China is taking advantage of the fact that it built up a tremendous cash cushion during the boom. With its pile of US dollars still extremely valuable and global commodity prices very cheap, it’s betting that now is a good time to trade one for the other and establish some security with respect to commodities.
Last week the country signed a big, $10 billion financing deal with Brazilian oil firm Petrobras. Today, the $200 billion China Investment Corp. took a $3 billion stake in Austrlian iron ore miner Fortescue.
Gregor Macdonald notes a few other deals China has recently made and adds:
What seems to have escaped wider observation, however, is that deals such as these are a clever way for China to dehoard itself of dollars. This has been a favourite theme of mine for years, as an investor and chronicler of global energy supply. On Tuesday I wrote the following on Twitter: Russia has oil and needs dollars. China has dollars and needs oil. Kismet! Wait. Perhaps there are other observers out there. In today’s LEX column in the FT of London: “China has what Russia wants: masses of US dollars. Russia has what China wants: energy. Hence Tuesday’s oil-for-loans agreement between Moscow and Beijing.”