Economic crisis: The China offensive

On February 12th, Chinese aluminum giant Chinalco announced it will buy a 19.5 billion USD stake in the Australian mining group Rio Tinto in the biggest ever overseas investment by a Chinese company.

While other countries are struggling to hold on to their depleting money supplies, cash-rich China is rapidly strengthening its position in the competition to secure overseas natural resources to satisfy its energy-hungry economy.

In the past, Chinese firms, encouraged by the government to expand overseas, have not been welcome everywhere. One particular case that comes to mind is the failed attempt in 2006 of the China National Offshore Oil Corp., better known as CNOOC, to take over the American oil and gas company Unocal. Also, capital inflows from communist countries have previously been met with a certain sense of defiance in the West. Today, however, the precarious economic situation seems to play in favor of Chinese enterprises, providing them with a favorable context for pursuing their strategic overseas investment plans.

In Australia, the heavily indebted British-Australian mining giant Rio Tinto, has reportedly decided to increase the stake of China's largest aluminum producer Chinalco in its capital structure. Under the deal, the Chinese state-owned group will inject 19.5 billion USD (15.1 billion euros) of new capital into the organization.

Already an investor in the mining group, Chinalco is to purchase 7.2 billion USD worth of convertible bonds issued by the group and invest the remaining 12.3 billion USD in Rio's iron ore, copper and aluminum assets. The deal will double Chinalco's stake in Rio Tinto from 9 percent to 18 percent. Also crippled by debt, the Australian mining group Oz Minerals confirmed on February 16th its acceptance of a 1.7 billion USD takeover bid from the China Minmetal Corporation.

However, in order for these two offers from Chinese state-owned groups to go through they must first be approved by Australian authorities little enthusiastic to leave their natural resources in foreign hands. But for the Australian government, which sees the country's mining industry being strangled by the economic crisis, it is a case of not wanting to “insult the only people around who have some money left in their pockets — and the willingness to spend it,” as Time Magazine observes.

But that's not all on the Chinese offensive front in Australia. Beijing's sovereign wealth fund, the formidable China Investment Corporation (CIC), is vying for a chance to buy assets in Australia's third largest iron ore producer Fortescue Metals Group with the diversified mining group Anglo American.

"The crisis affects China, but it is in better shape than other countries,” Canadian press quotes Loîc Tassé from the University of Montreal as saying.

“The Chinese have the advantage that they have money and can make purchases. But what remains to be seen is if they still have the money to pursue the same strategy next year,” Tassé says.