We’re barely into the second quarter of 2008 and already China’s total outbound investment is closing in on the full-year total for 2007. Spending currently stands at US$24.52 billion (from 56 deals), up 1,000% on this point last year, according to Thomson Financial. The full-year figure for 2007 was US$29.84 billion (from 219 deals). In 2004, outbound investment came to just US$3.92 billion.

Obviously, this year’s numbers are skewed quite horrifically by Aluminum Corporation of China’s (Chinalco) US$14.28 billion investment in mining giant Rio Tinto (made through a subsidiary with a little help from Alcoa of the US). If there is anything to these rumors about Baoshan Iron & Steel seeking a 9% stake in BHP Billiton, the numbers would be skewed even more.

Aside from the focus on metals and mining (which is unsurprising given the current macro climate), recent deals are notable for their relative smoothness and sophistication. It is all a far cry from China National Offshore Oil Corp’s unsolicited and poorly prepared bid for US oil group Unocal in 2005.

Chinalco brought Alcoa on board as it helped preempt suggestions that this was another state-driven resource grab (which, to a certain extent, it was). This is a bona fide commercial move with a bone fide commercial partner, the could say. Structurally, this is not something that was conceived overnight.

As was highlighted in our cover story in March, Industrial and Commercial Bank of China’s purchase of a 20% stake in Standard Bank of South Africa for US$5.6 billion was three years in the making.

China Investment Corp, the country’s sovereign wealth fund, paid US$5 billion for a 9.9% stake in Morgan Stanley and US$3 billion for 10% of private equity firm Blackstone. Rather than create unrest within the US political community, these investments (and the subsequent losses incurred) have provoked domestic criticism of the government’s strategy. “They’re just stupid,” a Chinese dealmaker told me last month.

For more on Chinese outbound investment - with particular reference to acquisitions in the US and how one recent deal (Huawei’s bid for 3Com in alliance with Bain Capital) did go wrong - please see this special report from our April issue.

After a brief reprieve, it’s now snowing in earnest again. China’s disastrous winter weather has already killed at least 60 people nationwide.

The central government has tapped into its emergency pork reserves, and will release 18,000 tons before the lunar new year on February 6.

The hardest-hit province appears to be Hunan, with Chenzhou city going into its eighth day without electricity. Food and petrol in that city of 4 million are running low. The Central Meteorological Authority’s website forecasts indicate more snow and sub-zero temperatures there for the next two days.

The SCMP reports that massive traffic jams around Nanjing are preventing supplies like fuel from entering the city. As a result, some stations are rationing fuel to 30 liters per car. Some taxis are charging up to three times the usual fare because of the fuel shortage.

Shanghai has shut down its port, leaving 1,000 ships stranded. According to Bloomberg, the storms could continue until the end of next week.

However, the Central Meteorological Authority’s forecasts on its website indicate that Shanghai should be clear of snow, although still cloudy, tomorrow and on Monday.

Highlights from the last week of China business news.

Hobnobbing in Bali and Beijing
Lots of high-powered meetings recently, with the attendant speculation about their outcomes. Probably the most enjoyable one to be at is in Bali, where 190 countries have sent delegates to hash out a plan - for two weeks - to replace the Kyoto Protocol, which expires in 2012. That meet started Monday, and, although details are still surprisingly thin on the ground, it appears that China will continue to reject imposed emissions targets. It will propose the creation of an international technology transfer fund - paid for by developed countries - that will help developing nations research and create their own clean technology. This works out very well for China, clearly. In the less salubrious environs of Beijing, another meeting of consequence ended this week, confirming the rumors that the top national leadership has decided to step up monetary tightening measures next year. The seasoned decoders of bureaucrat-speak at the Journal say officials now speak of a “tight” monetary policy for next year, instead of the “stable-to-tight” regime now in place. Next week, the US-China Strategic Economic Dialog happens for the last time this year. Hank Paulson flies in with Susan Schwab, product safety chief Mike Leavitt and others to talk about product safety and - surprise! - letting the yuan appreciate more quickly. Vice Premier Wu Yi must be glad she’s retiring in March.

Rio Tinto mines a rich vein of rumors
Will they or won’t they, steel executives wondered this week about a Chinese counter-bid for Rio Tinto. Last week, we wrote that China Investment Corp was rumored to be putting together a deal to buy into Rio, but that was quickly squashed by CIC and Rio executives. The sovereign wealth fund did say, after all, that it’s not confident enough to go raiding abroad yet, and that it would steer clear of sensitive industries. So the rumor mill promptly put new hearsay into circulation. For awhile, it seemed that Baosteel would spearhead a consortium of Chinese firms to snatch up Rio Tinto. A Baosteel executive told Economic Observer last week that his firm would only join a bid if the Chinese government wanted it to - hinting that a bid was possible, though not confirmed. Then the 21st Century Business Herald said Baosteel chairman Xu Lejiang confirmed that a bid was in the works. Shares of Rio Tinto jumped. Today, the official Shanghai Securities News quoted Xu denying the quote. “I did not say this. It is a fabrication of the media,” he said. Even with that seemingly definitive response to the matter, our guess is the rumor mill still has plenty of grist to keep it churning.

