It’s a Deal For Chinese ODI

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Chinese overseas direct investment (ODI) continues apace – but with a focus on solid resources rather than shaky financials. But can the politics of protectionism be far behind? And will China be better prepared for it this time round? CSMonitor reports:

    “Squeezed between falling profits and the credit crunch, a growing number of troubled corporations and countries are turning to cash-rich China for a bailout. And with foreign assets cheaper than they have been for years, Beijing is going on an international spending spree.

    …So far, the government has concentrated on natural-resource deals, securing supplies of oil and minerals in return for large amounts of cash. But private Chinese firms are also taking advantage of the crisis in other sectors: Diesel-engine giant Weichai Power is expected to buy a French plant that GM is selling off in its struggle to survive.

    …The China Development Bank, for example, is financing China’s biggest-ever foreign investment – a $19.5 billion bid by the mostly state-owned Aluminum Corp. of China for an 18 percent slice of Rio Tinto. The Australian mining company desperately needs the cash in order to pay off $19 billion in debt over the next two years.

    That deal, still to be approved by Australian regulators, is seen here as a pathfinder. “It illustrates Chinese state business’s strong capacity … and gathered experience for state-owned firms to operate abroad in the future,” explained an article published earlier this month in People’s Daily.

    Other recent multibillion-dollar deals include the purchase by China Petrochemical Corp., the country’s second-largest oil producer, of Canada’s Tanganyika Oil, which works in Syria, and the bid that China Minmetals has made for OZ Minerals, an Australian zinc producer on the verge of bankruptcy.

    …Last week the Chinese government sank $39 billion of that money in three separate deals to secure future oil supplies from Russia, Brazil, and Venezuela.

    A $25 billion loan to Russia, whose economy is reeling from plummeting oil prices, won a promise to supply 290,000 barrels per day for the next quarter-century and to build a pipeline into China.

    …A $10 billion loan to Brazil, announced during a visit to the country by Chinese Vice President Xi Jinping, secured a similar pledge to provide up to 160,000 barrels of crude a day, while Mr. Xi also signed a deal with Venezuela for up to 1 million barrels per day by 2015 in return for another $4 billion from China to top up an existing development fund.

    …Few expect Beijing to invest in the troubled financial sector, however, despite the hopes some foreign banks have harbored of attracting Chinese money. “Natural resources are so strategic for a country, they can justify investments there, but they can’t justify another financial sector deal,” says Andy Xie, an independent economist.

    China’s sovereign wealth fund has lost between half and two-thirds of investments it made over the past two years in Morgan Stanley, Blackstone, and Barclays, Mr. Xie points out.

    As China begins to move again on the international scene, taking advantage of low prices, it remains to be seen how much political resistance its bids will provoke.”

Other ODI news includes:

2 Responses to “It’s a Deal For Chinese ODI”

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    […] did a review of other ODI news recently (“It’s a Deal For Chinese ODI” and more is coming all the time, so keep […]

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