By Ariana Eunjung Cha
Washington Post Foreign Service
Tuesday, March 17, 2009
SHANGHAI -- 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 Feb. 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 Feb. 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 Feb. 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 8 percent of the world's reserves of natural gas.
Even as global financial flows have slowed sharply overall, China has dramatically stepped up its outbound investment. In 2008, its 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 percent 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 during the global economic crisis 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.
It's not just Chinese corporations that are taking advantage of the economic crisis to help others while helping themselves.
The Chinese government also has come to the rescue of ailing countries, such as Jamaica and Pakistan, that it wants as allies, extending generous loans. Even Chinese consumers are taking their money abroad. In a shopping trip last month organized by an online real estate brokerage, a group of 50 individual investors from China traveled to New York, Los Angeles and San Francisco to purchase homes at prices that have crashed since the subprime 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 organized the trip. "Now the number has reached 400. Apparently, the American real estate market has a great appeal to Chinese buyers."
China's Commerce Ministry organized a similar shopping expedition -- but for Chinese companies to visit foreign companies -- the week of Feb. 25. 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.
The Commerce Ministry said Monday that it intends to send more investment missions abroad this year. Although details are still being worked out, the itineraries will probably include the United States, Japan and Southeast Asia, the ministry said.
Foreign automakers may be next on China's acquisitions list.
On Feb. 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.
That was a relatively small deal, but Chen Bin, director general of the National Development and Reform Commission's Department of Industry, hinted that larger acquisitions may be in the works. He noted on the sidelines of a news conference on the economy late last month that overseas car companies are facing cash difficulties at the same time their Chinese counterparts "need their technology, brands, talent and sales networks."
"It will be a very big challenge for Chinese companies to stabilize the operations of foreign automakers and to maintain growth," Chen acknowledged, according to the official People's Daily, but he added that if the companies decide to acquire such assets, "the government will support them."
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 U.S. energy company Unocal. The deal fell apart after U.S. 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 emphasized that "the transaction will in no way lead to any control of the natural resources of Australia."
Zha Daojiong, an energy researcher at Peking University, said Chinese companies feel they may be discriminated against in the United States because of the mistaken perception that they are all state-owned or state-directed.
"Foreigners question these companies' intentions and tend to link their moves with government instructions," Zha said, "but I should say it is really hard to tell whether this is true nor not."
Researchers Wang Juan and Liu Liu in Beijing contributed to this report.