China Puts Its Reserves to Use Buying Influence, Business and Assets Abroad

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That China uses overseas investment as a tool for political as well as economic advancement is no surprise to anyone.

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Beijing has come under criticism in the past for investing in places like Zimbabwe and Sudan regardless of the human rights flavor of the regime in power, but such criticism is like water off a ducks back. China is in it for China’s gain and cares little for what others may say.

It will be intriguing looking back 10 years from now to see what some of these emerging markets have given away to China in return for much-needed investment. Beijing is not stupid and exacts a price for it’s infrastructure and development investments in in the form of ownership of mines and agricultural assets useful for their industry and food supplies.

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Many would argue this is no different from western nations’ exploitation of African and South American countries in the last century, but you would certainly hope the recipients had learned from such experiences. One advantage China wrings from such deals is often the supply of materials and equipment in addition to expertise and finance.

In many cases even the workforce is supplied, too, in the construction of infrastructure projects. In the face of growing global alarm at rising Chinese steel and aluminum exports, recipients of direct investments can hardly complain about the provider supplying materials, so major road, rail and power projects provide an opportunity for substantial Chinese exports.

China in Brazil

This appears to be one of the major attractions in investment decisions made this month in Brazil following Premier Li Keqiang’s visit to Brazil, Columbia, Peru and Chile. Li announced billions of dollars of investments while there last week, potentially up to some $50 billion to Brazil alone according to Reuters, on top of a similar amount in other South American countries.

In return, Brazil has gained not just desperately needed finance and investment but concessions for exports such as a lifting of the 2012 beef ban following an outbreak of mad cow among Brazil’s herds. According to the Guardian newspaper, trade between China and Latin America as a whole exploded from barely $10 billion in 2000 to $255.5 billion in 2012, while Chinese-Brazilian trade mushroomed from $6.5 billion in 2003 to $83.3 billion in 2012.

Although China is just the 12th-largest investor in Brazil, it is Brazil’s largest export market, mostly of raw materials, a situation Brazil would dearly like to change if it were only competitive when it comes to manufactured goods. One area of expertise is aircraft, part of the recent deal is a $1.3 billion sale of 22 Brazilian Embraer commercial jets to China’s Tianjin Airlines.

Anyone familiar with the trials Vale SA has been going through gaining agreement to use its fleet of new Valemax super ore carriers docking at Chinese ports, will not be surprised to hear the iron ore producer has finally caved in and sold four of the vessels to China Merchants Energy Shipping Co. Ltd. for an undisclosed sum. It was only ever about China having a role in that trade.

Construction has started on a 2,800-kilometer transmission line by China’s State Grid Corp., the world’s largest utility to link the Belo Monte hydroelectric dam under construction in the Amazon to the industrial state of Sao Paulo whilst much talk is being made of a possible railway from the southeastern Brazilian port of Santos more than 3,500 km (2,200 miles) to the Peruvian Pacific port of Ilo.

For Brazil, it offers the chance to avoid the Panama Canal and, for China, lower-cost access to Brazil’s markets via the Pacific in addition to the steel, rolling stock and associated equipment that would no doubt be part of the deal.

China has become adept at, as the Japanese before them, combining finance, expertise and material supply in their overseas investments. State driven and financed, they can afford to play the long game and maximize political and well as commercial aims. In that regard, cash-strapped but economically more developed South America has much more potential than Africa did. Expect more of the same in the years ahead as China seeks to both spread its influence and put those massive reserves to use abroad.

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