogs, and auto-dealer brochures are printed on. Yet there was Commerce Secretary Carlos M. Gutierrez, on Mar. 30, announcing tariffs on coated-paper imports from China—the first time in at least two decades that U.S. antisubsidy law has been applied to that country. By acting against unfair China trade, he said, the U.S. was standing up for "American manufacturers, workers, and farmers."
But Gutierrez left out one important group of beneficiaries: private equity investors. It turns out the paper manufacturer that brought the complaint, NewPage, is owned, through several levels of intermediaries, by New York-based Cerberus Capital Management, the mammoth private investment group controlled by the wealthy and reclusive Stephen A. Feinberg. Another big industry player, Verso Paper, is majority-owned by affiliates of private investment firm Apollo Management.
Buying Protection—From Cheap Capital
The government action raises obvious questions about the political influence of private investment firms, especially since the chairman of Cerberus, John W. Snow, served as President George W. Bush's Treasury Secretary from February, 2003, to July, 2006. But Cerberus says Snow didn't make phone calls on NewPage's behalf. And Cerberus has investment interests far beyond coated paper—Snow recently toured China calling for closer business cooperation between that country and the U.S.
But in a broader sense, what's going on is nothing less than a showdown between two very different ways of financing business. On the one side is China, which is accused of lowering the capital costs of coated-paper makers through subsidies such as low-cost loans and debt forgiveness. On the other side are the private money outfits, which raise huge funding pools by promising investors high returns in a low-return world.
The trade sanctions—which the Commerce Dept. could still back away from—would protect private equity-owned paper mills from China's cheap capital and help private investors realize the high returns they want. This battle of financial systems may be a harbinger of the next wave of trade disagreements.
How did we get into this situation? Over the past couple of years, U.S. paper giants such as MeadWestvaco (MWV) and International Paper (IP) wanted to shed some of their laggard divisions. They found ready buyers in the private equity firms, which saw a good deal.
In particular, in early 2005, MeadWestvaco sold its coated-paper mills and other assets to NewPage for $2.1 billion. The newly formed company took on about $1.8 billion in debt to finance the purchase. A Cerberus-owned affiliate tossed in $415 million in equity, according to documents filed with the Securities & Exchange Commission. (Disclosure: The same documents list The McGraw-Hill Companies (MHP), the parent company of BusinessWeek, as one of NewPage's biggest customers.)
Chinese Locomotive
This leveraged buyout left NewPage with big debts and hefty interest payments totaling $165 million in 2006, roughly double the size of its $88 million in capital expenditures. Such heavy debt makes it harder for the company to compete against the Chinese, as well as big European paper manufacturers. NewPage filed the complaint against the Chinese in October, 2006, about 18 months after Cerberus took over. This was the first time since 1991 that any company had formally filed such a complaint against a nonmarket economy.
Now, the fact that NewPage is owned by a private investment firm doesn't make the trade sanctions wrong. Indeed, the big paper makers may have sold off their businesses in part because they saw the onrushing Chinese locomotive of cheap coated-paper exports, which have soared from $21 million in 2004 to $224 million in 2006. The trade sanctions, if they stick, could help preserve the more than 4,000 jobs at NewPage, many in economically depressed areas of the U.S.
And it can be argued that China is at the point where such subsidies are unacceptable, just as capital subsidies to Airbus and Boeing (BA) are unacceptable for Europe and the U.S. "Our view is very simple," says Mark A. Suwyn, NewPage CEO. "We will compete with anybody in the world if it's fair. China can't join the WTO and then choose to use my country as a dumping ground. That's illegal."
A lot of people who worry about the rising tide of Chinese imports agree with Suwyn. But would they want to start a trade war with China to protect private equity investors?
Coy is BusinessWeek's Economics Editor. Mandel is chief economist for BusinessWeek.
All Credit To Business Week
http://www.businessweek.com/bwdaily/dnflash/content/apr2007/db20070405_214446.htm_
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Sunday, April 01, 2007
Chinese Paper Chase: NewPage, the CVD regime, and John Snow
The application of the CVD (countervailing duty) regime to China over the price of coated paper is a big thing.
Anti-dumping penalties—the preferred mechanism in the past—made assumptions about Chinese costs and made the call that U.S. prices were below cost i.e. dumping.
The countervailing duty regime is an assertion that Chinese prices are so low because the Chinese government is subsidizing Chinese exporters.
And that means big, punitive industry-wide sanctions.
In the narrow sense, the CVD call is, I think, unfounded. The Chinese government doesn’t hand out checks to papermakers.
This decision probably finds its justification in the broader structural and political sense—that China’s exchange rate regime is a de facto subsidy to Chinese industry.
So if the CVD holds up in the final decision, there will be a swarm of complaints and CVD will probably apply to everything. Literally everything.
