Monthly Archives: September 2009

CNOOC Ventures In Nigeria

Unlike in other parts of Africa, China’s economic push into Nigeria, sub-Saharan Africa’s leading crude producer, hasn’t made much headway.

In 2006, Chinese companies won four oil-drilling licenses in an oil-for-infrastructure deal that would have had Beijing building a hydroelectric power plant, a railway and a refinery in Nigeria. But the plug was pulled on that deal when Nigeria’s government changed and found some murkiness in the way it was put together. Then last November, Nigeria’s Chinese-built communications satellite had to be switched it off after a faulty power supply put it at risk of space collisions.

The FT now brings news of what could be a game changer: a possible $30 billion-50 billion deal with state-owned energy giant CNOOC covering as much as one sixth of Nigeria’s proven reserves. Sixteen production licenses, mostly held by Shell, Chevron, Total and ExxonMobil in joint ventures with the Nigerian state oil company, are up for renewal, and a handful of new licenses are also available. Negotiations have been underway for some months seemingly but how far they have got or even their scope is far from clear. The Nigerian government has had an uneasy relationship with Shell, the dominant western oil major operating in the country, and would welcome some competition for it.

Should CNOOC land some leases, they will be stepping into the political unrest and kidnappings that have crimped output by 500,000 barrels a day, the International Energy Agency estimates, in the oil-producing Niger Delta. But Chinese companies are getting used to being not so warmly welcomed on the continent.

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Filed under China-Africa, Energy, Industry

Another Lead Poisoning Scandal

Another case of lead poisoning of children is being put under state media’s spotlight. The Huaqiang Battery Plant in Longyan in Fujian has been closed down after 121 local children of 287 tested were found to be have excessive levels of lead in their blood, People’s Daily reports.

This comes barely a month after hundreds of children living near smelting plants in Shaanxi and Hunan were found to be suffering from lead poisoning, and is only the latest of a series of such cases that have been reported this year, cases that previously might have been kept out of the public spotlight. Central authorities now want to use to show they are being responsive to the popular outrage about the country’s environmental degradation, and snuff out any chance of environmentalism becoming the sort of single-issue around which challengers to the Party’s grip on power could coalesce.

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Filed under Environment, Industry, Politics & Society

Who’s After Hu? Hu?

Dr Watson: Is there any point to which you would wish to draw my attention?
Sherlock Holmes: To the curious incident of the dog in the night-time.
Watson: The dog did nothing in the night-time.
Holmes: That was the curious incident.

So it was with the recently concluded fourth plenary session of the Party’s 17th Central Committee. Xi Jinping, the vice-president who has been widely tipped to succeed President Hu Jintao in 2012, was not made vice-chairman of the Central Military Commission.

As this was an expected stepping stone to the presidency, it  has led to speculation that Xi is not the shoe-in he was thought to be. However, the fact that only he and Hu gave major speeches to the closed door gathering affirms, to this Bystander’s mind at least, that Xi’s heir apparent status remains.

Hu is thought to favor Li Keqiang, who, like the president, has close ties to the Communist Youth League, the party’s largest faction. Many had pencilled in Li as Wen Jiabao’s successor as prime minister.

Though the party wants to present a unified face to the world as it hits the 60th anniversary the founding of the republic, the inevitable jockeying for position of any political succession is clearly taking place — and behind closed doors behind close doors. We don’t really have a clue about how deep the divisions are, whether they might open a way for a compromise candidate or even what Hu, who seems to be enjoying being a globetrotting head of state, intends to do once he has to retire from party and state office.

Might he be thinking of a role as a Putin with Chinese characteristics, exercising power as head of the Army, and remaining a protective figure for his Youth League proteges, even as the princeling Xi succeeds him? That was much what Jiang Zemin did when Hu succeeded him as president in 2002. Jiang got forced out after two years. Hu might have in mind going the full five, seeing himself as one dog who hasn’t lost his bark.

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A Green China Is A Nuclear China

The one-day U.N. summit in New York on climate change produced more hot air than substantive progress towards a meaningful deal at December’s Copenhagen summit. President Hu Jintao made a lot of the right noises to be heard as internationally cooperative but his offer to curb carbon emissions by a “notable” but unspecified margin by 2020 from 2005’s levels, while the first time China has said it will cut emissions, is an empty promise in as much as the expected rapid growth of the economy will mean that an overall reduction in emissions is unlikely even if China is able to meet its promise to cut carbon dioxide emissions per unit of GDP. In practice, the main thrust of this will mean that China will increase its reliance on nuclear power, expected to account for 15% of energy consumption by 2020.

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Filed under Economy, Energy, Environment

China? Where That?

During what has become our annual visit to our American cousins, this Bystander was struck by how China has fallen off many Americans’ radar. The trade spat over tyres and the Chinese reaction were one-day wonders for the U.S. media. Even in the run up to this week’s meetings on climate change at the start of this year’s U.N. general assembly, U.S. President Obama’s meeting with Hu Jintao and the Pittsburgh G-20 meeting, all occasions for discussing issues on which the two most powerful men in the world have a significant stake and say, the U.S.-China relationship played second — or even fifth — fiddle to the domestic concerns of healthcare insurance reform, racism in U.S. politics and whether the U.S. president was interfering overly in New York state politics by suggesting that NY’s Governor Patterson should not run for reelection in 2010 because his low poll numbers endangered the state’s senator also up for reelection, which in turn could put the Democratic Party’s filibuster-proof 60-seats in the U.S. Senate at risk. All politics, we guess, is local.

