July 2005 : French Prime Minister Dominique de Villepin preached "economic patriotism." From London to Brussels, the condemnations were unanimous. August 2007 : German Chancellor Angela Merkel announces a proposed law to "preserve national interests in the face of problematic foreign investments." Nobody is offended by it. Why the difference ? Because in two years the perception of globalization has changed.
For two decades, globalization has rhymed with liberalization and privatization. That’s over, or very nearly so. Tomorrow, by a strange reversal of the situation, globalization will rhyme more and more with nationalizations. With one important new detail : companies will no longer be the property of the State in which they were created, but will belong to the planet’s new bankers : notably China, Russia, Norway and the Gulf States.
In fact, thanks to the rise in raw material prices or their trade surpluses, these countries have money. Lots of money. For a long time, they were content to manage it paternally, especially by buying US Treasury Bonds. Then, observing that the stock market offered a better return over the long run, a number of these countries acquired stocks, taking shares here and there in private companies. They went from being lenders to becoming owners. But, often minority shareholders : they did not interfere in management and settled for collecting their dividends. In this way, the Norwegian government pension fund, which manages a trifling 300 billion dollar (219.5 billion Euros) portfolio, is a shareholder in about 90 French companies, but never holds more than about 1 percent of the shares of any of them.
That could become the exception. The Dubai investment fund just acquired 9.5 percent of MGM Mirage, billionaire Kirk Kerkorian’s company, which owns a third of the casinos and half the hotel rooms in Las Vegas. Through its different subsidiaries, the same investment fund owns 3.12 percent of EADS. It does not hesitate to oppose the Swedish authorities in order to buy up OMX, one of Northern Europe’s stock exchanges. The Qatar fund, for its part, is ready to spend 24 billion dollars to acquire the British supermarket chain Sainsbury.
These funds are not a novelty : the Emirate of Kuwait created its own in 1960. Temasek, the Singapore fund, was created in 1974. But their rise in power and emerging activism change the landscape. According to a recent study by Morgan Stanley, these public investment funds (called "sovereign") which today manage around 2,500 billion dollars - a third of which comes from the United Arab Emirates alone - could, as of 2015, be managing 12,500 billion dollars !
In Russia, a "Fund for Future Generations" will be launched February 1, 2008. Endowed each year with about 40 billion dollars derived from oil and gas manna, it will go shopping abroad, as Gazprom tried to do by attempting to acquire Centrica, the principal British gas distributor.
But it’s China that worries people the most. On the strength of its gigantic foreign exchange reserves (around 1,200 billion dollars), Beijing has announced that a public investment fund would devote about 300 billion dollars a year to foreign investments. An absolute record in international relations. Recalculated in current dollars, according to experts, the Marshall Plan launched by the United States to rebuild Europe after 1945 would amount to about 100 billion dollars. With 300 billion a year, China could, for example, buy all the French companies that comprise the CAC 40 within five years.
Beijing already created a sensation in June by acquiring 10 percent of the powerful American investment fund Blackstone - shareholder in many companies, notably Deutsche Telekom - for three billion dollars.
Secular Arms of Their Governments
Suddenly, the West has begun to wonder. In the name of liberalism and free circulation of capital, must foreign States be allowed to do their shopping and purchase Western technologies ? Apart from the Norwegian fund, the other sovereign funds have a frequently opaque management and are, in fact, the secular arms of their governments. In an interview granted to the daily Handelsblatt in July, Angela Merkel did not hide the substance of her thinking : "The question is to know whether the shareholding acquisition of a fund endowed with public money is not tied to the desire to exercise political influence."
Germany is not the only one to worry. The United States, so happy that the Chinese lend it money, is not so pleased by China’s acquisitions. After blocking the purchase of the oil company Chevron by the China National Offshore Oil Corporation (CNOOC) and the acquisition of five ports by the Dubai fund, Washington decided at the beginning of this year to strengthen the role of the committee charged with controlling foreign investments in sensitive sectors (transport, telecommunications, energy, health). When the buyer is all or partly controlled by a foreign State, that committee will have 45 days to study the case. There is an obligation to consult the director of national intelligence and to inform Congress of the result of those investigations. The secretaries of state, the Treasury and national security must give their approval.
A sign of the change that has occurred in the last two years : although he seems to deplore the German initiative, the British European trade commissioner, Peter Mandelson, envisages creating a "European golden share." Even the International Monetary Fund is getting into the act. Its next annual meeting in October will focus on sovereign investment funds liable, according to one of its directors, to threaten "global stability." That’s also the opinion of Morgan Stanley, which deems that the tensions between emerging and developed countries on this question could "undermine globalization."
The West will have much to do in order not to be accused of latent racism. The opacity of sovereign funds is no greater than that of hedge and investment funds. And if they are the armed branches of their governments, one could not swear that certain American or European groups do not play an equivalent role in their respective countries. On this issue, the West is consequently on the defensive for good and for certain. That would be normal : for the first time, it’s no longer the West that holds the strings to the stock exchange.