So it’s no surprise that the stock market sagged in response to a threat that the price of Chinese goods would rise 10%--20%--the countervailing duties awarded in the paper case.
Of course, despite Commerce’s assertion that this was just U.S. due process and not a matter for negotiation, there will undoubtedly be negotiation a.ka. a game of chicken, as the
New York Times reports:
Although the tariffs imposed by the decision today are effective immediately, the action is subject to review by the Commerce Department, and a formal decision is due in October. But the administration’s position is not expected to change unless it is ordered to do so by a court or by the World Trade Organization. The decision, however, is certain to become a focus of talks in the “strategic economic dialogue” begun by Mr. Paulson last September. The first meeting of top Chinese and American cabinet members to discuss a range of economic issues was in December, and another is due in Washington in May.Mr. Paulson’s effort is aimed at getting China to move on a number of issues, including the suspected manipulation of its currency, that Washington regards as unfair.
I was very interested that a U.S. paper company would push such a theoretical, policy-heavy case—and a case that, if subsidies were narrowly understood, would probably have no merit.
But there was broad-based support for the move, again per the Times:
The NewPage complaint was backed in separate filings by leaders of several industries, including steel. The ruling on Friday was hailed by several groups critical of current trade policies, from manufacturers to labor unions to environmental groups, none of which have been very complimentary toward the administration on these issues in the past.The steelworkers union—which represents most paperworkers—put its shoulder to the wheel.
Even the Sierra Club piled on,
supporting NewPage's complaint with the sort of airy-fairy anti-business logic that would normally have Bush administration regulators spitting out their cigars with indignation:
The Sierra Club wants the Commerce Department to treat lax enforcement of environmental laws in foreign countries as a "subsidy" that the U.S. could counter with duties on imports.
So we’re looking at a complaint in which the importers’ lobby a.k.a. Walmart + is being countered by manufacturers + unions + environmentalists + nativist Republicans + China-bashing Democrats.
The Chinese probably regard this as serious business.
Why was NewPage leading the charge?
There’s an interesting answer.
NewPage, which filed the complaint, is a brand new company, a debt-laden creature that lumbered onto the papermaking scene by purchasing the coated-paper assets of MeadWestvaco.
It’s
losing money ($20 million in the 4th Quarter) and, in a normal world, its $1.7 billion in debt would be seen as the explanation for its financial woes.
And it would not be regarded as the poster child for beat-on American mom-and-pop industries.
In fact, if you turned it around and looked at the way CEOs in debt-laden companies prefer to evaluated—EBITDA (Earnings Before Income Tax, Depreciation, and Amortization a.k.a. not taking into account the crazy stuff the investment bankers did), NewPage would have made $56 million in the 4th Quarter, a tidy payday, again not exactly an advertisement for government relief—or an indictment of Chinese dumping.
But NewPage has a special identity.
It is the creature of Cerberus Investments, an investment outfit run as of October 2006 by...
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John Snow, ex-Secretary of the Treasury, the go-to guy for browbeating the Chinese government on exchange rates before he handed the hot potato over to Henry Paulson.
Cerberus, in addition to financing the buyout of MeadWestvaco’s assets, also provided the company with its new President and COO, Rick Willett, and CFO, Jason Bixby.
Hmmmmm...
Wonder if there was any coordination there.
And in the best Bush tradition of “doing well by doing good”, Cerberus Investments holds
interests in a raft of U.S. rust belt industries, such as Formica Corp., GDX Automotive, GMAC, and Guilford Mills, that should do very well if the countervailing duty craze spreads (although, to be fair, they do hold stakes in apparel and retailing companies that might take it on the chin under the CVD regime).
Cerberus also has a Taipei office (and no China office), something that the Chinese will no doubt note with some disgruntlement.
Labels: Cerberus, China, CVD, John Snow, NewPage
http://chinamatters.blogspot.com/2007/04/chinese-paper-chase-newpage-cvd-regime.htmlUpdate:Another interesting data point, from the February 22 International Herald Tribune:Meanwhile, the former secretary of the U.S. Treasury, John Snow, said that the United States could not force Beijing to allow faster gains in the yuan, and that dialogue was the best way to achieve appreciation."It's in China's own interest to continue to allow the yuan to expand in terms of flexibility," Snow, now chairman of Cerberus Capital Management, which is based in New York, said in an interview in Hong Kong. "I don't think we can force China to do anything."Interesting, since the countervailing duty determination by the US government--issued in response to a complaint by NewPage, a paper firm controlled by Snow's firm--looks like a long-planned, confrontational measure to compel quicker revaluation of the yuan.Thank you to China Redux to linking to my post,
below, on NewPage, Cerberus, and the China CVD case.
I'd like to take this opportunity to acknowledge
ChinaRedux and note its addition to my blogroll. Ben Landy cares about the same issues I do, and discusses them knowledgably and thoughtfully.
