The global banking system is going through a major deleveraging of its balance sheets and what that means is that the good assets will be let go only because they are the only ones that can be sold.
This opens the doors for Chinese sovereign wealth to be plowed into assets that will support the continued expansion of the Chinese economy. This story is only beginning, and the tragedy is this was made possible by the disastrous promotion of the mortgage credit bubble.
From Calgary to Caracas, China snapping up resources
by Staff Writers
Shanghai (AFP) March 1, 2009
Resource-hungry China has seized upon the financial crisis to sign billions of dollars in deals in a buying spree that is set to pick up pace and reshape the global economic landscape, analysts say.
From Calgary to Caracas, China has hammered out an unprecedented series of agreements over the past month as plummeting energy and commodity prices have left once mighty producers over-extended and short on funds.
"Obviously there are heaps of opportunities out there, given the low asset values," said Sherman Chan, a Sydney-based economist for Moody's economy.com. "They're assessing all these investment opportunities."
In February alone, a six-billion-dollar cash injection secured up to 200,000 barrels of oil per day from Venezuela.
A 25-billion-dollar loan also locked in 15 million tonnes of petrol a year for 20 years from Russia's Rosneft and Transneft. And 400 million dollars bought a Canadian firm's promising Libyan oil field.
In Australia, state-owned aluminium firm Chinalco inked the largest foreign deal ever by a Chinese company putting 19.5 billion dollars into troubled Australian mining giant, Rio Tinto, to increase its stake to 19 percent.
State-owned Hunan Valin Iron and Steel Group offered 650 million for a 16.5 percent stake in Australian iron ore miner Fortescue Metals, while China's Minmetals offered 1.7 billion dollars to take over debt-laden OZ Minerals.
"We will see more and more Chinese companies making overseas deals and they will probably also be on a very big scale," said Shi Jianxun, a professor at Shanghai's Tongji University.
Shi is part of a growing chorus within China arguing the government should now use a big portion of its 1.95 trillion-dollar foreign exchange reserves, the world's largest, to buy assets that can give the nation greater security.
Oil, mining and high-tech companies should be priorities, he said.
"Crude and mineral resources are quite scarce and precious to China. It's worth it to get them because these are important strategic resources that will not depreciate easily," Shi said.
The buy-up began after Chinese state banks extended a record 1.2 trillion yuan (175 billion dollars) in loans in January, as part of the government's economic stimulus plan launched late last year, Moody's Chan said.
The resource acquisitions will complement other aspects of China's infrastructure heavy stimulus plan, which is expected to lead to significant increases in resource exports in the second quarter, Chan said.
Chen Bin, head of the industry department in the National Development and Reform Commission, or NDRC -- the super-ministry that plans China's economy -- told a briefing on Friday the acquisitions were companies acting independently and not government-driven.
But the Russian, Rio Tinto and Oz Mineral deals were financed by the China Development Bank, a policy bank with no deposit base that only deals with projects assigned by the NDRC.
Meanwhile, the head of the sovereign wealth fund, China Investment Corporation, met with Fortescue executives Wednesday to discuss financing.
China's acquisitions are also attracting close scrutiny from politicians abroad. Australian lawmakers, for instance, have raised concerns about China's state-owned entities buying into Australia's resource sector.
Zhang Ming, an economist with the Chinese Academy of Social Sciences, pointed to a range of upsides for China as it goes on its spending spree.
China's reliance on resource imports had left China's low-cost manufacturers vulnerable when prices skyrocketed, but gaining stakes in resource suppliers will help China hedge against future price increases, Zhang said.
"And the relatively low costs in the gloomy market could bring substantial profits once the market heats up," Zhang said.
China's reliance on resource imports had left China's low-cost manufacturers vulnerable when prices skyrocketed, but gaining stakes in resource suppliers will help China hedge against future price increases.
China's economy 'shows signs of recovery': Wen
A four trillion yuan (585 billion dollar) stimulus package is starting to boost China's economy, but the government is prepared to take stronger measures if needed, Prime Minister Wen Jiabao said. "The stimulus measures have shown initial effects and produced good results in certain areas," Wen said in an online chat with web users over the weekend, which was widely circulated in the state media Sunday. "We must fully realize we are facing a long-term and arduous task... we are ready to take firmer and stronger actions whenever necessary." Wen cited rising loans, retail sales in January and increasing power output and consumption since the middle of February as signs of relief. The export-dependent Chinese economy expanded by nine percent in 2008, down steeply from 13 percent growth the year before. In the fourth quarter of last year, it grew by just 6.8 percent. China has released only limited data about how its economy has performed since the beginning of 2009, but some of the figures have been slightly more positive than expected. During his webchat, Wen pledged to support small- and medium-sized companies and expressed concern for the hardships suffered by up to 20 million migrant workers who have already been laid off by factories hit by the global crisis. He said there would be broad financial support for China's vast rural areas, details of which are expected to be given in Wen's annual work report to parliament on Thursday. China has set an official economic growth target of eight percent in 2009, considered by the government to be the minimum needed to prevent unemployment reaching a level where social unrest breaks out. In an effort to limit the domestic impact of the global financial crisis, Wen in November announced a four trillion yuan stimulus package, largely aimed at pump priming consumption and stimulating growth in rural areas.