China's 'Infrastructure for Resources' Policy

As the United States spends money it doesn't have (much of it borrowed from China ironically) to manipulate housing prices upward, and get its debt-laden consumers to spend with financial handouts, bail out its financial oligarchs and funnel money into states so its public sector employees have no need to make any necessary adjustments to reality, China continues to spend its surplus on "nation building" in return for access to other country's resources. [May 13, 2009: Commodities - It's China's World: We Just Live in It] .I literally could post a story each week as agreements or strategic purchases are made by China; much of the emphasis has been in Africa....

A $9 billion minerals-for-infrastructure deal is presented by Congolese President Joseph Kabila as a cornerstone of his plan to rebuild the Democratic Republic of Congo after years of war.

China will build roads, schools and hospitals in exchange for mining rights. In Guinea's capital, Conakry, the Chinese government is building a 50,000-seat sports stadium as a gift.

....but now they appear to be spreading out to Southeast Asia. I've called this "new age colonialism"; akin to what the West was doing the past 500 years but without actually taking over the country itself. Ironically this has a double benefit to China as it not only secures resources in the long run, but the infrastructure projects help employ a good number of people. As I wrote in March 2009:

...it is striking how China is locking up natural resources throughout the world with "partnerships"; specifically this hour long [ABC] program was about how China is building out infrastructure (spend now) in Africa in return for access to those countries' natural resources. Folks, this is our competition the next 50+ years... we, on the other hand, don't think out past one election cycle. If you have time, here is a lengthy piece called The Age of the Dragon which is similar to what I saw on ABC

China is conquering Africa as it becomes the preferred trading partner of the continent's dictators. Beijing is buying up Africa's abundant natural resources and providing it with needed cash and cheaply produced consumer goods in return

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Via Bloomberg:

• China will help Malaysia build up its transport infrastructure as it seeks to tap more of the Southeast Asian nation’s natural resources. The two countries will work on railway, bridge, water and energy projects as China imports more Malaysian palm oil and timber, according to memorandums of understanding signed on the final day of President Hu Jintao’s state visit to Malaysia.
• China is the world’s largest edible oil importer. The resource-hungry nation bought 357,570 metric tons last month from Malaysia, the world’s No. 2 palm exporter of the crop. Beijing has been scouring the world for natural resources to feed an economy that has grown at least 6 percent annually since 1997. In return, it has pledged financing and help with construction of infrastructure.
• The Malaysian government is opening up to more business from China as data showed that from January to September this year, China is the second-largest market for Malaysia’s exports valued at 46.8 billion ringgit. Malaysian exports to China jumped 16 percent last month from a year earlier, figures released in Beijing today showed.
• Malaysia will work with Chinese companies to build a dam in Penang state, Najib said. The Mengkuang Dam will be the biggest in the area.
• A Chinese company will be awarded a contract by the Malaysian government to help develop a double-track railway that will run from Johor Bahru, bordering Singapore, to Gemas in the state of Negeri Sembilan, Najib added. Global Rail Sdn. is leading the construction of the 28 billion ringgit ($8.2 billion) project.
• Malaysia will also work with Chinese companies to build a pulp and paper mill and aluminum smelter in Sarawak state.
• Export-Import Bank of China, a state export credit agency, signed a credit agreement with Jambatan Kedua Sdn. for a second bridge linking Penang Island to the Malaysian peninsula.
• Meanwhile, Beijing Enterprise Water Group Ltd. will work with the Malaysian government to improve the country’s sewerage services, according to one MoU signed today.

[Sep 30, 2009: China Attempting to Secure 1/6th of Nigeria's Proven Oil Reserves]

[Aug 18, 2009: Expansive China Facing Grass Roots Resentment]

Disclosure: Author holds no position in EWM

Comments

[Davewmart:]

This investment in overseas resources is in addition to massive investment in indigenous resources, amongst then in energy:
nextbigfuture.com/2009...

The 86GW of nuclear is to comprise 100 Westinghouse reactors in operation or under construction.
They are also developing and building pebble bed reactors, which are capable of factory build and delivery in sections on trains and trucks.
This would make China the world's number one power in nuclear energy generation, with all the elements in place needed for further rapid expansion replacing and supplementing coal.
The 150GW of wind would give around 50GW of average energy output, and China would be by far the number one in this field.
Solar thermal energy is already in extensive use in China, with millions of homes getting their hot water that way.
Of course, China is at the heart of the industry producing photovoltaic cells, and is pushing on with production and deployment.
Rare earth production used in electric motors and some batteries is centered on China.

Speaking of electric motors, China already uses millions of electric bikes and scooters, and prices for EV cars are far lower and the conditions such as very dense cities a lot more suitable than in the US to use them.

It all boils down to a country which is rapidly and effectively moving it's industry to a position where it will be effective in a wold where oil is limited in supply and expensive.

The contrast with the US and Europe is notable.

Nov 12 08:27 AM

[HaavBline:]

Even as astute an investor as tradermark is still underestimating China's fundamental economic strength, although he is certainly on the right track.

"Ironically this has a double benefit to China as it not only secures resources in the long run, but the infrastructure projects help employ a good number of people." .

Actually, both China and Africa derive MULTIPLE benefits from their relationship. Affordable Chinese infrastructures enhance productivity and bring prosperity, which create demand for affordable Chinese products. Chinese exports to Africa is zooming in unison with imports from Africa.

"China is conquering Africa as it becomes the preferred trading partner of the continent's dictators."

If you think only dictators and failed states are clinging to deal with China, you would be badly mistaken. China's combination of capital, capacity, low-cost, market demand and willingness to take risk and hardship is very hard to resist for any emerging economy.

Nov 12 02:06 PM

[thotdoc:]

I guess whomever gave you a thumbs down, doesn't like the future. I thought your remarks were cogent.


On Nov 12 02:06 PM HaavBline wrote:

> Even as astute an investor as tradermark is still underestimating
> China's fundamental economic strength, although he is certainly on
> the right track.
>
> "Ironically this has a double benefit to China as it not only secures
> resources in the long run, but the infrastructure projects help employ
> a good number of people." .
>
> Actually, both China and Africa derive MULTIPLE benefits from their
> relationship. Affordable Chinese infrastructures enhance productivity
> and bring prosperity, which create demand for affordable Chinese
> products. Chinese exports to Africa is zooming in unison with imports
> from Africa.
>
> "China is conquering Africa as it becomes the preferred trading partner
> of the continent's dictators."
>
> If you think only dictators and failed states are clinging to deal
> with China, you would be badly mistaken. China's combination of
> capital, capacity, low-cost, market demand and willingness to take
> risk and hardship is very hard to resist for any emerging economy.

Nov 12 11:03 PM

[TraderMark:]

that quote was from the "age of the Dragon" link I posted, not my words.


On Nov 12 02:06 PM HaavBline wrote:


>
> "China is conquering Africa as it becomes the preferred trading partner
> of the continent's dictators."
>
> If you think only dictators and failed states are clinging to deal
> with China, you would be badly mistaken. China's combination of
> capital, capacity, low-cost, market demand and willingness to take
> risk and hardship is very hard to resist for any emerging economy.

Nov 13 08:37 AM

[LaChic:]

I think china is overrated, I like indonesia, India and Vietnam better.....

Nov 13 05:48 PM