He also reads extensively and discriminatingly in the growing universe of high quality Asia blogs, so his posts also provide an excellent overview of what’s being said on topics of interest. His
CVD post is a fine example.
I think that China may have been prepared for the risk that the export-driven party might soon be over, and I suspect it has contingency plans beyond fulminating at the Commerce Department’s CVD ruling.
It will be interesting to follow analysis in the media and on blogs as to how China responds to the ever-more-apparent threat of American protectionism, and this attack on one of the keystones of China’s success, its undervalued currency.
Also, thanks to commenter Will for the tip about John Snow’s recent visit to China.
I had blogged that Snow's investment group, Cerberus, holds the controlling interest in NewPage, the paper company whose complaint that China was subsidizing its competitors led to the whole CVD brouhaha.
Following up, I came upon a profile,
Cerberus set to help China,
India take flight-Snow, by Alison Tudor, Reuter’s impressively-titled Asia Private Equity Correspondent.
It was dated February 22, 2007, when NewPage was already hip-deep in the CVD complaint.
Mr. Snow unburdened himself of his strategic thinking:
Cerberus Capital Management LP, which has a mandate to invest across all asset classes and sectors globally, believes in China it could add significant value at state-owned enterprises.
Cerberus already has a presence in Japan and Taiwan, and is in the process of setting up an office in Hong Kong. Longer-term it may set up offices in Beijing and potentially India. “Over time we hope to have a good footprint in India and China, probably China first,” Snow said in an interview with Reuters.Good luck with that, John.
So I’ve been doing a little thinking about my previous assumption that the Bush administration was coordinating with Snow’s firm when it chose Cerberus affiliate NewPage as the test case for pushing the CVD ruling.
Maybe it was more like assisted suicide, with the Bush administration happily indulging John Snow’s desire to rush to the head of the line and catch spears in his chest for the sake of the CVD determination.
I wonder how incensing Beijing with a highly political and economically incendiary attack on China's export regime fits in with Cerberus’s business strategy.
Per Reuters, Cerberus wishes to stake its claim in one the great (potential) gold rushes of the early 21st century: M&A services to Chinese state-owned enterprises.
Think of those hundreds of billions in forex reserves, the inexperienced managers of SOEs longing to spread their wings overseas, the overvalued properties, the bidding wars, the fees!
Reading between the lines, I think the Cerberus pitch is that the sun is setting on China’s export-driven economic boom. Domestic capital and international political pressures dictate that China can no longer hide behind the wall of its undervalued currency.
So far, so good.
In the new age, it's a reasonable assumption that Chinese capital must flow overseas (and into the pockets of investment bankers).
After all, the Chinese government is tired of the headache of dealing with its mounting forex surplus.
It would like to see some of those billions allocated rationally by market forces and diverted to productive investments overseas, so that China’s economy is diversified and less vulnerable to economic and political risk.
Snow argues that his firm can play a special role:
Snow’s Washington savvy and connections will help its clients circumvent U.S. protectionism and close those rich U.S. deals:
China's companies are keen to spread their wings abroad but several big deals, such as Chinese oil major CNOOC Ltd.'s acquisition of U.S. energy producer Unocal, have run aground during the U.S. approval process.
...
Snow, an experienced politician and well-known name in Asian political circles, hopes to help smooth the way for Cerberus' co-investors.
“In the case of investments in the United States, we would bring a real understanding and sensitivity to the process. We know the rules of that game that could help co-investors avoid legal barriers,” said Snow, who plans to visit Asia three or four times a year.
Not so fast.
Here’s a trip down memory lane on the Unocal bid
courtesy of the July 16, 2005 Washington Post:
Chevron's already formidable lobbying staff has been bolstered by a who's who of experts and Washington heavyweights: Wayne L. Berman, a top fundraiser for President Bush whose wife is the White House social secretary; Drew Maloney, a former legislative director of House Majority Leader Tom DeLay (R-Tex.); Kenneth J. Kies, a prominent tax lobbyist; former commerce secretary Mickey Kantor; Democratic trade experts Claude G.B. Fontheim and Kenneth I. Levinson; and David M. Marchick, a senior trade official in the Clinton administration who specializes in national security reviews by the high-level Committee on Foreign Investment in the United States. All of the action is coordinated daily during an 8:30 a.m. conference call led by Lisa Barry, Chevron's vice president of government affairs. "They're fielding a full team, and I think they're making all the right moves," said Todd M. Malan, executive director of the Organization for International Investment, which lobbies on behalf of foreign companies. Unfortunately for Mr. Snow, the lesson of the Unocal deal is that both sides outfitted themselves with the best investment bankers, lobbyists, and lawyers available, and the competitor with the best gang--including a member of the Bush inner circle married to the White House social secretary--wins.
