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By Adam Rose
BEIJING, Dec 23 (Reuters) - Two foreign investments inChinese financial institutions this month suggest China will notturn away cash from countries it has taken diplomatic or trademeasures against after blaming them for interference in itsdomestic affairs.
Santander, Spain's largest bank, announced on Dec.10 that it was buying an 8 percent stake in Chinesestate-controlled Bank of Shanghai .
Two days later, Norges Bank Investment Management, Norway'ssovereign wealth fund, was part of a consortium of cornerstoneinvestors that pumped $1.1 billion into asset manager Cinda's initial public offering.
Both Spain and Norway have drawn Beijing's ire for actionsunrelated to trade and investment.
China, the world's second largest economy, often usesundeclared trade sanctions to punish countries with which it hasdiplomatic differences. But Beijing is careful not to hurt itsown economy in the process, and inbound foreign investment isnot usually affected.
"China obviously has more political sensitivities and morepolitical taboos than other countries" said Joseph Cheng, apolitical scientist at City University of Hong Kong. "So you seethe use of economic sanctions for an unannounced objective moreoften."
In 2012, amid tensions with the Philippines over a disputedshoal in the South China Sea, China temporarily disruptedFilipino banana imports by imposing a strict quarantine.
During a spat in 2010 over a Chinese fishing vessel thatrammed a Japanese coast guard cruiser, Japanese companiescomplained that China had halted exports of rare earth minerals,used in a range of industries including defence,telecommunications and renewable energy. Beijing denied thecharge.
"Companies within the affected sectors in the target countryoften complain to their own government," said James Reilly, asenior lecturer at the University of Sydney who writes aboutChinese sanctions. "Chinese leaders seem to rely upon suchprocesses to deliver the message."
During both incidents, China publicly cited legitimateconcerns: pests, and environmental damage from illegal mining.
"It's actually relatively easy to impose short-termrestrictions on trade through a variety of excuses," said DuncanInnes-Ker, senior China analyst at the Economist IntelligenceUnit.
Trade with Japan, China's second-largest trading partnerafter the United States, has declined since 2011 as tensionshave spiraled over a groups of islands claimed by both nations, but direct foreign investment from Japan continues to grow.
"Certainly we tend to see a lot more action on the tradeside than we do on the investment side," said Innes-Ker.
"It's a lot more painful if you do it on the investmentside."
The DALAI LAMA EFFECT
Some analysts call the undeclared sanctions "economicbullying".
In what is called the "Dalai Lama effect," countries whosehead of state or government meet the exiled Tibetan leader seeexports to China drop 8 to 17 percent in the two yearsfollowing, according to a 2010 study by two researchers atGermany's University of Goettingen.
In 2008, an Airbus deal was delayed when the then FrenchPresident, Nicolas Sarkozy, decided to meet the Dalai Lama. Tiesbetween the two nations improved only in 2010.
China has also threatened economic measures against Italyand Germany before their top leaders met with the Tibetanspiritual leader.
But it does not always follow through. In 2010, Chinathreatened but never implemented sanctions against U.S. weaponsand aerospace firms involved in a proposed $6.4 billion armssale to self-ruled Taiwan, including Boeing Co..
In the most recent tiff, Spain incurred Beijing's wrathearlier this year when a court indicted China's ex-president HuJintao and issued an arrest warrant for ex-president JiangZemin, over accusations of genocide in Tibet. China dismissedthe charges as absurd and summoned the Spanish ambassador toprotest..
Spanish authorities have not publicly reported any softeconomic sanctions despite angry rumblings in Beijing.
The Santander deal requires formal approval from the ChinaBanking Regulatory Commission, but since the deal has beenpublicly announced, it is likely some form of tacit approval hasbeen obtained, analysts say.
Santander agreed to buy out HSBC's minority stakein the Bank of Shanghai, which it said had 98 billion euros($133.95 billion) of assets and was the second-biggestcity-focused commercial and retail bank in the country.
Given the current state of its banking sector, China may notbe in a position to turn away investors. Domestic banks arelooking for additional private capital to help absorb anexpected surge in bad loans as economic growth slows and somestimulus-era loans turn sour, analysts say.
NORWEGIAN RELATIONS
In 2010, Norway's diplomatic relations with China werefrozen after the Nobel Committee awarded the Nobel Peace prizeto jailed Chinese dissident Liu Xiaobo.
China cancelled meetings with Norwegian officials and deniedvisas to visiting dignitaries, even though Norway's governmentsays it has no influence over the Nobel committee.
Norwegian salmon imports dropped 52 percent, year on year,in the first quarter of 2011. This year, salmon imports arestill down 20 percent from 2010, although overall trade hasrisen.
Norway's diplomatic relations with Beijing show small signsof improvement. Boerge Brende, Oslo's new foreign minister, metPremier Li Keqiang in August, while still a member of theopposition.
"It is extremely important that the relationship betweenChina and Norway is normalised," Brende told a Norwegian paper,Dagens Naeringsliv, after taking office this October.
One hurdle may be the Dalai Lama's planned unofficial visitto Norway next May.
Either way, China can expect more Norwegian cash in thefuture.
Aside from the investment in Cinda, Norway's wealth fundalso received approval in October from China's foreign currencyregulator to raise the limit of its investment in Chinesestocks, to $1.5 billion from $1 billion.
"It is high on my agenda to have a good dialogue withChina," Brende said.
