China strengthens participation in global commodity markets
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Despite some obstacles to China’s efforts, it has achieved widespread success – actually raising the competitive threshold of other countries.
Evan Smith, co-manager of the US Global Investors Global Resources Fund, said China found itself in a situation where China's demand for commodities is expected to grow substantially, while the supply and production of many commodities is Sliding down.
China's cross-border transactions have not only increased China's access to valuable natural resource reserves, but also increased the possible production of related oil fields and metal mines, given the more capital expenditures generated by the transactions.
This is a good thing considering that China will need to source everything from energy to metals, food and water to sustain a livelihood of more than 1 billion people. They are planning ahead.
Chris Mayer, editor of Agora Financial Capital and Crisis, said that 15 years later, China’s new population is expected to exceed the current total population of the United States. They will be on power plants, water systems, roads, ports, etc. There are amazing demands.
Kevin Kerr, president of Kerr Trading International, said that with this in mind, China is trying to collect and store as much raw materials and important commodities as possible in order to prepare for a full recovery of the global economy, and the global economy is bound to recover. . He said, of course, China's ability to buy bulk commodities on such a large scale and the ability to store and hold supplies make it extremely difficult for other countries to remain competitive or have a size similar to China; the United States is almost impossible to compete.
Stride forward, a little back. China does have strong financial strength, and there is no uneasiness in using these funds. Perhaps you may say that China is a super economic power and has the opportunity to acquire large-scale natural resources globally.
Meyer said that China has been an active buyer of stakes in the acquisition of commodities, both for Canadian steel production and for Australian rare earth producers. China has also acquired various commodities in Africa; in exchange, China has built roads and factories for Africa. It seems that transactions involving China are available every week. If you look at the news, you will find that China is increasingly interested in locking in the necessities of commodities. It is said that Rio Tinto has started negotiations with a state-owned metal group, Chinalco, on a copper-gold development joint venture in Mongolia. Coincidentally, a subsidiary of WISCO completed a $240 million strategic investment in Consolidated Thompson Iron Mines Ltd. in Canada in July. Meyer said that this is an example of Chinese buyers going to the world to find iron ore.
PFGBest senior market analyst Phil Flynn said that despite this, China has encountered some opposition. For example, he said that in 2005 CNOOC wanted to spend $18.5 billion to acquire Unocal Corp., but was "shot" because of political concerns. Meyer said that China is also busy trying to ensure more demand for rare earths. China Nonferrous Mining Group Co., Ltd. has tried to acquire Lynas in Australia. However, the transaction was not approved by the Australian government.
Christopher Ecclestone, mining strategist at Global Hunter Securities, said Australians believe the deal was for China to acquire assets and therefore did not approve a stake in Lynas. However, he pointed out that the turmoil triggered by China’s announcement of the acquisition meant that Lynas could eventually obtain funds in other ways.
Prior to this transaction, Chinalco’s efforts to increase its shareholding in Rio Tinto had just failed.
Pay attention to the "Big Three"
But according to a July report from Platts, in the second quarter of this year alone, China National Petroleum Corp., China Petrochemical Corp. and its subsidiaries are in the Middle East. West Africa and Central Asia acquired $14.6 billion in upstream assets and a large stake in a refinery in Singapore.
The report also said that the timing of the acquisition of heat from the perspective of China's "Big Three" - PetroChina, Sinopec and CNOOC - from the central government's multi-billion dollar loans from the perspective of choice. In sharp contrast, their competitors are now cutting their costs.
Evans said China’s activities have increased significantly over the past two years as China’s attempts to capitalize on the downturn in asset prices and the availability of reserves to finance the global credit crunch. Evans said that overall, China has completed about 36 mining transactions and 32 energy transactions since 2000.
Intensified competition China's actions have indeed affected other countries, especially the commodity markets that Chinese people who are most eager to enter are most eager to enter.
Meyer said that all this means that we have to compete more fiercely on the global stage for coveted natural resources. He also said that the end result is that most commodity prices have risen, and that China needs the most bulk commodities to increase prices even more. These natural resources include energy, food, water, iron ore, rare earth elements and even potassium carbonate, the latter being a potassium compound used primarily in agriculture and in the production of soaps, glass and fertilizers.
Meyer said that in terms of oil, potassium carbonate and iron ore, China is a major importer and will maintain this situation for a long time because its domestic reserves are insufficient to meet current or future needs. He said that China does not have enough agricultural bases to meet the demand for its soybeans. China is the world's largest importer of soybeans. Of course, China also needs a lot of fresh water to support the needs of agriculture and the population.
Kohl said that water resources and clean drinking water are still the biggest challenges to date, and the clean water technology that can be promoted on a large scale is the only solution. China is expected to invest a lot of money in this area.
PFGBest's Flynn said that the Chinese's appeal for access to global commodity supply is no less than our motive for landing on the moon. He also said that Chinese leaders believe that if the incredible growth rate continues, they will need enough commodities and need to lock them in the next few years. From this perspective, Flynn believes that China will monopolize commodities on a global scale. However, Smith of US Global Investors believes that locking natural resources is almost impossible because there are too many variables and sources. He explained that the influence of China's more developed economies on set prices will be lower and lower, as pricing power is gradually shifting to emerging markets. He pointed out that the overall purchasing power parity of emerging markets slightly exceeded that of developed markets for the first time. In this way, as emerging markets outperform developed markets, they are increasingly pricing their commodities.
Questioning China's strategy But William Gamble, president of Rhode Island's Emerging Market Strategies, doesn't think China is trying to lock the market. Instead, he questioned China's investment decisions. He said that the places where they reached deals were mainly in places like Africa, which are places that others are unwilling to touch because of human rights issues or concerns about stability. Moreover, because Chinese oil companies are state-owned enterprises, all of them are not necessarily profitable. Ganmbo said that Beijing's approach is indeed for political reasons, not for economic reasons. He said that this means that China will strive to obtain long-term supply at any cost, which makes their investment unpredictable. There are also macroeconomic considerations. For example, Ganmbo believes that China's stimulus measures are difficult to sustain.
He said that they are already talking about austerity. If they do this, it will bring problems to real estate, and it means that the commodities they reserve will not be put into use.