China’s Appetite For Natural Resources

According to Sahit Muja of the NY Economy and Politics Examiner, China has an insatiable appetite for the world’s natural resources to sustain an economic boom that powers ahead despite the global downturn. The quest for raw materials is the central goal of the country’s foreign policy. And virtually every natural resource imaginable is found just over the border. Russia has large reserves of natural gas, oil, diamonds and gold, while millions of square miles of birch and pine provide supplies of timber. China is the world’s fastest-growing major economy and consumes more than a third of the world’s aluminum output, a quarter of its copper production, almost a tenth of its oil and accounts for more than half of trading in iron ore. Last year, China bought $211 billion worth of iron ore, refined copper, crude oil and alumina, according to government data.

China Petrochemical Corp., the country’s second-biggest oil company, in June agreed to buy Geneva-based Addax Petroleum Corp. for $7.6 billion in China’s biggest overseas takeover to date. Purchasing Addax, which has oil reserves in Iraq’s Kurdish territory, shows Chinese oil companies are “going for bigger transactions. Australia has signed a record 41.3 billion US dollar deal to supply Chinese energy giant PetroChina with liquefied natural gas, officials said. The agreement, which represents the biggest foreign investment in Australia, is for PetroChina to buy 2.25 million tonnes a year over the next two decades from ExxonMobil’s Gorgon gas field. China has also extended huge sums of credit, including a $25-billion loan to Russian companies, to pay off debt and develop the East Siberia Pacific Ocean pipeline in exchange for 300,000 barrels a day of oil. The Chinese Development Bank lent Brazil’s Petrobras $10 billion to help with its $170-billion, five-year plan to increase its crude output. In exchange, Petrobras agreed to give the Chinese 200,000 barrels a day of oil exports. China extended a $4-billion loan to Venezuela to expand various oil projects, according to the Energy Information Administration. Chinese companies are also reportedly eyeing new oil deals in Nigeria and Ghana.

The state-owned China National Offshore Oil Corp., or CNOOC, reportedly is negotiating the purchase of leases owned by the Norwegian StatoilHydro in U.S. waters in the Gulf of Mexico, the source of about a quarter of U.S. crude oil production. China’s push to enter U.S. turf comes four years after CNOOC’s $18.5-billion bid to buy Unocal Corp. was scuttled by Congress on national security grounds.

Commentary – China is being aggressive. But some analysts are saying that buying natural resources such as oil is a way for China to diversify holdings that are heavily concentrated in US securities. This may be true, but I believe that China is implementing a very long range plan to meet their projected energy needs. China has faced problems with energy shortages in the past as a result of the growth in its manufacturing economy and pollution problems created by its reliance on coal. According to some reports, China imports 40% of its oil requirements and these oil imports have been growing at 30% per year. They are currently dependent on coal for about 65% of its energy. China wants to change this situation such that more of their energy needs are met with oil and gas, and non-carbon sources such as nuclear power, hydro and wind.