China sources overseas


  • Business
  • Monday, 14 Mar 2005

BY KATHY FONG IN SHANGHAI

SURGING demand for raw materials, driven by the continued robust economic growth, has urged China to look beyond its shores for supply of natural resources.  

China’s need for access to raw materials and energy is shaping its foreign policy as well as security and economic planning. 

While forming strategic relationships with resource-rich countries like Australia and Indonesia, the Chinese government is encouraging private companies and state-owned enterprises to invest abroad to seek fresh sources of natural resources. Consequently, China’s overseas investment has accelerated in the past three years.  

United Nations Conference on Trade and Development noted that China was not only a major receiver of foreign direct investment but also gradually turning into an exporter of capital. 

State-owned banks are providing generous financing for acquisitions that would alleviate the lack of resources, which are badly needed in China. Also, the government is more lenient on approving the outflow of Chinese capital. The entire application process to invest abroad has been shortened to 15 working days from several months previously. 

The Ministry of Commerce said the country’s investment abroad grew 27% to US$3.62bil last year. But this is small compared with the US$60bil foreign direct investment that flowed into China last year. Almost 70% or US$2.5bil of last year’s total investment was spent acquiring equity in foreign companies, of which half went to the mining sector. 

State-owned China Huaneng Group (CHG) beat out Malaysia’s Sime Darby Bhd to buy a 50% stake in OzGen that owns power generation assets in Queensland, Australia.  

The US$227mil deal is to enhance CHG’s bargaining power in coal purchase by striking a strategic partnership with a foreign coal supplier. 

Although China is raising local outputs, it is still importing million tonnes of minerals and commodities annually.  

China has overtaken the US as the world’s largest consumer of grain, energy and minerals, according to Washington-based Earth Policy Institute. The economic giant, which burns 5.5 million barrels of crude oil every day, is now the world’s second largest crude oil consumer after the US.  

China purchased 208 million tonnes of iron ore last year, becoming the biggest iron ore importer, amid the strong steel demand from the rapid construction activities.  

The demand for energy and raw materials is expected to remain high in the coming years.  

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