China not likely to be buying assets in the GCC

The best client for capitalism’s investment bankers must be the People’s Republic of China these days. China is on a buying spree, snapping up global assets at depressed prices paid from its foreign currency reserves that are increasingly at risk from dollar devaluation.

It makes good sense to buy now while prices are cheap and before Chinese foreign exchange reserves lose their value. Last week the China National Petroleum Corporation announced that it is in talks to buy a 49 per cent stake in Kazakhstan’s MangistauMunaiGaz that controls 500 million barrels in oil reserves.

$25bn oil deal

In February the People’s Republic signed long term oil supply deals with Russia worth $25 billion. There has also been substantial leasing of agricultural land in Kazakhstan, and Chinese investment in Sub-Saharan Africa, both for mineral rights and agricultural land, is on a neo-colonial scale.

Meanwhile China Minmetals’ $1.8 billion bid for OZ Minerals is under investigation by the Foreign Investment Board of Australia; and the regulator has a June 14th deadline to approve Aluminum Corporation of China’s $19.5 billion investment in mining giant Rio Tinto.

However, unless the Gulf oil states decide to unlock nationalized industries for foreign investment, there seems little likelihood of Chinese state investment appearing in the GCC. It is far more likely on the other side of the Persian Gulf in Iran and even Iraq.

Last December China has reached agreement with Tehran on a $2 billion development on the Yadavaran oilfield and there are ongoing discussions about joint development of the North Pars gas field.

Iraq oil bid

At the same time, Shell is in advanced talks with the two biggest Chinese state oil companies for a possible joint bid to develop the Kirkuk oil field in northern Iraq.

The Chinese focus on securing natural resources from oil to minerals and agricultural land is very clear. But this type of investment is not likely to be welcome in the Gulf States where such national assets are jealously guarded and capital for their development is not an issue.

It might be different if the Chinese had an appetite for GCC commercial or residential real estate but this is not their present focus for expanding their global commercial interests.

A more obvious future diversification for China might be into buying US industrial interests, perhaps in the probable looming bankruptcy protection of General Motors and Chrysler. Only time will tell if this shift in wealth from West to East gathers pace.