European gloom causes credit squeeze

Multinational companies are now seeking local funds to grow in China

HONG KONG / SHANGHAI - Concerted action by the world's biggest central banks to lower borrowing costs and boost the global economy amid the eurozone's worsening sovereign-debt crisis has failed to dispel growing concerns of a worldwide credit squeeze.

A visitor inside the dome of the Reichstag, Germany's parliament, in Berlin. Europe's sovereign debt crisis has led to a global credit seizure, forcing some multinationals in China to seek help from local banks to meet their funding demands.[Photo/Bloomberg News]

The latest reports of a pullback by lenders in Europe and, to a lesser extent, the United States, have sounded a clarion call for many multinational companies, especially those headquartered in France or Germany. They are now scrambling to locate other funding sources to finance their expansion plans in China, which remains one of the few bright spots amid the global gloom.

Some foreign companies are rushing to establish new, or bigger, credit lines with domestic banks, including the more aggressive non-State-owned lenders, and overseas banks with access to the large offshore yuan pool in Hong Kong. Others are making preparations to directly tap Hong Kong's offshore yuan capital market through bond issues. There are also those who have shown an interest in selling equities to Chinese investors on the proposed International Board of the Shanghai Stock Exchange, when it eventually begins trading.

Indeed, large and small companies around the world - ranging from international airlines, shipping giants, property developers, manufacturing conglomerates and even restaurateurs and wine sellers - are reported to be feeling the strain as European banks reduce lending in an effort to hoard capital and shore up their balance sheets.

The specter of another global credit seizure - which, if it occurs, is widely expected to be on a bigger scale than the one after the collapse of Lehman Brothers Holdings Inc in 2008 - is forcing many multinational companies to re-examine their global investment plans. However, cutting back on expansion in the Chinese market seems to be the last thing on their minds.

Ken Greene, president and managing director, Asia Pacific, of the Wyndham Hotel Group, which has opened 131 hotels on the Chinese mainland in the past 12 months, said the lackluster global economy may be haunting the hotel sector, but Wyndham's ambitious expansion plan for the mainland will remain unchanged, driven by both the government's effort to develop the infrastructure and the booming growth in foreign and domestic travelers.

"Our chairman made a statement to Wall Street earlier that we are aiming to develop as many properties on the mainland as we have in the States, although our group currently encompasses about 6,200 hotels in the US while it's only around 400 on the mainland," said Greene in an exclusive interview with China Daily on Dec 1.

A source with the China-based subsidiary of one of Germany's top manufacturers of sports equipment said the company sees no need to shrink budgets or postpone market expansion in China.

"China is one of the very few markets that may promise us an increase in profit," the source said on Dec 4.

The companies' determination to stick to their original plans in China is understandable. Although the country's economic growth engine is widely expected to lose some steam in 2012 and beyond, it is still moving ahead at a considerably faster clip than the global average. The World Bank has forecast GDP growth of 8.4 percent for China in 2012.

The ratings agency Standard & Poor's placed 15 European countries on watch for possible downgrades after German Chancellor Angela Merkel and the French President Nicolas Sarkozy said on Dec 5 that they want to revamp the European Union (EU) treaty and want EU leaders to meet on a monthly basis. However, the possibility of using eurobonds and the central banks as lenders of last resort has been ruled out for the time being.