Don't ask me where I got this but its quality..... Be quick before I get modded!!!
talktome
Into Africa: China�fs new push By Robert Gottliebsen September 25, 2009
PORTFOLIO POINT: China is moving to secure resources supply from Africa on a scale to rival Australia.
This week I returned from South Africa after seeing our grand children. Given that much of the activity in Johannesburg is driven by resource companies (and the World Cup) you could not miss the signs of the forces driving commodity markets in the short, medium and long term.
In the short term, the well documented forces such as the rise in Chinese demand on the back of the world's biggest stimulus package, the Chinese stockpiling of metals, and the signs of recovery in the US and Europe are obvious drivers.
But there are also other forces at work at and at times, on a day-to-day basis, they may be more important. The enormous injection of liquidity into global system, combined with low official interest rates engineered by the G20 politicians and the world�fs central bankers, have given the speculators among financial institutions, hedge funds and other investors a new lease of life.
They are now speculating on oil, some metals (including gold silver and copper), shares in producers of resources, led by Australian and South African stocks, and of course on currencies such as the Australian dollar and the South African rand.
While the speculation might not be taking place on the same scale as 2007-08, there is a lot of money power out there. The big US banks feel secure knowing that Lehman has shown that they are too big to fail, so some feel it�fs time to again take risks and generate big executive bonuses. US politicians are likely to be shown to be too weak to do anything about it. The combination of all those forces has led to some spectacular rises.
That�fs the short-term game. In the medium term, the official forecasts say that China is likely to slow down as its stimulus package is wound back. It will still be growing at a clip of 8% but not the much higher rates achieved in 2007-08. If politicians and central banks start to cut their money flows at the same time, we could also see a contraction in the speculative money sloshing around the market. These are the ingredients that may lead to a sizable and healthy correction.
However, remember that Chinese demand growth will still be strong. An avalanche of projects were mothballed by the credit crunch. Some are restarting (particularly if they have Chinese backing) but others are finding it hard to get capital.
If there is a sustained rise in demand, then supply-side squeezes are likely, which will underpin the market. BHP is optimistic about long-term demand and has about $10 billion in its capital pipeline but warns not to expect a return to the 2007-08 peaks (for more on BHP, see Rudi Filapek-Vandyck�fs feature, Has BHP hit a ceiling?).
Longer term, it�fs clear the Chinese strategy in Africa is clear: they see Africa as huge source of future minerals, which will curb future price spirals. Accordingly, African production may grow much faster than Australia in the longer term.
Last March, when I last visited Johannesburg, I allocated time to study the 600 pages of side deals embedded in the Rio Tinto Chinalco deal that were designed to give complete control of Rio Tinto to Chinalco. My research played a small part in ending that crazy deal.
This time in South Africa I could see a more subtle but even more powerful Chinese strategy at work. And when you look at the Chinese actions in Africa, combined with what they doing in Australia, the overall plan was very evident. And this has enormous implications for our long-term share and capital markets.
Many readers believe that Chinese companies have different agendas and that it is wrong to lump them into a grand plan. It�fs true that they often act separately but their actions have so much in common that it�fs clear central planning is involved.
I want to first look at the deeper Chinese long-term African strategy. I will start far away from capital markets and go to the so Pale Ya Rona carnival held two weeks ago in Johannesburg, which was a spectacular display of African culture involving many thousands of people. By accident we found ourselves one of the best vantage points and for a while it seemed we were the only people who had found it.
Suddenly, delegations of Chinese government officials emerged dressed in black suits with a big contingent of Chinese television media around them. We were there to enjoy ourselves. But the Chinese government officials have a much wider ambition, both in Johannesburg and back home, as they look to widen their influence over many levels.
What we are witnessing in Africa could be described as a twenty-first century version of the old British colonialism. The Chinese want minerals and food and are prepared to fund projects in almost every African country. Exports from Africa to China already exceed $100 billion but they are going to rise dramatically.
In Johannesburg, it is not so much about mining projects as capital and industry. The major Chinese banks have prominent signs displaying their presence. Four of them have signed a $US1 billion loan facility with Standard Bank, Africa�fs biggest bank. Chinese industrial enterprises are looking to buy industrial investments in South Africa, including motor businesses.
That industrial strategy could be duplicated in Australia. I know the Chinese are looking closely at some Australian automotive parts groups.
At least on the surface arranging massive investment into mineral production is easier in Africa than Australia. African governments have cultures than are closer to the Chinese system than to Australia�fs, and they often need the money.
Africa does not have the Australian carbon and other environmental requirements. In some mines African countries have allowed the Chinese to bring their own labour in to run the mine.
For the Chinese, Africa is a jewellery shop of undeveloped minerals. But the Chinese are beginning to discover that they may have a long-term problem. The African countries are starting to wake up to just how valuable these projects are to the Chinese.
In Zimbabwe, of all places, there is a deep unhappiness about the exploitation of their natural resources. Deputy Prime Minister Arthur Mutambara says Africa is �gsick and tired�h of having its resources exploited by China and getting little development in return.
Zimbabwe wants to make cars, computers and similar items. Zimbabwe is at the bottom of the pile, and the influence of Arthur Mutambara is limited in a country still dominated by the Robert Mugabe. But it�fs a sign of things to come.
Longer term, China is going to have develop a much closer understanding of the wider African community needs. Attending that cultural festival was a small step in that direction.
Australian investors tend to be very nervous about Australian companies going Africa. There is no doubt that there are high risks, but our companies have a much better understanding how to integrate mining projects with community needs (for more on Australian companies in Africa, see Tim Treadgold�fs feature, Perth miners tread the same path).
In the days before the BHP bid and the deal with Chinalco, Rio Tinto recognised that one of its great competitive advantages was its ability to work with African communities so that they got the most benefit out of a mining project.
Right now everything in the Australian resources garden looks rosy. But we need to understand what the Chinese are doing in Africa. They are developing a major new source of minerals that will one day rival Australia.
Australian companies might not have the unlimited money of the Chinese but they do have Rio Tinto-style community skills and there is a lot of money to be made.
