A spectre is haunting Europe, the spectre of Asian takeover

Swaminathan S Anklesaria Aiyar The Economic Times August 1, 2007

Today, globalisation is equated with economic liberalisation. Of course, the Soviet Union once sought a different sort of socialist globalisation. But the Soviet Union is now gone, and globalisation is seen to be driven by the private sector. Indeed, the critics of globalisation fear that multinational corporations will overwhelm governments and rule the world.

Given this background, something peculiar is happening. With little fanfare, globalisation is now facilitating a massive back-door nationalisation that dwarfs the nationalisation of the Cold War era. The old nationalisation was of domestic companies. The new nationalisation takes the form of governments acquiring corporations abroad. The charge has been led by Asian governments, who have acquired corporate assets worth billions. The finance available for purchases runs into trillions of dollars, enough to take over the biggest MNCs. This is the result of two new trends.

• One is the desire of governments with massive foreign exchange reserves to diversify out of low-yielding gilts into equity.
• The second is the surging appetite of state-owned enterprises in the Third World to acquire foreign assets, sometimes with quasi-political motives...

However, the Asian desire to switch part of reserves from gilts to equity has major long-term implications. Asian and OPEC reserves are so large that their equity stakes in some companies are bound to become very large, and threaten a takeover. There are already rumblings in the west. Last year, when a Chinese company wanted to take over Unocal, the US refused on strategic grounds. It also refused the Dubai Ports takeover. But a subtler threat could be creeping acquisition. Protectionist paranoia about foreign investment is not yet sweeping the west. Yet if forex accumulation in Asia and OPEC continues at $2-3 billion per day, the mood will change. We may see a new version of the old Marxist adage: a spectre is haunting Europe, the spectre of Asian takeover.