China and Raw Materials
by Thomas Chaize
November 09/05
The economic success of China is often
perceived as a miracle fallen from the sky. The conception is that the
Chinese are the happy winners in a lottery in which they have won exponential
economic growth as an economic prize. But this success is not result of
fate. China has planned, organized and structured this growth for a very
long time. Certainly, if we look closely this growth is appears ad hoc
but if we view from a distance we notice the coherence of long term planning
in this economic boom. Current growth has been a strategic concept for
several years, it is not the fruit of the fate, but the result of a very
long term political plan that many other countries could never have perceived.
Such a long-term approach is totally foreign to our contemporary political
concepts, indeed our attitudes tend to ask why we should look 20 years
ahead when it is difficult to see for a few months. However, in the game
of chess, the one that sees farthest wins.
Some years ago western companies in China had the rather condescending
idea to teach the Chinese communists capitalism. But, we do not attempt
to teach Kasparov chess. We observe, we learn and take lessons. Decades
of collectivism did not remove millenniums of tradition in the conducting
of business in China. Indeed, the Chinese civilization from the Middle
Ages, is already very experienced in the cultural, technical, scientific
and especially commercial domain. Let us not forget that Marco Polo from
a family of leading traders in Venice, the capital of global trade at
the time, took copious notes and learned a great deal during his visits
to Imperial China.
Although companies try to invest in China, they do not understand the
difficulties and nothing is made easy for them. The sole Chinese objective
is the development of China, its self sufficiency and its economic and
energy independence. It is not to help foreign companies even after the
post Soviet transition.
To support and maintain its growth China needs energy and metals. Its
monetary and political doctrines support its growth and its search for
raw materials.
It is necessary to first discuss its energy policy and then the search
for industrial metals and finally the monetary role of gold and silver.
I. The energy strategy of China.
China (India too) is one of the rare countries that has a coherent and effective policy toward raw materials. As a good player of chess, China places its pawns for a long term advance and is planning to checkmate in three moves.
1. The strategy:
Petroleum, gas, coal, uranium, nothing
is forgotten by China to assure its present energy necessities and especially
for future requirements (for 10 , 20 , 30 years and even longer). This
policy is coherent only with a long-term vision that ultimate price will
matter little and that the sustained availability of the energy will be
far more important. Long ago China understood the economic paradigm of
inexhaustible natural resources, and develops its long term policy as
a consequence.
China maintains its pawns on all the available squares of the chessboard.
She overcomes all the obstacles such as countries with political risks
(Sudan, Angola, Nigeria, Gabon) and even purchases rights at the full
price (deposits of Sudan, investigations in Brazil). The negotiation for
the Occidental oil private grounds of the chief warrant officers in Nigeria
and even directly challenges the might of the USA (e.g. contracts with
Iran, Iraq, and Venezuela). In fact China is buying all available energy
deposits and contracts and using its extensive political, military force
(sale of weapons), economic and commercial wiles to attain its objectives.
2. Some examples:
Current economic events indicate a very coherent policy
of the Middle Empire toward sources of energy as shown in the following
limited number of examples.
- SINOPEC (China Petroleum and Chemical Corporation) buys 100 billion
dollars of gas in Iran for 30 years and contracts to develop Yadavaran's
Iranian petroleum.
- Agreements are signed with Hugo Chavez's Venezuela for three billion
dollars for the delivery of oil products to China (petroleum, heavy raw
product, Orimulsion). Venezuela has given a license to the CNPC (Mocked
National Offshore Oil Corporation) the right to exploit new deposits of
gas of Caracales and Intercampo Norte.
- Sino - Japanese battle for the purchase of the petroleum in Siberia,
the construction of an oil pipeline and the offshore sea exploitation
off China.
- China has signed agreements with Brazil for oil drilling and the construction
of a pipeline, at apparently for three times the market price.
- The reserves of natural gas and petroleum of Algeria are also of interest
to China and SINOPEC and CNPC have signed contracts with Sonatrach (The
Algerian oil development company), Sino - Algerian oil cooperation is
extremely important.
- In 1997, CNPC managed to obtain the rights for development of two major
oil fields in Kazakhstan, in spite of Russian and American pressures.
These oil fields are capable of producing 1 and 1.5 billion barrels. CNPC
has a project to build an oil pipeline joining Kazakhstan to Xinjiang
province in North West China.
The energy policies of China are not limited to the gas and petroleum:
- China has signed agreements with Australia for the investigation and
the development of its deposits of uranium for the supply of its future
park of nuclear power stations in construction.
- Even coal is not forgotten by Beijing which has recently signed long-term
agreements with BHP (BHP controls 30 % of the world conversion of coal
to furnace grade coke).
While Europe and North America discover with bewilderment that the petroleum
price can climb over 70 dollars, China continues silently to develop its
energy strategy to assure its long term future supply. While western countries
look for some fiscal and political spin to calm the rumbling discontent
of the motorists about the increase of the petrol price, China buys into
all underground petroleum, gas, uranium and even coal that is still accessible.
Their strategy is simple, to buy all energy sources available in big or
small quantity. From the bitumen sands of Alberta through to Australian
coal and even to Sudanese petroleum.
