China is sitting on $2 trillion worth of Treasuries and other foreign paper that is becoming worthless with each passing day.
What’s an ambitious, developing country to do? Put the dollars to work.
“We should hasten the implementation of our ‘going out’ strategy and combine the utilisation of foreign exchange reserves with the ‘going out’ of our enterprises,” Wen Jiabao, the country’s premier told Chinese diplomats at the end of July.
“Going out” is China’s slogan for acquiring abroad through its state owned corporations like PetroChina and Chinalco.
Last year China spent $41 billion on acquisitions, up from $143 million in 2002, according to the FT. Since December China has spent $13 billion on acquistions says Bloomberg. It plans on spending much more than that in the coming months. At the end of August, PetroChina announced it was looking for more acquisitions, wanting to cash in on “favourable opportunities.” CNOOC also announced the same at the end of the month.
This is a change of pace for the country. It was giving loans in exchange for oil last year. China made over $45 billion in loans to Russia, Brazil, Venezuela and Kazakhstan. In return it got long-term oil contracts.
The country abandoned that strategy when it realised it had a once in a lifetime opportunity to snap up deal after deal around the world. China saved up ahead of this downturn. Now it’s running through the world cashing in on steep discounts left and right.
China National Petroleum Corp. and Cnooc Ltd. put in a $17 billion bid for for all of Repsol YPF SA's stake in YPF, its Argentine unit. This would be the biggest foreign investment by China.
It's uncertain what's going to happen, as the Argentine government is wary of Chinese influence over the pricing, and supply and demand of oil there. Also, India is interested in the company as well.
China isn't just betting on Argentine oil. It's diversifying its oil bets, as you'll see.
PetroChina spent $1.7 billion to buy 60% of Athabasca Oil Sands Corp at the end of August. The chairman of Athabasca, Bill Gallacher was enthusiastic about the development. Oil sands are very expensive. Having a well financed backer will be key to future oil production.
Sinopec acquired Swiss oil company Addax for $7.2 billion in June to gain access to Addax's contracts to drill for oil in Africa and Iraq.
This was the largest Chinese acquisition on record at the time, and a risky move, as Addax drills in the Northern regions of Iraq. Early reports indicated that Iraq might blacklist Sinopec. Reuters reported at the end of August that the deal received Iraqi approval.
Australia will export $41 billion worth of natural gas to China. In Australia's largest ever foreign deal, its Gorgon natural gas project will export 2.25 million tons of natural gas annually to China.
How did China get this deal approved, after a scrape with Australia over the Rio Tinto deal? By turning it into a 'stimulus'. Australia's resources minister said it would create 6,000 jobs for Australia and billions in spending.
CNPC teamed up with BP to make a successful bid on Iraq's Rumalia oil field. The companies will be drilling oil, and paid $2 a barrel for every barrel above 1 million they sucessfully retreive. (They think they could get 2.85 million daily.)
It's not exactly the same thing as getting the entire resource, but it provides CNPC with an early in with the Iraqi government, and Iraqi oil fields.
Sinopec and CNOOC bought a 20% interest in off shore Angolan oil from Marathon Oil in mid-July. They paid $1.3 billion. Bloomberg reports that Marathon wanted to sell for more than $2 billion, though an analyst said that price was much too high, and $1.3 billion was fair.
Sinochem paid $876.9 million for UK-based Emerald Energy, an oil and gas company with Middle Eastern and South American operations. Sinochem paid a 34% premium for the company's stock.
No word on price here, but China National Aviation Fuel Holding Co.is looking at acquiring, a refinery in South Korea. This is keeping in line with China's intent to acquire from developing countries.
While we said China is mostly interested in purchasing assets, it was still interested in loaning money for oil.
Here's 24/7 Wall St's run down of some deals: Earlier this year, Petroleo Brasileiro SA in Brazil agreed to a $10 billion loan from the China Development Bank and to supply oil to China through China Petroleum & Chemical Corp. (NYSE: SNP). While this is at market prices, the deal does continue to secure more and more oil for China. Around the same time, China National Petroleum signed separate deals with Russia and with Venezuela where China would provide $25 billion to Russia and $4 billion to Venezuela in loans for long-term commitments to supply oil.
China doesn't need to buy rare earth metals--those minerals used in all sorts of high tech products from missles to Priuses--it mines 93% of them. So, it's locking them down.
China has reduced the amount it will export from 53,000 tons a year to 35,000 tons. It also added a 42% tax on dysprosium, terbium and others.
OK, it's not a natural resource, but there's one place where China's trade is weak: Arms. China Stakes reports 'China's arms exports ranked tenth and accounted for only 1% of the world's arms trade, less than 1/20 of that of the US, 1/10 of Russia's, ranking below even Sweden and Spain.'
Don't expect that to last forever. China's strong manufacturing base makes it a shoe in for some arms development eventually. It's just got to get around the US, France, Britain, and Russian, who are holding back its arms trade.
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