China looking to buy its way out of inflation and into opportunity - foreign oil, minerals, ag.
This short little article is packed with potential significance. It's no secret that China has been looking to snatch up global supply of necessities through foreign acquisitions, as evidenced by Chinalco's recent stake in in Rio Tinto. But to have the director of a key economic research facility publicly tout that strategy serves as a warning to U.S. policymakers pull dollar strength out of their magic hats. When the dollar resumes its slide in the coming weeks, I think we'll see Chinese state corporations and their sovereign fund becoming more proactive in purchasing assets in the industries experiencing the greatest price hikes. I wouldn't be surprised to see China press the envelope a little and go for some deals of a scale that will make the world nervous. Perhaps an attempt on Rio Tinto outright? or a BHP or a Vale? This could get very interesting!
China Official: Weak US Dollar Is Opportunity For Overseas M&A
From Liu Li, The Wall Street Journal 2008-5-16
Chinese companies should consider acquisitions and mergers overseas, including in the U.S., because of the weak U.S. dollar, Li Lianzhong, the director of the economic bureau of China's Central Policy Research Office, said Friday.
"We should encourage Chinese enterprises to buy U.S. industries and banks to achieve low-cost expansion," Li said in a speech at a local forum.
The Central Policy Research Office is a key research arm of China's Communist Party.
Li also encouraged Chinese companies to purchase foreign oil and minerals companies to meet domestic demand, and called for companies to grow crops abroad, without elaborating.
"If these measures are in place, China's inflation will be controlled at a reasonable level," he said.
China's inflation, around multi-year highs, has been mostly driven by a surge in food prices. Demand for raw materials in China has remained strong as the economy has powered ahead at double-digit rates in the past few years.
Beijing encourages its major firms to expand internationally under a "go out" policy. Most of the expansion has been in resource-rich Africa and Australia.