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SuperModels Recent articles: • China's reality is both boom and gloom, 4/19/2006 • 3 stocks for a worldwide sugar rush, 4/5/2006 • 3 pedal-to-the-metal stock strategies, 3/29/2006 More... | SuperModels How China is winning the oil race As Americans pay more for gas, China gobbles up deals for new supplies of oil and other critical resources -- often from rogue regimes in Africa, South America and the Middle East. By Jon D. Markman Is America too ethical to have cheap gasoline? That is the inescapable question presented to U.S. investors and policy makers as pump prices soar following a state visit by Chinese President Hu Jintao. The United States is the world's greatest consumer of energy at present, but China is the world's fastest-growing consumer. That puts us in direct competition for any new sources of crude oil, natural gas, coal and uranium that materialize through exploration and discovery, not to mention any current sources that profit-seeking producers decide to put up for grabs.
Increasingly, new energy sources that China is acquiring are in countries that Americans find distasteful. Many of them are in Africa, in countries with horrific human-rights records such as Sudan, Chad and the Republic of the Congo. And much of the energy is controlled by rapacious despots in the Central Asian republic of Kazakhstan and in Southeast Asia's Myanmar. Energy acquisition is a zero-sum game in which there are winners and losers. Any new energy that China obtains for its fast-growing economy is unavailable to us forever. So you just have to wonder whether the United States' antipathy for dealing with the worst of the world's rogue states has led inexorably to $4-a-gallon gasoline this spring. Related news and commentary on MSN Money
The new colonial power Dan Zhou, chief analyst at CEB Monitor Group in Beijing, points out that China has emerged as an attractive partner in Africa and Central Asia in four ways: Its intensifying demand drives up prices for their products, which are largely raw materials such as oil, zinc and copper. It sets virtually no standards for political transparency or economic reform to get deals done. It ignores internal human-rights abuses as an impediment to deal-making. And it is a one-stop shop, offering not just investment, trade, skilled workers and military weapons, but also diplomatic protection in the form of its United Nations Security Council veto. China's hunt for oil in Africa has made it essentially the new colonial superpower in the region, surpassing the memories of prior imperial forces like Belgium, Italy, the Netherlands, Great Britain and France. And it has achieved that status in record time. Trade between China and Africa, which totaled $10 billion in 2000, soared to $39.7 billion in 2005. According to research by CEB Monitor, here is a guidebook of China's assets in the region:
A less meddlesome buyer In Latin America, the story is much the same: China is increasingly becoming the partner of choice for repressive, paranoid or regionally ambitious regimes that want to buy guns and tanks with their oil and ore revenues. According to The Los Angeles Times, the Bush administration held talks with the Chinese to encourage them to curb their role in training and advising forces in our southern hemisphere. This is getting to be a problem, as the region -- fabulously rich in metal, energy and agricultural resources -- is increasingly run by ideologues willing to snub traditional U.S. interests and seek less meddlesome buyers. China is now Latin America's second-largest trading partner, surpassing Europe. From 2001 to 2006, exports from the region to China rose more than 500%. In 2004 alone, Hu signed letters of intent worth $100 billion over the next 10 years, according to published reports. Here are the key developments by country, according to CEB Monitor:
As you might expect, Iran is China's fastest rising partner in the region. There have been unconfirmed reports that Hu has committed to spend $70 billion to $100 billion to develop a single large oil field in Iran, about a fifth of which involves a $20 billion order to purchase liquefied natural gas over the next 25 years. Zhou says that one Chinese company is expanding Tehran subways, another is building out the city's fiber-optic networks, and others are setting up auto and electronics factories. It probably won't be long before Iran becomes China's largest source of imported oil, which will put their economic and political interests directly opposed to U.S. politicians and consumers. Neighbors: theirs and ours And finally we get to Central Asia republics, which formerly belonged to the Soviet Union, all nestled up against China's back door. They deliver almost 500,000 barrels of oil a day through pipelines and tankers. This has been a boon to the commissars of Kazakhstan, where gross domestic product has reached $56 billion due to the development of its robust energy fields by U.S., European and Russian explorers. The country shares a border with the gigantic Xinjian province of China and has developed fast-expanding bilateral trade, not just in oil and gas, but also cement and small manufactured goods. Of course, the Chinese have not left democratic countries' resources off its shopping list. A couple of years ago, it bought a big stake in the big Canadian miner Noranda, and it has dozens of supply relationships with individual Alberta and Saskatchewan oil, gas and coal producers. No rock is left unturned, so to speak; a venture capitalist in my Seattle office building has helped Chinese entrepreneurs acquire privately held coal, gold and silver mining interests throughout the western United States. For stone-cold U.S. investors, the obvious play here is to simply tag along by taking positions in foreign and domestic companies supplying the Chinese juggernaut, whether they are base metal producer Falconbridge For consumers, outraged indignation is about the best you can do, along with new personal choices about limiting the use of fossil fuel. China has no incentive to bend to U.S. demands to force change on its repressive foreign energy partners. And our politicians are unlikely yet to ease up on rules preventing U.S. companies from participating in the sort of bribery and weapons brokerage that has become de riguer for doing business in the equatorial zone where most new energy sources are being discovered. So this really is just another case of joining 'em when you can't beat 'em. Shake your fist at the Chinese if you must, but also continue to buy global miners and drillers on dips in this bull market for commodities; sell your SUV; move closer to work; install solar energy panels; and make peace with nuclear energy. Fine Print To learn more about oil in Africa, visit the news Web site Africanoil.com ... To learn more about Angolan oil, visit this supplement to the Washington Post (registration required) ... The site Africafocus.com offers some industrial news and commentary about the region. ... For a list of the companies most focused on Angolan energy production, visit this U.S. Energy Information Association page. ... The Washington Post ran an interesting editorial about the Republic of Congos oil issues. ... The Christian Science Monitor has covered energy corruption in Chad. Two weeks ago, I wrote about soaring sugar futures -- and prices continue to escalate. Imperial Sugar Jon D. Markman is editor of the independent investment newsletters Strategic Advantage and Trader's Advantage. While he cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at jon.markman@gmail.com; put COMMENT in the subject line. At the time of publication, Jon Markman did not own or control shares of companies mentioned in this column. | ||||||||||||||||||||||||||||
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