And Cerberus doesn’t look like the A-Team.
Aside from Snow himself—widely
derided as an ineffectual, out of the loop empty suit as Treasury Secretary—what is Cerberus’s secret weapon?
Dan Quayle.
Cerberus also boasts former U.S. Vice President Dan Quayle as chairman of Cerberus Global Investments, a division of Cerberus Capital Management.
In any clash of the titans in the White House or on Capitol Hill, John Snow is probably going to get his and his clients’ lunches eaten.
In this context, the judgment of NewPage’s management—largely Cerberus appointees—in pushing the CVD suit is open to question.
Certainly, Cerberus wants to demonstrate to its Chinese clients an intimate knowledge of the regulatory, legal, and political pitfalls that await them in the U.S. market.
But is launching the CVD suit that has ignited Chinese anxiety and rage over its export driven business model really the way to do it?
I wouldn’t staff up that Beijing office too hastily, John.
Labels: Cerberus, China, CVD, John Snow, NewPage
Permalink posted by China Hand @ 11:55 AM
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Cerberus set to help China, India take flight-Snow
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By Alison Tudor, Asia Private Equity Correspondent
REUTERS
1:05 a.m. February 22, 2007
TOKYO – U.S. hedge fund Cerberus is exploring opportunities to help fast-growing Chinese and Indian firms make acquisitions abroad, said its chairman, former U.S. Treasury Secretary John Snow.
Cerberus Capital Management LP, which has a mandate to invest across all asset classes and sectors globally, believes in China it could add significant value at state-owned enterprises.
Cerberus already has a presence in Japan and Taiwan, and is in the process of setting up an office in Hong Kong. Longer-term it may set up offices in Beijing and potentially India.
“Over time we hope to have a good footprint in India and China, probably China first,” Snow said in an interview with Reuters.
Snow has visited China in recent weeks and will return over the coming months. He also plans to travel to India later this year.
China's companies are keen to spread their wings abroad but several big deals, such as Chinese oil major CNOOC Ltd.'s acquisition of U.S. energy producer Unocal, have run aground during the U.S. approval process.
The value of Asia Pacific companies acquiring U.S. firms is already running at $7.3 billion, nearly neck-and-neck with the 2006 total of 7.6 billion, and up from a recent low of $1.1 billion in 2003, according to data providers at Thomson Financial.
Snow, an experienced politician and well-known name in Asian political circles, hopes to help smooth the way for Cerberus' co-investors.
“In the case of investments in the United States, we would bring a real understanding and sensitivity to the process. We know the rules of that game that could help co-investors avoid legal barriers,” said Snow, who plans to visit Asia three or four times a year.
Cerberus hopes to compete with other funds eager to invest in China by aligning its interests with those of the Chinese government.
“What are China's objectives?” Snow said. “Well, modernise management practises, reduce the number of state-owned enterprises and make sure they create jobs.”
The firm can bring about 125 operating executives, plucked from highest echelons of corporate America, to bear on improving the target company's performance and hence boost employment.
Snow, prior to becoming treasury secretary in February 2003, was chief executive of U.S. railroad company CSX Corp.
PRUDENT PLANNING
Cerberus is the latest in a string of large U.S. funds to set up shop in Hong Kong. In January, both the Blackstone Group and Providence Equity Partners made big-name hires to boost deal-making in Asia.
Consequently, many players in alternative investment fear that too much capital is chasing too few deals, artificially inflating prices and creating a bubble.
Snow noted that Cerberus can invest in anything from auto financing to housing, so it will be well placed when the bubble bursts.
Cerberus began as a small hedge fund, focusing mainly on distressed debt investing, and about five years ago it added a private equity practise to its array of strategies.
Now Cerberus has about $22 billion under management, $8-10 billion of which is invested in Japan. Last year Cerberus led the acquisition of a majority stake in General Motor Corp.'s finance arm GMAC, alongside one of its Japanese portfolio companies, Aozora Bank Ltd.
Investors in New York-headquartered Cerberus include state and corporate pension funds, insurance companies, foundations and endowments.
REVOLVING DOORS
Snow joined Cerberus in October, one in a train of politicians moving to hedge funds. Cerberus also boasts former U.S. Vice President Dan Quayle as chairman of Cerberus Global Investments, a division of Cerberus Capital Management.
Another former U.S. treasury secretary, Lawrence Summers, who served in the Clinton administration, became a managing director at $25 billion D.E. Shaw & Co..
Snow, who was also an appointee in Gerald Ford's administration in the mid-1970s, followed that stint in government with about 25 years in the private sector before returning to public service in George Bush's government.
Snow, 67, said the revolving doors must be very slow moving, and given his track record he would be back in government in another 25 years.
http://www.signonsandiego.com/news/business/20070222-0105-asia-cerberus-snow.html
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