Beijing builds on credit crisis By Antoaneta Bezlova
BEIJING - The major coup scored by Chinese diplomats in sealing a string of
bulk volume energy deals in the past few weeks signals a new phase in Beijing's
energy diplomacy, deployed to secure long-term resources for the country's
power-hungry economy, according to analysts.
"The success of this type government-to-government energy deals is setting the
scene for more top leadership involvement in future energy diplomacy," says Wu
Jiandong, energy analyst and advisor to the China Reform magazine.
"With the crisis predicted to last between three to five years, we expect to
see more countries signing such long-term resources deals with China,'' Wu
said.
In the past few weeks, Chinese leaders have concluded oil supply
deals with Russia, Brazil and Venezuela, worth more than US$41 billion. All the
deals were sealed by China's most senior leaders.
During Vice President Xi Jinping's tour of oil producers in Latin America last
month, Venezuela got a $6 billion loan from China and agreed to increase its
oil exports to the country. In Brazil, Xi signed a $10 billion "loan-for-oil"
deal with Petrobras that guarantees China up to 160,000 barrels a day at market
prices.
A separate "loan-for-oil" deal with Russia was sealed by Premier Wen Jiabao
during meetings with his Russian counterpart in Beijing. The deal provides
Russia's oil giant Rosneft and its oil pipeline company, Transneft, with a $25
billion loan in exchange for 15 million tonnes of oil a year for 20 years.
The deal with Russia comes after nearly 15 years of negotiations between
Beijing and Moscow to extend a key oil pipeline from Siberia to northeastern
China. Playing China against Japan in a game of waiting for the best
opportunity to sell its crude, Moscow held back on giving the nod for the
construction of a branch link of the pipeline to the Chinese border.
But Chinese President Hu Jintao's recent visit to Saudi Arabia - China's
biggest oil provider - has underscored Beijing's determination to use more
high-power energy diplomacy to secure its long-term oil supplies, according to
observers.
Hu's visit to Saudi Arabia and Beijing's' decision to divert some of its
foreign reserves to procure overseas oil assets "must have alerted Russia to
the fact that things have changed and China is no longer prepared to wait",
Wang Lijiu with the China Institute for Contemporary International Relations
told the China Business Journal.
China's drive to secure hard energy bargains is unfolding against the backdrop
of a continuing slide in global growth, which has driven oil prices from a peak
of $145 a barrel in mid-2008 to a low of around $40 a barrel now. Moreover,
falling profits and the credit crunch have made once-wary foreign corporations
and governments more appreciative of advances by cash-rich Chinese companies.
"This is a window of opportunity for China's energy diplomacy that we cannot
afford to miss," says Wang Xia, energy expert with China Petroleum University.
"If we wait until economic recovery pushes oil prices up again, it would be
much more difficult to secure long-term deals".
Appreciative of the crisis as an opportunity, the National Energy
Administration has agreed to the establishment of a special fund for China's
state-owned oil companies to go on a shopping spree for overseas crude
reserves. The recipients of the state largesse are China's three oil giants -
China National Offshore Oil Corp (CNOC), China National Petroleum Corp and
Sinopec.
Allocating a portion of China's nearly $2 trillion in foreign-exchange reserves
will provide these companies with low-interest loans and direct capital
injections to fund their purchases of foreign oil assets. That may ring alarm
bells overseas, giving rise to charges that Chinese state subsidies are
outfitting oil companies with advantages over their Western competitors.
In 2005, such worries derailed CNOC's attempts to buy the US oil firm Unocal,
even though it outbid its competitor Chevron. Political pressure in Washington
eventually forced the Chinese company to withdraw its bid.
But the spread of the financial crisis and its pronounced impact on developed
economies has changed perceptions, according to international trade analyst
Tong Lixia. "The possession of huge foreign reserves in the current credit
crunch has given China a much better bargaining position," she says.
With prices of other key industrial commodities reduced by the crisis too,
China has been scouring the globe to secure not just oil reserves but other
natural resources as well.
In February, state-owned aluminum producer Chinalco announced an additional
$19.5 billion as investment into Rio Tinto, an Anglo-Australian miner with
large iron ore, copper and aluminum assets. Days later, the state-owned trading
house Minmetals made a $1.7 billion takeover bid for the debt-laden OZ
Minerals, an Australian company that is a major producer of zinc.
Some analysts have suggested that apart from snapping up resources, Chinese
firms should make use of the crisis to bid for acquiring valuable technologies
and overseas brands.
Li Caokui, director of the Center for China in the World Economy at Tsinghua
University, believes struggling US auto makers and some cash-strapped European
car producers will be on the list of China's next acquisition targets.
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