China's Latest Hunting Trip

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Includes: DGP, FXI, GLD, PBR, RNGZY, SLV, TRNFF
by: Trace Mayer

In February U.S. Secretary of State Hillary Clinton traveled to China to beg for investment while the top Chinese brass boarded planes as fast as possible to look for deals. I am unsure whether the Chinese were anxious to secure additional deals or they simply do not enjoy Ms. Clinton’s dinner company. Either way the point is clear that Beijing is on the move again and hunting for natural resources. The great credit contraction has brought commodity prices to record lows and now is a prudent time to secure them.

Chinese President Hu Jintao has been touring Africa with a stop in Saudi Arabia. Vice President Xi Jinping and Vice Premier Hui Liangyu got to siesta in Latin America while Premier Wen Jao Bao engaged in a ‘Trip of Confidence’ to Europe with a fruitful visit with the Russians. While most of the deals in this round of jet-setting involved oil, for years the Chinese have been busy securing gold, silver, potash, natural gas and other commodities.

CHINESE DEALS

The February Chinese jet-setting and dealmaking trip yielded about $40B in loans. Chavez of Venezuela secured about $6B through PDVSA which is to be repaid in crude oil. Brazil accepted about $10B and in return guaranteed China up to 100,000-160,000 barrels per day at market prices. The oil will flow from Petrobras (NYSE:PBR) to China National Petroleum Corp and Sinopec. China’s neighbors, the Russians, accepted about $25B through Rosneft (OTC:RNGZY) and Transneft (OTC:TRNFF) and will guarantee over the next 20 years about 15 million tons of crude oil. This is in significant contrast to the meager Chinese investment of $500M in Rosneft’s IPO where British Petroleum (NYSE:BP) took a full billion and Petronas of Malysia, $1.1B.

GEOPOLITICS

The geo-political implications of securing these natural resources are extremely important. While China continues completing voluntary deals for natural resources, the Western economies flounder in disarray and chaos while attempting to bomb natural resources their way.

As Vladimir Putin said, “I was in Beijing at the time [Georgia invasion of South Ossetia in 2008]. I looked through the world electronic media. Complete silence. As if absolutely nothing is going on. It was as if somebody ordered everyone to keep their mouth shut. To those who organized all this; I can only say congratulations. Congratulations. You did an excellent job. The only problem: your results were poor and this will always be the case because the work you do is unfair and immoral. In the long run immoral policies always lose.

For example, approximately 120,000 in Ireland were protesting the bailout of lying and thieving bankers. While there has been civil unrest in China they have the resources to spend because of their productivity and savings over the past few decades. While the Chinese economy will need to continue advancing at least it is headed that way and have the resources to pay for the Chinese stimulus plan.

The great credit contraction will continue to grind on for years and perhaps decades. When a sound monetary and banking system, like the private GoldMoney or a public currency like a gold ruble or silver yuan, gains traction it will be Asia and particularly China that will be well positioned. After all, it was China’s silver standard that insulated them against the Great Depression. On the other hand, the Western economies are atrophying and wasting their resources by reallocating them from the productive to the unproductive. The Greater Depression has arrived and China is already preparing to rise as a phoenix from the global economic ashes.

Disclosures: Long physical gold and silver. No position in the other mentioned companies.