To accept that oilfields run out is an unacceptable idea for the political
agegnda of occidental economic circles. Speak to a western academic or
to a fund’s administrator of the peak of production of the petroleum and
you are immediately classified as a madman. Nevertheless, the production
of petroleum levels out, demand increases, prices rocket and the Chinese
place their ideological energy Queen in the center of the chessboard.
II. Metals and yuan.
The tactics of China does not limit itself only to the energy, non-ferrous metals are also desired to furnish industrial present but especially future growth.
1. The industrial metals.
Strategy is similar to that adopted
for the energy, purpose is effectively to guarantee long-term supply.
China, by means of the companies of state, is interested in the Brazilian
steel, in the Argentine iron, in the copper of Chile, in the nickel of
Cuba and in the mining resources of Canada and Australia, any continent
or country is forgotten, and these mentions are just only some examples.
China incites these partners to develop roads, oil pipelines, railroads
to facilitate the sending of resources.
Naturally, all this change the balance of the business of raw materials,
these countries being previously in position of dependence toward their
buyers, they had no possibility of negotiating the sale of their resources.
Today, the arrival of China their allows to make rise prices, and nevertheless
the Chinese purchases continue. China allows these countries to turn to
the others customer, and breaks so a balance unfavourable to the producers
since the end of the decolonization. These countries have, moreover most
of the time, very tense political relations with their old buyers, China
is so often welcomed with a very positive feeling.
Here are some examples :
- The Chilean group Codelco (12 % of
the world brass production) signed an agreement of 2 billion dollars with
the Chinese company Minemetals, this one will receive 55 000 tons of copper
a year, furthermore it has an option to buy 25 % of Gaby's mine which
will produce 150 000 tons of copper in 2008. In 2005, negotiations began
with Chile (Chile is the first world brass producer) for agreements of
free exchange with China.
- Signature of agreement between Cuba and China for the origin and the
nickel production, it is necessary to know that Cuba possesses very important
nickel reserves.
- In 2003, China abolished the existing tax of 17 % on the import of cupriferous
materials (ores and brass scraps), on the other hand it did not cancel
that on the refined copper, this favors the imports of ores and supports
the Chinese refiners.
- The Chinese group KCM is very interested in the company Zambia copper
which exploits a very important brass deposit in Zambia.
- Attempt of purchase by Minemetals of the Noranda company (copper, nickel
and zinc), offer was more important than its competitors that they are
Australian, American and Brazilian.
- China has create a consortium between China Citigroup and American Alcoa
to base a company of aluminium.
2. The yuan, the gold and the silver.
China attends an avalanche of dollars for several years, and the USA demand
that China revalues the yuan. They consider that it would be the wonderful
cure in all the problems, while it would be rather about the dawn of complications
for the dollar, but this is another subject. China will not give in to
any pressure about the yuan, it will revalue the yuan the day when it
will seem to her sensible to make it for his economy, the rest is only
verbosity. At the moment, China uses the influx of dollars to buy oil
reserves, gas, uranium, coal (energy is its first priority) as well as
industrial metals. So, China can buy from the full price resources. And
later ? It is difficult to say when and how China is going to change its
monetary policy, besides what is sure, it is that China knows. Indeed,
she has already foreseen when it will be made and why, outside pressures
will not be there for anything, China will follow only its plan, serenely.
With the gold and the silver, it is not especially necessary to forget
elements as the platinum and the palladium which are, they also, very
used in China as jewels and as investment. Recently, China allows, the
1.3 billion inhabitants, to possess precious metals, already it is going
to be enough to provoke an influx of gold and silver towards China which
has moreover a very old tradition with the precious metals. I do not believe
that statics officials can give a very precise image of the consumption
of gold, silver, platinum, and of palladium in China, because the precious
metals can take very different ways which often escape statistics.
The interest of China would be to let make these massive imports of precious
metals. Really, it allows to strengthen consumption, and reduces the reserves
of exchange to dollars as well as exceed it commercial, finally it relieves
international pressure on its currency. China can then transfer the reserves
of dollars of its golden, silver population, in platinum and in palladium.
The first Chinese storekeepers to be proposed bars to the sale were in
shortage of stock so much demand was important. History shows that gold
goes where wealth is.
China has a very coherent politics with the energy, the industrial metals,
the precious metals and the yuan. The monetary’s political ( precious
metals incl ) is in perfect equivalence with its purchases of raw material,
so it makes sure its future supply. She is the ideal partner for numerous
producing countries, because she terminates their subjection toward their
old buyers, also she does not ask for any counterpart (political, military,
strategic), even if she supports these nations.
The objective of these lines is to demonstrate to the investors who undergo
for years a stream of information hostile to raw materials, who sometimes
can raise doubt in them , who the biggest actor of the sector (China)
does not doubt him and even it buys everything.
There is no limit in the increase of raw materials, the currencies which
measure their values are finally that of the paper, nothing more.
The best politics of long-term investment is to make as China, energy
(first and foremost), industrial metals (copper, zinc, nickel, cobalt,
molybdène), and of gold, silver, platinum, and palladium to protect itself
from inevitable monetary problems (because of the quoted first two), and
especially to privilege reserves in underground.
Thomas Chaize
www.dani2989.com
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