The China Vacuum, Sucking Up Assets

July 17, 2009 at 4:05 am 5 comments

That's not Hoover making that sucking noise - it's China

That's not Hoover making that sucking noise - it's China

Shhh, if you listen hard enough you can hear a faint sucking sound coming from the other side of the Pacific Ocean. In the midst of the greatest economic collapse since the Great Depression, China is rolling around the globe sucking up international assets as if it were a Hoover vacuum cleaner. As a member of the current account and budget surplus club, China is enjoying the membership privileges. Evidence is apparent in several forms.

Most recently, Chinese state oil and gas company, Sinopec (China Petrochemical Corporation) has bid close to $7 billion for Addax Petroleum, an oil explorer with significant energy assets in the Kurdistan region of northern Iraq.

Another deal, newly announced not too long ago, occurred on our own soil when another Chinese company (Sichuan Tengzhong Heavy Industrial Machinery Co.) made a bid for the ailing Hummer unit of bankrupt General Motors. Just as we have begun exporting our obesity to China through McDonald’s and KFC, now we are sharing our lovely gas guzzling habits.

In May, The Wall Street Journal reported the following:

Chinese companies and banks have also agreed to a string of credit and oil supply deals worth more than US$40 billion with countries such as Brazil, Russia and Kazakhstan, in line with efforts to secure its energy supply.

 

Beyond the oil markets, China is also hungry for other hard assets. The failed $20 billion investment in Chinalco (Aluminum Corporation of China) by Rio Tinto garnered a lot of press. But other deals are making headlines too.  Metallurgical Corp. of China Ltd. (MCC) is planning a $5.15 billion thermal coal project in Queensland state, Australia in conjunction with Waratah Coal Pty Ltd. China has a voracious appetite for coal -its coal imports are estimated to surpass 50 million tons in 2009.

Cash is king, especially in crises like we are experiencing now, however we want to be careful that we don’t give away the farm out of desperation. Making tough decisions to preserve assets, like cutting expenditures and expenses, is a better strategy versus making fire sale disposals of crown jewels.  Becoming energy independent and investing in environmentally sustaining technologies will serve our long term economic interests better as well.

 If we’re not careful, that active Chinese Hoover vacuum cleaner is going to come over to our home turf and suck up more than just our loose change.

Wade W. Slome, CFA, CFP®  

Plan. Invest. Prosper.  

www.Sidoxia.com 

*DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, RTP and was short MCD, but at the time of publishing SCM had no direct position in YUM, Sinopec (China Petrochemical Corporation), Addax Petroleum, Chinalco (Aluminum Corporation of China), Metallurgical Corp. of China Ltd. (MCC),Waratah Coal Pty Ltd or any security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

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PPIP Becomes Miniaturized “Mini Me” Pinning Down Roubini Requires a Lasso

5 Comments Add your own

  • 1. Green Loses to Greenback « Investing Caffeine  |  September 2, 2009 at 4:05 am

    […] As far as I’m concerned, we still import about 2/3 of our oil and until alternative energies become more cost effective, we have little choice but to explore a multitude of strategic supply agreements. Canada is a neighbor and ally, therefore the U.S. should not walk away from any similar future agreement that will bring a stable and reliable source of supply. The scarcity of the critical resource and other commodities is evident by strategic deals and acquisitions being made by China and its government (See previous Investing Caffeine article, “The China Vacuum, Sucking Up Assets”). […]

    Reply
  • 2. sidoxia  |  April 13, 2010 at 9:45 am

    4/12: China’s Sinopec purchased 9% stake in the Syncrude oil sands project in Alberta from Conoco for $4.65 billion.

    Reply
  • 3. sidoxia  |  April 14, 2010 at 9:15 am

    4/14/10: FT notes CNOOC, Chinese state-owned oil company making $3.1 billion investment in 50% stake in Argentina’s Bridas Corp.

    Reply
  • 4. sidoxia  |  May 12, 2010 at 4:27 pm

    5-12-10 FT: Chinese carmaker Geely is finalising $1.8 billion acquisition of Swedish manufacturer, Volvo.

    Reply
  • 5. Clashing Views with Dr. Roubini « Investing Caffeine  |  September 8, 2010 at 3:52 pm

    […] My thoughts on oil are less bearish, but nonetheless more cautious given the massive price bounce to around $80 per barrel. Could I see prices coming down to $50 like Roubini feels is appropriate? Certainly. With the $100+ per barrel swing we saw last year, I cannot discount completely the possibility of that scenario. However, unlike gold, oil has a much stronger utility value, and based on the slow adoption of more expensive alternative energies, this commodity will be in strong demand for many years to come. The pace of global economic recovery, especially in countries like China, India, and Brazil provide an underlying demand for the petroleum product. In order to understand the underlying bid for this economic lubricant, all one has to do is look at the appetite of emerging economies like China when it comes to this black gold (see my article on China). […]

    Reply

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