China's buying spree in global fire sale

Last week the Chinese government sank $39 billion of that money in three separate deals to secure future oil supplies from Russia, Brazil, and Venezuela.

A $25 billion loan to Russia, whose economy is reeling from plummeting oil prices, won a promise to supply 290,000 barrels per day for the next quarter-century and to build a pipeline into China.

"The slowdown in the Russian economy, declining crude prices, and production and the credit crunch have lent the Chinese far better bargaining power," wrote Gordon Kwan, head of China energy research at CLSA brokerage, in a research note last week.

A $10 billion loan to Brazil, announced during a visit to the country by Chinese Vice President Xi Jinping, secured a similar pledge to provide up to 160,000 barrels of crude a day. Mr. Xi also signed a deal with Venezuela for up to 1 million barrels per day by 2015 in return for another $4 billion from China to top off an existing development fund.

"More than anything else, China always wants security of resources going into the future," says Mr. Cavey. The crisis, and falling asset prices, "open up a significant part of the world," he adds. "China will think of investing pretty much anywhere there are resources, not just the places that other countries don't want to go."

Few expect Beijing to invest in the troubled financial sector, however, despite the hopes some foreign banks have harbored of attracting Chinese money. "Natural resources are so strategic for a country, they can justify investments there, but they can't justify another financial-sector deal," says Andy Xie, an independent economist.

China's sovereign wealth fund has lost between half and two-thirds of investments it made over the past two years in financial firms such as Morgan Stanley, Blackstone, and Barclays, Mr. Xie points out.

As China begins to move again on the international scene, taking advantage of low prices, it remains to be seen how much political resistance its bids will provoke.

In 2005, political pressure in Washington forced China National Offshore Oil Corp. (CNOOC) to withdraw its bid for the US oil firm Unocal, even though the Chinese firm offered more money than its rival, Chevron.

"The situation is so bad that there is a desperation now to get money," says Cavey. "But it will still be a difficult political balance to strike" for the state-owned firms that are expected to be most active abroad.

Especially touchy will be the question of state assistance for Chinese firms, potentially giving them an advantage over Western competitors. The China National Petroleum Corp.'s website last week carried a report on the government's yet-unpublished oil and gas development plan, which suggested such assistance is foreseen.

"China will encourage enterprises to develop the exploration and acquisition of overseas resources and will offer low-interest loans and preferential lending rates for major overseas energy investment projects," the report said.

"With low oil prices, we may see Chinese banks playing a bigger role" in funding acquisitions, says Dr. Downs at Brookings. "And if it is known that Chinese companies are getting money from state banks at low interest rates, we will see concern that this support creates a playing field that is not level."

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