Here comes China and its $US2.13 trillion of foreign reserves, shopping lists at the ready, Chinalco-Rio forgotten (sort of) and ready to buy, buy, buy.
The country has just started taking tentative steps in making its currency convertible for deals done in and out of Hong Kong. Its not full convertibility, but it’s a start.
It’s strong, but China has stopped allowing it to appreciate against the greenback for months now while its economy recovers.
That has sparked some tensions with the uS, but China is adamant that its currency’s value won’t hurt its exports, which remain weak.
Now the country’s Premier, Wen Jiabao has raised the prospect of China expanding its already tentative, but growing, foreign investment drive, with comments to Chinese diplomats and reported on the semi-official China Daily website.
It seems the displeasure when Rio Tinto jilted Chinalco for BHP Billiton has been forgotten.
There were media reports around Thursday that Chinalco is eying investment projects in Western Australia.
Bloomberg reported:
"Aluminium Corp of China, the state- controlled company whose $US19.5 billion investment in Rio Tinto was rejected last month, held preliminary talks to invest in new mineral projects in Western Australia state.
"Chinalco, as the company is known, will “conduct metals prospecting activities in Western Australia and seek investment opportunities either by independent investment or joint ventures,” Chairman Xiong Weiping said at a conference in Beijing. “We’re only at the initial stages of talks.”
"Xiong, who met with Western Australia state premier Colin Barnett yesterday, is seeking overseas investments as demand for raw materials surge in China, the world’s biggest user of metals.
"Tensions between China and Australia have been heightened with the detention of four Rio executives for allegedly stealing state secrets.
When its kiss and invest time, you have to understand that China has made an important decision. And there it was, reported on the China Daily website during the week.
"The recovery of the global economy will be a slow process with twists and turns, there must be a long-term preparedness to effectively deal with (the global downturn)," said Wen.
"Wen said that China will stick to mutual-beneficial strategy of opening-up and the use of outbound investments.
"China will combine expansion of domestic demand with stabilizing foreign demand, continue to use foreign investment, and accelerate the pace of "going out" strategy, Wen said.
"Wen said China will continue to reform renminbi, or Yuan, exchange rate forming mechanisms, and maintain the Yuan’s exchange rate at a stable level.
"China will participate extensively in international cooperation in non-traditional fields and further work with other countries to address the climate change issue, Wen said.
"In addition to President Hu Jintao and Premier Wen Jiabao, seven members of the Standing Committee of the Political Bureau of the Communist Party of China Central Committee attended the meeting: Wu Bangguo, Jia Qinglin, Li Changchun, Xi Jinping, Li Keqiang, He Guoqiang and Zhou Yongkang."
And that last paragraph is the key to the importance of the speech.
To have so many top ranked members of the government present to hear a speech to Chinese diplomats and to mention policies such as the "going out" policy gives this the imprimatur of something more than just a rah rah speech from the premier.
The President was there and a couple of other, less senior members of the senior committee were also present, one of whom will replace Wen (and another who will replace Hu).
The “going out” strategy is a slogan for encouraging investment and acquisitions abroad, particularly by big state-owned industrial groups such as Chinalco, Petro China, Sinopec, China Telecom and a host of smaller groups (China Minmetals in OZ Minerals’ case) and financial groups, such as Bank of China and An Ping.
The Financial Times quoted Qu Hongbin, chief China economist at HSBC who said: “This is the first time we have heard an official articulation of this policy … to directly support corporations to buy offshore assets.
"Mr Wen did not elaborate on how much of the $US2,132bn of reserves would be channelled to Chinese enterprises but Mr Qu said this was part of a strategy to reduce its reliance on the US dollar as a reserve currency.
“This is reserve diversification in a broader sense. Instead of accumulating foreign exchange reserves and short-term financial assets, the government wants the nation to accumulate more long-term corporate real assets.”
China Investment Corp, the $US200bn sovereign wealth fund, has been buying stakes in overseas resources companies and has taken a 1.1% in Diageo, the UK grog company.
It has also picked up a stake in and will probably buy more of Australian property group, Goodman Group, which needs to raise at least $1 billion more by early next year. CIC has already invested around $240 million in Goodman.
It has picked up a 17% stake in major Canadian miner, Tech, for $US1.5 billion and invested around $US800 million in an investment fund of Morgan Stanley.
CIC has already had its fingers burnt investing in US groups like the Blackstone private equity company and 9.9% of Morgan Stanley.
It is under the authority of Chinese Premier Wen Jiabao, according to western financial sources in
