"This is a very hungry dragon and its demand for copper and nickel and oil
have long outpaced domestic supply."
~ ex- Canadian ambassador to China, now Beijing-based corporate investment consultant


"This is only the beginning...Expect to see heavy Chinese involvement
in oil and gas, tourism and food and in global banks..."
~ an Asia management consultant based in Shanghai

China goes global to feed its resource appetite.
Our resources will be target of shopping spree
as Asian nation stretches to become global investor and acquisitor
by GORDON PITTS, Globe & Mail, Sep 25, 2004

China Minmetals Corp.'s entry into exclusive negotiations to buy Canada's Noranda Inc. launches the great leap outward by a surging Chinese economy, as it stretches to become a major international investor and acquisitor. Canada, with its strong supply position in energy and minerals, will be a target of this shopping spree by a China that desperately needs to nail down sources of strategic commodities in order to continue its dazzling growth. "This is a very hungry dragon and its demand for copper and nickel and oil have long outpaced domestic supply," says Howard Balloch, a former Canadian ambassador to China and now a Beijing-based corporate investment consultant. "Domestic supply will never again satisfy its hydrocarbon or base metal needs."

This appetite for resources explains Chinese government-controlled Minmetals' willingness to fork out a projected $6.7-billion for Toronto-based Noranda, which controls nickel and copper assets, as well as interests in zinc and aluminum. Chinese companies have made strategic investments in Canada before but not on this scale, and observers say it's just the beginning. They say China, as the world's fourth-largest trading country, also recognizes the need to raise its profile in North America and Europe in order to secure international markets for its finished goods. The thinking is that a visible corporate presence is critical to retaining export markets -- the kind of thinking that 20 years ago helped push Japanese companies out into the world, producing cars in Canada and movies in Hollywood. Dominic Barton, Shanghai-based director for Asia with management consultants McKinsey & Co., says he expects to see heavy Chinese involvement in oil and gas, tourism and food. In addition, he predicts Chinese investment in global banks over the next two years.

In the past, China has been viewed as a major recipient of foreign direct investment, often to fund low-cost production. Chinese corporate leaders increasingly see themselves as leaders of multinational enterprises, not just as local corporate chieftains, says Mr. Balloch, who heads the Balloch Group in Beijing. "It is very common for Chinese corporate leaders to see themselves in the image of corporate leaders of other countries," he says. "They see multinational enterprises coming in from all over the world, and they want to be one of those."

The need to secure resources, is of course, the most immediate and pressing need for a Chinese economy estimated to be growing at more than 8 per cent annually, even in the face of recent borrowing constraint. A recent report by Martin Barnes, managing editor of the Bank Credit Analyst, lays out the dilemma: While consumption of resources is fast expanding, production is actually slowing down. For example, production of crude oil rose by only about 1 per cent a year between 1998 and 2003 while domestic consumption increased by 8 per cent a year. Mr. Barnes writes that production of lumber has fallen by more than 25 per cent since the mid-1990s, while demand has soared in the face of a construction boom. "Imports have had to take up the slack," he says. As its economy has rung up staggering growth numbers, China has become the world's largest consumer of copper and steel. And it is predicted to overtake the United States next year as the largest nickel buyer. It now imports more than 1.75 million barrels of oil a day, and has signed liquefied natural gas deals with Australia, Indonesia and Iran. China's huge presence in these markets has bid up commodity prices.

While it searches for its own supply sources, it still needs certain supplies of imports, and a country with more than $400-billion (U.S.) in foreign currency reserves can do something to ensure that flow. Thus, it has begun to make strategic acquisitions, including an investment in an energy project in Chad, which does not even recognize China, Mr. Balloch pointed out in a recent speech. The play for Noranda takes it to another league. There are other factors at work, say people who watch the Chinese phenomenon. China needs to develop technology to boost productivity, and some of that will be accomplished through acquisition. Mr. Balloch says the Chinese shift into international resource markets could take a number of forms. Chinese companies may nail down resources through long-term supply agreements or by engaging in joint ventures, perhaps in third countries. Or as with Minmetals, they may buy all or part of the foreign companies themselves.

Keep Beijing out of Sudbury (security of USA & Canada at stake). National Post, Oct 1, 2004. Go to A NICKEL FOR YOUR KINGDOM


Jackie Jura
~ an independent researcher monitoring local, national and international events ~