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China's buying spree in global fire sale

This month China bought stakes in French, Canadian, and Australian firms.

By Staff writer of The Christian Science Monitor / February 23, 2009

Sign here: Chinalco president Xiao Yaqing (left) closes a $19.5 billion deal for a share of Rio Tinto, a mining firm.

Stephen HIRD/REUTERS

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Beijing

General Motors is doing it. The world's second-largest mining group is doing it. Russia, Brazil, and Venezuela are doing it. And China is loving it.

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Squeezed between falling profits and the credit crunch, a growing number of troubled corporations and countries are turning to cash-rich China for a bailout. And with foreign assets cheaper than they have been for years, Beijing is on an international spending spree.

"The international financial crisis ... is equally a challenge and an opportunity," China's energy czar, Zhang Guobao, wrote recently in the official newspaper People's Daily. "The slowdown ... has reduced the price of international energy resources and assets and favors our search for overseas resources."

So far, the government has concentrated on natural-resource deals, securing supplies of oil and minerals in return for large amounts of cash. But private Chinese firms are also taking advantage of the crisis in other sectors: Diesel-engine giant Weichai Power is expected to buy a French plant that US automaker General Motors is selling off in its struggle to survive.

Though the Chinese economy has also been hit by the crisis, cutting growth by almost half, "what sets China apart is that Chinese banks have not been so badly hurt, and the policy banks still seem ready to lend" in support of key government objectives, says Erika Downs, a China energy specialist at the Brookings Institution in Washington.

The China Development Bank, for example, is financing China's biggest-ever foreign investment – a $19.5 billion bid by the mostly state-owned Aluminum Corp. of China for an 18 percent slice of Rio Tinto. The Australian mining company desperately needs the cash in order to pay off $19 billion in debt over the next two years.

That deal, still to be approved by Australian regulators, is seen here as a pathfinder. "It illustrates Chinese state business's strong capacity ... and gathered experience for state-owned firms to operate abroad in the future," explained an article published earlier this month in People's Daily.

Other recent multibillion-dollar deals include the purchase by China Petrochemical Corp., the country's second-largest oil producer, of Canada's Tanganyika Oil, which works in Syria, and the bid that China Minmetals has made for OZ Minerals, an Australian zinc producer on the verge of bankruptcy.

"The amount of money coming out of Beijing suggests they are confident that we are at the bottom of the market," says Paul Cavey, an analyst with Australia's Macquarie Bank in Hong Kong. And with China's trade surplus still wide, since imports have fallen even faster than exports, "they still have a lot of money to play with," he adds.

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