State backing fuels spending spree
In mid-July, the National Development and Reform Commission summoned the country's Big Three oil companies to a meeting in Beijing to report their overseas acquisitions.
The three firms announced seven in the first half of the year - a record - taking the value of the mainland's purchases of oil and gas to 82 billion yuan (HK$93.17 billion), up 80 per cent over a year earlier.
The NDRC officials voiced their approval. They told the Big Three to carry on the good work, saying conditions had never been so propitious to make foreign acquisitions at a cheap price and, in so doing, keep the country's own oil and gas in the ground.
The Big Three - PetroChina, Sinopec Corp and China National Overseas Oil Corp (CNOOC) - are leading a global spending spree unprecedented in the country's history. In the first half of this year, Chinese firms spent US$60 billion in non-financial overseas investment, compared with US$40.7 billion in all of 2008, less than US$10 billion in 2004 and 2005 and only US$143 million in 2002.
Standard Chartered Bank estimates the full-year total could reach US$150 billion to US$180 billion: The country's overseas investment will overtake incoming foreign direct investment for the first time.
Jointly with British Petroleum, PetroChina won a bid last month to develop the giant Rumaila oilfield in southern Iraq, with known reserves of 17.7 billion barrels.
What a different story it was in 2005, when CNOOC and white goods maker Haier were snubbed in their respective bids for two leading US companies, Unocal Corp and Maytag. Both made higher bids than US rivals but lost owing to skilful political lobbying and hostile media campaigns by their competitors.
Several conditions have made possible this current Chinese spending spree - the financial crisis, which has cut the asset values of thousands of companies in the developed world and made them in need of new capital, the cheap US dollar, a fall in the oil price, and the world's largest foreign exchange reserves, which hit a record US$2.132 trillion at the end of June.
Last week, Premier Wen Jiabao said Beijing would use these reserves to support overseas acquisitions. Chinese companies, especially the government-owned, enjoy strong support from state banks, which provide financing at preferential rates.
Zhou Fengqi, a former director of the NDRC's energy research centre, said that in the past, owners of companies in the developed world did not want to sell them to mainland firms. 'But now they are willing to sell, representing an opportunity for Chinese companies ... But Chinese oil firms must be cautious in selecting the best-quality assets,' he said.
This month, Beijing Automotive Industry Holding offered Euro660 million (HK$7.3 billion) for a 51 per cent stake in Opel, the European unit of GM. The US carmaker rejected the bid because it did not want to give Beijing Auto the intellectual property rights over designs and technology that would hurt its position in China, where GM remains a major player.
Beijing Auto will want to avoid the mistakes of the first major foreign acquisition by a mainland carmaker - the purchase in January 2005 by Shanghai Auto Industry Corp for US$500 million of a majority stake in Ssangyong Motor, the fourth-largest carmaker in South Korea.
Ssangyong went bankrupt last year, resulting in the loss of nearly all the Shanghai firm's investment. It was the result of a fiercely xenophobic trade union, an inability to cut costs and the workforce, and animosity between Chinese and Koreans.
Official blessing
Beijing vows to use the nation's foreign reserves to support acquisitions
It is forecast that China's overseas investment this year could reach, in US$: $180b