China’s $17 billion bid for YPF is just the starting point for a monster feast.
China will increase its investment in natural resources by “at least half” to take advantage of lower commodity prices and valuations, Bloomberg reports.
This is a sound decision, as we wrote at the end of July:
Thanks to its smart strategy of lending us money to buy its products and services, China owns $2.2 trillion in Treasuries and other foreign paper. This makes China rich, but it has also left it exposed to getting clobbered if inflation destroys the value of the dollar. If China starts dumping Treasuries to protect itself from inflation, meanwhile, it will destroy the value of the rest of the paper it holds.
So, China will be using those dollars to get some physical assets that will help it in the long run. While the rest of the world is on bended knee, sucking wind, China is stocking up.
It looks like the biggest challenge for China will be convincing countries that it’s not a big bad Hoover vaccum, ready to suck up precious resources and own the world.
Here’s Bloomberg’s account of what China plans on doing. Expect bigger, bolder deals to start coming out of China:
China, unfazed by failures to invest in Rio Tinto Group and Unocal Corp., will boost spending on oil and mining acquisitions by at least half this year to take advantage of lower valuations after commodity prices slumped.
State-owned Yanzhou Coal Mining Co. yesterday agreed to buy Australia’s Felix Resources Ltd. for about A$3.5 billion ($2.9 billion), a day after Sinochem Corp., China’s biggest chemicals trader, offered to buy Emerald Energy Plc for 532 million pounds ($881 million) to gain oil fields in Syria and Colombia.
China National Petroleum Corp.’s plan to buy Repsol YPF SA’s Argentine unit may push Chinese purchases of overseas commodity assets to $43 billion this year, a 48 per cent increase on 2008, according to data compiled by Bloomberg.
…Bids for resources by China, whose $2.1 trillion in currency reserves are the world’s largest, have been met with opposition in the U.S. and Australia. Neither concern over its growing influence nor the arrest of four Rio executives in Shanghai have stopped Chinese companies from buying assets abroad as the nation’s 4 trillion yuan ($585 billion) economic stimulus spurs demand.
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