Companies with global supply chains may increasingly be finding themselves in competition with, or buying products from businesses that are owned, in full or in part, by Chinese enterprises. According to a report by attorneys at the Hong Kong-based law firm of King & Wood Mallesons (KWM), and published at lexology.com on Nov. 22, China’s offshore direct investments are on track this year to surpass 2012’s record of $87.8 billion, much of which is in energy and mining.
KWM doesn’t forecast how China’s growing investments in global mining and energy might affect competition for these resources or prices. But though the country’s economy has slowed, China is ramping up industrial activity in many areas, all of which require access to energy and raw materials. It seems evident that in some areas, China could influence demand and pricing of these commodities.
Chinese investors want energy projects in fossil fuel and, increasingly, renewables such as wind and solar. Chinese enterprises cast a wide net for holdings, making investments around the world and at the same time improving their understanding of different business cultures. Whereas 67 percent of Chinese offshore investments failed from 1986 to 2006, according to PricewaterhouseCoopers, in 2012 China’s Commerce Ministry reported that 80 percent of 2,700 overseas Chinese companies broke even or were profitable.
Africa is a major target of Chinese energy and natural resource investments. While many regions on the continent pose financial risks, investment in Africa grew by 20.5 percent annually from 2009 to 2012, reaching $2.52 billion last year.
Recent acquisitions include a 28.5 percent stake in Eni East Africa, in Mozambique, by China National Petroleum Corp. (CNPC), a 20 percent position in offshore oil company Total Nigeria PLC by China Petrochemical Corp., and a 74.5 percent holding in South African copper producer Palabora Mining by a consortium of Chinese companies.
Political turmoil in Egypt led to a deal in which Apache Corp. of the U.S. sold a 33 percent stake in an oil and gas business there to China’s state-owned Sinopec Group. Apache and Sinopec also inked a deal for a global partnership to exploit upstream oil and gas projects.
Chinese investors are looking at the Americas, as well. In 2012, state-owned CNOOC Ltd. (China National Offshore Oil Corp.) paid $15.1 billion to acquire Nexen Energy, a petroleum company based in Calgary, Alta., with global operations, including in the U.S. Yanchang Petroleum International, reportedly China’s fourth-largest oil producer, paid $226 million last September for Novus Energy Inc., a junior oil and gas company in Alberta with “strategic land positions” in Western Canada. In the U.S., Chesapeake Energy Corp. sold a stake in an oil and natural gas field on the Oklahoma-Kansas border to Sinopec last summer for $1 billion.
In Latin America, China is making high-profile investments in energy and commodities in half-dozen countries. In one major transaction, Sinochem paid $1.54 billion to Petrobras of Brazil for various acquisitions: a 35 percent stake in a local oil exploration project, all the shares Petrobras owned in a petrochemical company and shares in an oil project in the Gulf of Mexico, and for a Brazilian thermal energy company.
Other deals include a $2 billion loan to Ecuador from the China Development Bank and an eight-year contract with state-run Petroecuador to sell crude oil and fuel oil to Chinese companies. CNCP, meanwhile, is negotiating with Petroleos de Venezuela (PdV) to acquire a 30 percent holding in a local refinery by purchasing shares from the company. PdV has a 49 percent share in the refinery, and Petroecuador has a 51 percent share.
Chinese investors are also active in Central Asia. Recently, $30 billion went into Kazakhstan, some of which went for an 8.33 percent stake in offshore oil development, while an investment with Russia was made to upgrade infrastructure for the transportation of minerals and other materials to China.
The ASEAN (Association of Southeast Asian Nations) region is also attracting investments to its resources-rich countries, especially Malaysia and Indonesia. KWM reports that mining and energy transactions in ASEAN increased 15.7 percent between 2011 and 2012. In the first four months of 2013, China invested in 76 mining projects in the region, and last May investors formalized seven cooperative mining agreements valued at $2.6 billion during the China-ASEAN Mining Cooperation Forum in Nanning, Guangxi Zhuang, China.
One area with which Chinese investors have soured is Australia. KWM attributes this to a number of reasons. One is declining demand for commodities mining as a result of China’s economic slowdown. Other factors are Australia’s “confusing and unpredictable foreign investment approval policy,” carbon and mining taxes, tight infrastructure capacity and labor shortages, and the lack of experience by many Chinese companies in complicated cross-border transactions.
Consequently, in the first half of 2013, Chinese investments in mining and resources totaled AUD48 million ($44.1 million), the lowest level in four years.