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XMFSinchiruna (27.14)

China looking to buy its way out of inflation and into opportunity - foreign oil, minerals, ag.

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May 19, 2008 – Comments (12)

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.

http://www.zero2ipo.com.hk/China_This_Week/detail.asp?id=6548

12 Comments – Post Your Own

#1) On May 19, 2008 at 2:51 PM, Tastylunch (29.48) wrote:

indeed good point, article,

. PTR made a very smart play in picking up PetroKazakhstan back in 05 (it think it was). I would expect to see Chinese firms buy more companies like that in regions where it may politically unpalatable for  US or european firms to buy. (venezuela? darfur? Nigeria? for starters )

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#2) On May 19, 2008 at 3:07 PM, XMFSinchiruna (27.14) wrote:

Not to mention right here at home... weak dollar means compelling opportunities for China to either gradually buy stakes in U.S. companies like Alcoa or Freeport-McMoRan, or to try for outright purchases of some lesser miners like Coeur d'Alene. Later on, when they perceive a bottom developing in U.S. financial markets (this could be quite a ways down the road, mind you), they can continue in earnest with purchases of stakes in U.S. banks and investment firms. Remember, in a world competing for finite resources with ever more desperation, finance becomes a form of offense. Disclosure: I am long FCX,CDE,ACH,CEO,PTR,FXI etc. etc. :)

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#3) On May 19, 2008 at 3:26 PM, Tastylunch (29.48) wrote:

Not to mention right here at home...Remember, in a world competing for finite resources with ever more desperation,

finance becomes a form of offense.

agreed. 

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#4) On May 19, 2008 at 3:33 PM, FourthAxis (< 20) wrote:

So wait...do you mean to tell me that we export our inflation to them, then they take our dollars and buy back infastructure leaving us without resources to generate income, but also leave more falling dollars?  Nah, that can't be right.

/sarcasm 

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#5) On May 19, 2008 at 4:19 PM, abitare (80.88) wrote:

Good post. It would be a good time to post my: Dollar collapse video here.

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#6) On May 19, 2008 at 4:42 PM, AnomaLee (28.81) wrote:

Haven't we been losing an economic war to China for years?

I remember watching the CEO of BHP being interviewed on Bloomberg. He made a strong point to go out of his way and say that he had no knowledge of China trying to buy a majority stake. 

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#7) On May 19, 2008 at 4:46 PM, AnomaLee (28.81) wrote:

I meant to to say "major stake".... Also, I haven't heard too many Vale rumors that seemed valid, but I'm sure there are. 

BHP Reaches Record on Report China Seeks Joint Bid (Bloomberg)

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#8) On May 19, 2008 at 5:01 PM, binv271828 (< 20) wrote:

Sinchiruna,

As always, a very good and useful post. Thanks for taking the time to post and find all the info that goes into them. A post you did a couple of weeks ago was right on the money regarding the dollar's decline, Counterspin: The US Dollar Index in Context, this rally is pure fiction. The trend in the USD movement over the past few days makes it seem like the rally is just about over. Also during the gold/silver correction the past 2 months I was about to get in (relatively) cheaply. Which is to say not cheaply at all. But as you have been pointing out all along, it will be going back up. It looks like gold and silver are moving out of the correction levels now.

FourthAxis,

Nice :). I do like your views and sarcastic presentation almost always. But seriously, what you are saying seems so incredibly obvious. The USD is being inflated and devalued, being supported by less and less every day (well much of the inflated home assests never really had the stated value to begin with, but that's another issue). The rampant inflation is not solving _any_ problem right now (except keeping a lot of banks from going under, which makes my point that it is not solving any problem). Sooner or later, probably sooner, you and Sinchiruna are right, there will be wealthy nations looking at the US for bargain basement prices on essential infrastructure due to the (good deal in their view) debasement of the dollar.... rrrr.....

BTW, thanks for the tip on MXI. Good call man.

 

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#9) On May 19, 2008 at 5:30 PM, XMFSinchiruna (27.14) wrote:

Great posts, all.  I hadn't seen the rumors of a Chinese BHP stake.  That's powerful stuff.

binv, gold and silver may sputter a little as they approach the March highs, but any dips after approaching those highs should be seen as last chance opportunities to climb aboard.  Once we break through $1,033, the next potential resistance is around $1,200, and I believe the rise to those levels will be very very dramatic.

The dollar will resume it's fall... it's very sad and hard to watch... but objectively I believe with every fiber of my being that it is unavoidable now.  Nothing the Fed or our 'leaders' could do at this point could inject value, nor even perceived value, back into this form of paper.

I really enjoyed Camistocks' recent posts about the Great Depression, for a related discussion.

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#10) On May 19, 2008 at 6:38 PM, binv271828 (< 20) wrote:

Sinchiruna, 

Doh!, I reread my post. I said "Also during the gold/silver correction the past 2 months I was about to get in (relatively) cheaply", when I should have wrote "Also during the gold/silver correction the past 2 months I was able to get in (relatively) cheaply." It was tough because the prices seem so expensive, but again, relative to what? Compared to the continual and inevitable dollar devaluation, buying gold and silver price during this correction seems prudent. And I agree, when it takes off, it will probably do so dramatically. There is not much resistance to the rise in the price of gold / silver once it breaks back through 100, just like there is not too much resistance (no real reason for it's support based on current fiscal policy) in the fall of the USD.

 Before it is too late, I am also interested in some physical gold/silver holdings. Taking personal possession of some is a very compelling prospect, but it is a little unwieldy. What do you think about goldmoney.com? I like that it is different from paper gold / silver. It is stored in a vault in your behalf... Just interested in your take. Of course, it is hard to beat CEF (which I have in my CAPS portfolio as well as real life, mainly due to your recommendation).

 Thanks!

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#11) On May 19, 2008 at 10:24 PM, XMFSinchiruna (27.14) wrote:

In brief, there is nothing those vault services offer that CEF does not provide.  Equal parts gold and silver held in proportion to the shares in circulation.  CEF is sufficient for me in terms of physical.

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#12) On May 20, 2008 at 12:46 PM, GS751 (27.63) wrote:

China Needs natural resources to grow.... At least they are being proactive about it........

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