Chinese companies have been on a shopping spree in the past month, snapping up tens of billions of dollars’ worth of key assets in Iran, Brazil, Russia, Venezuela, Australia and France in a global fire sale set off by the financial crisis.
The deals have allowed China to lock up supplies of oil, minerals, metals and other strategic natural resources it needs to continue to fuel its growth.
The sheer scope of the agreements marks a shift in global finance, roiling energy markets and feeding worries about the future availability and prices of those commodities in other countries that compete for them, including the United States.
Just a few months ago, many countries were greeting such overtures from China with suspicion. Today, as corporations and banks in other parts of the world find themselves reluctant or unable to give out money to distressed companies, cash-rich China has become a major force driving new lending and investment.
On February 12, China’s state-owned metals giant Chinalco signed a $19.5 billion deal with Australia’s Rio Tinto that will eventually double its stake in the world’s second-largest mining company.
In three other cases, China has used loans as a way of securing energy supplies.
On February 17 and 18, China National Petroleum signed separate agreements with Russia and Venezuela under which China would provide $25 billion and $4 billion in loans, respectively, in exchange for long-term commitments to supply oil. And on February 19, the China Development Bank struck a similar deal with Petrobras, the Brazilian oil company, agreeing to a loan of $10 billion in exchange for oil.
On Saturday, Iran announced that it had signed a $3.2 billion agreement with a Chinese consortium to develop an area beneath the Persian Gulf seabed that is believed to hold about eight per cent of the world’s reserves of natural gas. In 2008, China’s overseas mergers and acquisitions were worth $52.1 billion — a record, according to the research firm Dealogic. In January and February of this year, Chinese companies invested $16.3 billion abroad, meaning that if the pace holds, the total for 2009 could be nearly double last year’s.
Worldwide, the value of mergers and acquisitions transactions so far this year has dropped 35 per cent to $384 billion.
By comparison, the United States had $186.2 billion in outbound mergers and acquisitions in 2008 and Japan had $74.3 billion.
China’s state-run media outlets are calling the acquisition spree an opportunity that comes once in a hundred years, and analysts are drawing parallels to 1980s Japan. “That China started investing or acquiring some overseas mineral resources companies with relatively low prices is quite a normal practice. Japan did the same thing in its prime development period, too,” said Xu Xiangchun, consulting director for Mysteel.com, a market research and analysis firm.
The Chinese government has come to the rescue of ailing countries, such as Jamaica and Pakistan, which it wants as allies, extending generous loans.
Even Chinese consumers are taking their money abroad. In a shopping trip last month organised by an online real estate brokerage, a group of 50 individual investors from China travelled to New York, Los Angeles and San Francisco to purchase homes at prices that have crashed since the sub prime crisis. “As soon as we launched the project, we had 100 people registered and ready to go,” said Dai Jianzhong, chief executive of SouFun Holdings, which organised the trip. “Now the number has reached 400.” China’s commerce ministry organised a similar shopping expedition last month. Commerce minister Chen Deming took with him about 90 executives, who signed contracts worth about $10 billion in Germany, $400,000 in Switzerland, $320 million in Spain and $2 billion in Britain. The deals were mostly for the purchase of goods, including olive oil, 3,000 Jaguars and 10,000 Land Rovers.
On February 23, Weichai Power, a diesel engine company, said it would spend about $3.8 million to acquire the products, technology and brand of France’s Moteurs Baudouin, which designs and manufactures marine propulsive equipment such as engines and propellers.
Chen Bin, director general of the National Development and Reform Commission’s Department of Industry, hinted that large acquisitions may be in the works. “It will be a very big challenge for Chinese companies to stabilise the operations of foreign automakers and to maintain growth,” Chen acknowledged.
The one country that appears conspicuously absent from China’s corporate bargain-hunting spree is the United States. Many Chinese investors are still stung by the memory of China National Offshore Oil’s 2005 attempt to buy a stake in the US energy company Unocal. The deal fell apart after US lawmakers expressed concern about the national security implications of China controlling some of the country’s oil resources.
Xiong Weiping, president of Chinalco, whose bid for a larger stake in Rio Tinto is China’s biggest outbound investment to date, has taken measures to address concerns as scrutiny of that deal has increased. The deal will be put to a shareholder vote in May or June and must also be approved by Australia’s Foreign Investment Review Board.
At a news briefing in Sydney on March 2, Xiong assured the country that Chinalco is not seeking a majority share of the mining giant and that its management and corporate strategy would not change. Xiong emphasised that “the transaction will in no way lead to any control of the natural resources of Australia.”
© The Washington Post