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China’s Cloudy Investment In Chavez’s Grandiose Vision

Details of the newly struck oil deal with Venezuela remain murky. We don’t know much beyond the fact that there will be $16 billion of Chinese investment over three years to boost production from the Orinoco River basin by 450,000 barrels a day, probably from developing a new field as was the case with a similar recent $20 billion deal with Russia, also intended to add an extra 450,000 b/d. Fuller details are expected next month following talks between Chinese and Venezuelan oil officials.

China National Petroleum Corp. has a previous oil-for-investment deal with Caracas, but we understand the new deal to be separate from that, though CNPC, which also has rights to bid on the undeveloped Carabobo blocks in the Orinoco basin, is the likely company involved in the new deal. It is part of Venezuelan President Hugo Chavez’s attempt to wean the oil industry that bankrolls much of his political power off its dependence on U.S. investment (Exxon Mobil and ConocoPhillips getting the boot) and establish Venezuela as a self-styled energy giant in Chavez’s idiosyncratic vision of a multi-polar world.

The new deal would be the eighth and seemingly largest acquisition of overseas oil and gas assets this year by China’s state-owned companies. CNPC said recently that the first seven had a total value of 82 billion yuan ($12 billion),  80% up on the same period a year earlier. China Daily reported earlier this month that the company has taken a $30 billion loan from China Development Bank to finance overseas acquisitions.

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Filed under China-Latin America, Economy, Energy

Trade Dispute With U.S. Jaw-Jaw, Not War-War

The U.S. puts tariffs on Chinese tyres. China launches an anti-dumping, anti-subsidy investigation into imports of American car products and chicken meet. Such is the tit-for-tat pettiness of international trade disputes.

This is jaw-jaw, not war-war, even allowing for the fact that the American decision was being cast as the Obama administration’s first big test on trade. Having sided with U.S. unions, strong backers of presidential candidate Obama, it was castigated by Commerce Minister Chen Deming for instigating a “grave act of trade protectionism”. Grave is not something to be too concerned about in the diplomatic lexicon. And if anyone understands the delicate art of political payoffs, it is Beijing.

Candidate Obama’s tough talk on trade  has been replaced by President Obama’s assurances that not falling back into protectionism is necessary to get the global economy going again. When President Hu Jintao meets him at the G20 summit in Pittsburgh in a couple of weeks and again during Obama’s planned visit to China in November, there will be weightier issues to occupy the two than tyres and chicken parts.

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Wen On The Economic Recovery

Prime Minister Wen Jiabao told the ‘Summer’ Davos meeting in Dalian that “China’s economic rebound is unstable, unbalanced and not yet solid”. Ain’t that the truth.

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Tianjin Takes A Lead In Carbon Cap and Trade

Tianjin looks set to become the first of China’s designated carbon trading exchanges to be up and running in an organized way, according to a Financial Times report.  The Tianjin Climate Exchange, a joint venture between the Chicago Climate Exchange, PetroChina and Tianjin’s municipal government, expects to start trading within the year.

The China Beijing Environmental Exchange and the Shanghai Environment Energy Exchange are its likely rivals. China doesn’t yet have a regulatory framework for carbon exchanges or even standardized futures contracts. (Beijing’s carbon exchange is partnering with Blue Next, a spot market; while Shanghai is experimenting with credits for local companies.) Nor does China have a national cap on emissions (a Copenhagen climate conference surprise to come?), so participation in any market would have to be voluntary, as it is for the Chicago Climate Exchange.

Cap and trade legislation may be out of favor in the U.S. (or at least politically stalled in a Washington that seems unable to get its head out of its own political sands), but China has a strong incentive to get carbon markets established. It is the world’s largest producer of carbon emissions and if it doesn’t establish its carbon markets quickly it may lose the ability to control global pricing.

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Filed under Environment, Markets

New ABC Of Aerospace

The C919, a 190-seat commercial jet, won’t take to the air for at least half a decade, and not enter service for at least a couple of years after that, but it will be the largest home-built airliner to be constructed in China, and will mark a significant advance for an industry Beijing has earmarked as a national champion and global competitor. Models of the plane, to be built by Shanghai-based Comac, an acronym for Commercial Aircraft Corp. of China and part of the state-owned Aviation Industry Corp. of China (Avic), have gone on show in Hong Kong. (It was announced in March.)

Comac already builds a 90-seat jet, the ARJ-21, for which it says it has around 200 orders on its books. The new jet liner is potentially competitive bad news down the road for Airbus and Boeing, the two global aerospace giants who see the Chinese market as one of their great hopes for the future, and whose A320 and 737 models now dominate the regional jet section of the market. The overall Chinese market for commercial aircraft is forecast to expand fivefold over the next 20 years. That means orders for more than 2,000 aircraft to scrap over, as China expands it aerospace industry’s focus from military to civilian. Air China, China Southern Airlines and China Eastern Airlines can all be expected to do their patriotic duty.

It would be rash to assume that the Chinese plane maker will stay third in the trinity of Airbus, Boeing and Comac. Equally, the challenge shouldn’t be underestimated. Comac is starting from scratch, having been set up only last year with the purpose of developing China’s first airliners. It has given itself eight to 10 years to develop the C919, compared to the six it typically takes the more practiced Airbus or Boeing. It will need to rely on foreign-made engines, avionics and other components for its early models as it learns to build its own, and perfects its aviation grade aluminum and composites. It will also have to learn how to get its airliners internationally certified if it wants global sales. The ARJ-21 isn’t yet certified in the U.S. for example.

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