Tag American Flag is IT For Sale

What will China buy? Beijing goes shopping in the U.S.

October 28, 2013, 10:23 PM

 

China is forecast to spend roughly $1 trillion over the next decade buying up foreign assets, including about $15 billion to $20 billion a year on U.S. investments, according to the Kiplinger Letter.

But what, exactly, are Chinese firms buying?

Kiplinger offers its best guess as to which sectors will be targeted, based on recent acquisitions:

1) Energy: With China relying on imported energy, it may seek assets here. Kiplinger cites state-owned Sinochem’s $1.7 billion purchase for a share of Texas shale formations owned by Pioneer Natural Resources Co.   PXD
 
2) Financial Services: Some Chinese interests may look for purchases that offer U.S. financial expertise, “as the Asian giant prepares for the more open financial markets that will come with a consumer economy,” the investment letter said.

3) Food Production: Here, the main impetus is securing food supplies not tainted with the litany of food-safety scandals that plague the Chinese market. Case in point: Shuanghui Group’s $4.8 billion deal for Smithfield Foods Inc. (Read Craig Stephen’s column of China’s food-safety ambitions.)

4) Real Estate: While the appetite for U.S. property among individual Chinese investors is well known, Kiplinger also sees more purchases ahead in the commercial real-estate space, along the lines of Fosun International Ltd.   HK:656 snagging One Chase Manhattan Plaza, or the Chinese consortium which bought the General Motors building, also in New York.

5) Manufacturing: This front involves China seeking “to hang on to work that is, in some cases, moving back to the U.S.,” according to Kiplinger, citing a recent investment in a U.S. auto-parts plant by Chinese firm Yanfeng USA.

— Michael Kitchen  http://blogs.marketwatch.com/thetell/2013/10/28/what-will-china-buy-beijing-goes-shopping-in-u-s/

Follow Michael on Twitter at @KitchenNews
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* In April 2009, CNPC formed a joint venture with Kazmunaigas, the state oil company of the energy-rich Central Asian state of Kazakhistan, to purchase a Kazakh energy firm, JSC Mangistaumunaigas (MMG), for $3.3 billion.  This was just the latest of a series of deals giving China control over about one-quarter of Kazakhstan’s growing oil output.  A $5 billion loan-for-oil offer from China’s Export-Import Bank made this latest deal possible.

* In October 2009, a consortium led by CNPC and the oil heavyweight BP won a contract to develop the Rumaila oil field in Iraq, potentially one of the world’s biggest oil reservoirs in a country with the third largest reserves on the planet.  Under this agreement, the consortium will invest $15 billion to boost Rumaila’s daily yield from 1.1 to 2.8 million barrels, doubling Iraq’s net output.  CNPC holds a 37% share in the consortium; BP, 38%; and the Iraqi government, the remaining 25%.  If the consortium succeeds, China will have access to one of the world’s most-promising future sources of petroleum and a base for further participation in Iraq’s underdeveloped oil industry.

* In November 2009, Sinopec teamed up with Ecuador’s state-owned Petroecuador in a 40:60 joint venture (with Petroecuador holding the larger share) to develop two oil fields in Ecuador’s eastern Pastaza Province.  Sinopec is already a major producer in Ecuador, having joined with CNPC to acquire the Ecuadorian energy assets of Canada’s EnCana Corp. in 2005 for $1.4 billion.

* In December 2009, CNPC acquired a share of the Boyaca 3 oil block in the Orinoco Belt, a large deposit of extra-heavy oil in eastern Venezuela.  In that month, CNOOC formed a joint venture with the state-owned company Petróleos de Venezuela S.A. to develop the Junin 8 block in the same region.  These moves are seen as part of a strategic effort by Venezuelan President Hugo Chávez to increase his country’s oil exports to China and reduce its reliance on sales to the U.S. market.

* That same December, CNPC signed an agreement with the government of Myanmar (Burma) to build and operate an oil pipeline that will run from Maday Island in the western part of that country to Ruili, in the southwestern Chinese province of Yunnan.  The 460-mile pipeline will permit China-bound tankers from Africa and the Middle East to unload their cargo in Myanmar on the Indian Ocean, thereby avoiding the long voyage to China’s eastern coast via the Strait of Malacca and the South China Sea, areas significantly dominated by the U.S. Navy.

* In March 2010, CNOOC International announced plans to buy 50% of Bridas Corp., a private Argentinean energy firm with oil and gas operations in Argentina, Bolivia, and Chile.  CNOOC will pay $3.1 billion for its share of Bridas, which is owned by the family of Argentinean magnate Carlos Bulgheroni.

* In March, PetroChina joined oil major Shell to acquire Arrow Energy, a major Australian supplier of natural gas derived from coal-bed methane.  The two companies are paying about $1.6 billion each and will form a 50:50 joint venture to operate Arrow’s holdings.

And that’s only in the energy field.  Chinese mining and metals firms have been scouring the world for promising reserves of iron, copper, bauxite, and other key industrial minerals.  In March, for example, Aluminum Corp. of China, or Chinalco, acquired a 44.65% stake in the Simandou iron-ore project in the African country of Guinea.  Chinalco will pay Anglo-Australian mining giant Rio Tinto Ltd. $1.35 billion for this share.  Keep in mind that Chinalco already owns a 9.3% stake in Rio Tinto, and has been prevented from acquiring a larger share mainly thanks to Australian fears that China is absorbing too much of the country’s energy and minerals industries.

Shifting the World’s Resource Balance

Chinese companies like CNPC, Sinopec, and Chinalco are hardly alone in seeking control of valuable foreign resource assets.  Major Western firms as well as state-owned companies in India, Russia, Brazil, and other countries have also been shopping for such properties.  Few, however, have been as determined or single-minded as Chinese firms in taking advantage of the relatively low prices that followed the global recession, and few have the sort of deep pockets available to such companies, thanks to the willingness of the China Development Bank and other government agencies to offer munificent financial backing.

When the United States and other Western nations finally recover from the Great Recession, therefore, they will discover that the global resource chessboard has been tilted strongly in China’s favor.  Energy and mineral producers that once directed their production -- and often their political allegiance -- to the U.S., Japan, and Western Europe now view China as a major customer and patron.  In one eye-catching sign of this shift, Saudi Arabia announced recently that it had sold more oil to China last year than to the United States, previously its largest and most pampered customer.  “We believe this is a long-term transition,” said Khalid A. al-Falih, president and chief executive of Saudi Aramco, the state-owned oil giant.  “Demographic and economic trends are making it clear -- the writing is on the wall.  China is the growth market for petroleum.”

For now, Chinese leaders are avoiding any hint that their recent foreign resource acquisitions entail political or military commitments that could produce friction with the United States or other Western powers.  These are just commercial transactions, they insist.  There is, however, no escaping the fact that growing Chinese resource ties with countries like Angola, Australia, Brazil, Iran, Kazakhstan, Saudi Arabia, Sudan, and Venezuela have geopolitical implications that are unlikely to be ignored in Washington, London, Paris, and Tokyo.  Perhaps more than any other recent developments, China’s global shopping spree reveals how the world’s balance of power is shifting from West to East.

Michael Klare is a professor of peace and world security studies at Hampshire College in Amherst, Mass., and the author, most recently, of Rising Powers, Shrinking Planet.  A documentary movie version of his previous book, Blood and Oil, is available from the Media Education Foundation.

Copyright 2010 Michael T. Klare  http://www.resilience.org/stories/2010-04-01/chinas-global-shopping-spree