Where China Put Its Big Bucks In 2010: Down South America Way

South America dominates the list of the biggest overseas acquisitions by Chinese companies this year. The two biggest to date: Sinopec’s $7 billion purchase of 40% of the Brazil assets of the Spanish energy group, Repsol; and the $5.6 billion CNOOC is spending in two phases for 50% of Bridas Corp., the investment vehicle of the Argentine vertically integrated energy group, Bridas. Bridas Corp.’s primary asset is Pan-American Energy (PAE). The partners are buying out BP’s 60% stake in PAE as BP raises cash to put in a piggy bank for any obligations arising out of the Deepwater Horizon accident, turning what looked in March like an iffy investment by CNOOC into something much more promising by the end of November.

Sinopec has since also picked up the U.S. oil company Occidental’s production and development assets in Argentina for $2.5 billion, the fourth biggest overseas investment by a Chinese company this year. The third biggest was Sinochem’s $3.1 billion purchase of a 40% stake in Statoil’s Peregrino subsalt field off the Brazilian coast. Add in a couple of smaller deals in Venezuela and Chinese firms have secured this year stakes in six projects that will eventually be producing upwards of 570,000 barrels of oil a day.

China’s state oil companies have long had a toe-hold in the region, but this year represents a big step forward, including diversifying China’s energy dependence on Venezuela. These deals have not only secured future oil supplies, they are also piecing together a vertical supply chain that includes refining, trading and storage — and further downstream power generation and distribution. State Grid, the world’s largest power utility and another state-owned behemoth, spent nearly $1 billion to acquire seven power distributors in Brazil as part of a deal it has won to be operate the power distribution system in densely populated southeastern Brazil.

Taken together those seven acquisitions would make a list of the ten largest overseas acquisitions by Chinese companies in 2010. As well as securing energy supplies for China’s own fast growing economy, Chinese companies will be well positioned to profit from the domestic growth of the emerging economies of South America.

In comparison the other big overseas acquisitions of the year seem small beer. PetroChina spent $1.6 billion to acquire Arrow, an Australian coal seam and power distribution company, in a joint bid with Royal Dutch Shell valued at $3.2 billion overall. Chinalco spent $1.3 billion to buy 45% of Rio Tinto’s Simandou iron ore business in Guinea through its Chalco subsidiary. China Huaneng Group, the country’s largest electricity producer, paid $1.2 billion for GMR Infrastructure’s 50% stake in InterGen, a U.S.-based utility that runs power plants in Britain, the Netherlands, Mexico, Australia and the Philippines.

The biggest industrial foreign acquisition was Geely’s $1.8 billion acquisition of Volvo from Ford Motor, the largest piece of business done by a company not state owned. The next largest industrial acquisition was the purchase of Nexteer, a parts-maker bought from GM by Pacific Century Motors, a joint venture between Tempo Group and the investment arm of the Beijing municipal government, a deal valued at less than $500 million.

Beijing Suggests China’s Farmers Stay At Home

We noted earlier this year that Chinese farmers were looking to till African and Latin American soil, with a couple of examples of groups of Chinese families farming on those continents and exporting back to China. Now Niu Dun, China’s deputy agriculture minister, is distancing Beijing from such efforts, saying that China wants to depend on its own land to ensure its food security. Perhaps not uncoincidentally Niu’s comments come ahead of a World Bank code of conduct for investing in overseas farmland expected in May, itself ahead of a July UN Food and Agriculture conference on the issue pencilled in for July.

Chinese Farmers Seek To Till African, South American Soil

Yesterday’s post on the drought in the wheat lands of the northern plain prompted an e-mail (always welcome, but please also free feel to share as a comment) asking whether anything happened about Beijing’s plans to lease farmland in Africa and South America.

This was a hot topic of conversation a year back before the commodities boom — and everything else, come to that  — went bust. Just as China needed to secure strategic supplies of energy and raw materials by investing at the source in supplier nations, so the same logic was applied to food. Last May, the agriculture ministry proposed making supporting overseas land acquisitions by domestic agricultural companies official government policy, similar to the support given to state-owned banks, manufacturers and oil companies to undertake their foreign direct investment.

China’s demand for commodities has slumped since, but that for food hasn’t. With only 7% of the world’s arable land (and shrinking thanks to urbanization), plus calorie intakes rising, food imports have inevitably been growing. China is only able to pay lip service to its policy of food self-sufficiency, and has been for some years.

Regardless of official policy, Beijing has quietly encouraged Chinese enterprises to invest in agricultural ventures in relatively unexploited regions of Africa and Latin America, and that would at the same time appeal to countries’ development needs.  China is also funding ten new agricultural training centers across Africa to raise the continent’s overall farm productivity. It has discussed with various countries leasing land to be worked by Chinese farmers, much as Chinese labor has been shipped into Chinese funded construction projects overseas.

The largest existing example of that we’ve heard of is more than 6,600 hectares in Brazil farmed by 30 Chinese families, who export the soybeans they grow directly back to China. In Africa, some 350 Chinese are successfully farming 4,000 leased hectares in Uganda. Tanzania, Zimbabwe and Zambia, too, have Chinese-leased farms on a smaller scale.

In 2007, the head of the Export-Import Bank, Li Ruogu, pledged his support for Chinese farmers migrating to Africa. He also told an audience in  Chongqing that more than 12 million farmers from the surrounding area would have to leave their land by 2020. Finding work in Africa, he thought, would be easier than finding a new job at home.

Chinese investment could certainly raise Africa’s agricultural productivity and build much needed farm infrastructure like storage silos and irrigation systms. But there are deep sensitivities that could be hurt. Foreign-run farms and plantations are historically closely connected with colonialism in Africa, one reason that many African nations still restrict land ownership by foreigners.

Given the political sensitivities in likely recipient countries, the agricultural ministry’s proposal last May, as far as we know, remains just that. But certainly no official is likely to stand in the way of any Chinese farmer looking to till foreign soil.

Beijing Looking To Lease Foreign Farmland

China has already gone abroad to secure supplies of energy and minerals by investing in mines and oil fields, so why not do the same for food? The Beijing Morning Post quotes Xie Guoli, a senior trade promotion official with the agriculture ministry, as saying that China is looking at leasing farmland in Russia, South America and Australia.

China already has rice farm joint ventures in Cuba and Mexico. High international grain prices could be pushing Beijing to consider doing the same on a larger scale and for more foods. How seriously it is pursuing the idea remains to be seen, but there is one reason for doing so beyond high import prices.

Very big, China, as Noel Coward famously said, but it is also running out of farm land. Arable land was reduced by 40,700 hectares to 121.7 million hectares last year, mainly because of urbanization. That is close to the minimum of 120 million hectares Beijing has said it regards as needed.