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Highlights from the last week of China business news.

Who’s out, who’s in

The Chinese Communist Party’s 17th quinquennial congress (we so rarely get an opportunity to use that word), with its multiethnic pageantry and interminable state of the party speeches, came to an end on Sunday. Time for the announcement everyone was waiting for - the new roster for the party’s leadership group, the Politburo Standing Committee. Three members - Zeng Qinghong, Wu Guanzheng and Luo Gan - stepped down, making room for four people to complete the nine-seat committee with the death of Huang Ju earlier this year. Those four are Liaoning party secretary Li Keqiang, party secretary of Liaoning province and long-time protege of president Hu Jintao, Xi Jinping, the replacement of dead-to-the-party Shanghai party boss Chen Liangyu, He Guoqiang and Zhou Yongkang. The former two are the true rising stars - one or the other is expected to take Hu’s place as party secretary-general when he steps down in 2012 - while the former two will have reached the unofficial retirement age of 68 by then. Vice premiers Wu Yi and Zeng Peiyan have also retired from the party’s broader Central Committee. Notably (read: incredibly) still keeping his post is 67-year-old Jia Qinglin, who has close ties to ex-president Jiang Zemin and has been linked in the past to corruption in Fujian.*

3, 2, 1 … blast off

The title of this item could apply to China’s first lunar probe, which launched successfully in Xichang, Sichuan province on Wednesday to start a one-year mission to orbit the moon and take pictures of the surface with really cool cameras. It was seen as a big coup for national prestige, despite the fact that Japan launched its own unmanned lunar mission a few weeks back and India is planning one soon.

On the other hand, it could just as easily refer to the blockbuster IPO of PetroChina, which got off the ground Monday and will likely set yet another record for the mainland stock market. PetroChina set an indicative price range of RMB15-16.70 (US$2-2.23) for the sale, which should begin trading on November 5. The listing, along with strong performance of PetroChina’s Hong Kong-listed unit, could also push the state-owned energy giant past ExxonMobil as the world’s highest-valued publicly traded company. Defying the mob that will inveitably rush to buy in, Nebraskan mega-investor Warren Buffett sold the last of the 11.05% stake in PetroChina held by his firm, Berkshire Hathaway. Buffett denied speculation that he was selling because of outcry over the company’s dealings in Sudan, saying that it was simply a smart move. We find it hard to argue: He made a handsome US$3.5 billion from an initial investment of US$488 million.

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*Correction: We got it mixed up earlier. To our knowledge, Jia Qinglin had no ties to the Chen Liangyu affair in Shanghai, although he was questioned in the same anti-corruption probe that resulted in Chen’s demise.

Highlights from the last week of China business news: China comes off smelling like roses at the APEC summit in Sydney, much to Bush’s chagrin; the latest macro numbers are out, and inflation isn’t getting any lower. (more…)

Highlights from the last week of China business news: A minister calls a mining accident a “natural disaster”; the Shanghai Composite Index crosses the 5,000 mark while new securities regulations are introduced

(more…)

The European Union Chamber of Commerce put on a rather good seminar this morning in Shanghai on the clean development mechanism (CDM) and how it’s implemented in China. (Go to the UN’s CDM page for all the details)

The CDM event assembled a well-informed panel of speakers. Dr Wang Yong and David Arthur, of top environmental consultancy firm ERM, bookended the presentations, while Peter Corne, a lawyer with Eversheds, took the middle slot.

The highlights:

-Shanghai is especially susceptible to rising sea levels because the city has sunk. From 1921 to 1965, the city sunk 2.6 meters, although that rate has decreased in recent years.

-Wang Yong: “Global warming is here and now”

(more…)

Highlights from the last week of business news in China: A-share action, laws under review and the National Audit Office’s latest findings (more…)

The decision by Fidelity Investments to cut its PetroChina holdings by 91%, supposedly in response to pressure from human rights groups, is a brave move. Not least because since Fidelity’s latest regulatory filing on March 31 - which showed its holdings of PetroChina American Depository Receipts had fallen to 420,916 from 4.5 million on December 31 - PetroChina has made one of the largest oil strikes in recent history.

In the March issue of China Economic Review, we ran an article which looked at the possibility of legal action being taken against the likes of PetroChina for its involvement in oil exploration in Sudan. It is claimed that genocidal activities perpetrated by the Sudan government in Darfur have cost 200,000 lives and left 2.5 million people homeless.

Several of those interviewed suggested that pressure groups would have the greatest impact if they focused their efforts on petitioning institutional investors to abandon PetroChina stock.

After all, it was bad PR over human rights that led to the ditching of the company’s first attempt to offer shares in 1999. Of course, the PR pressure was placed on the US parties involved in the deal - notably the New York Stock Exchange, which found its moral integrity brought into question for allowing a company to raise money that could, allegedly, be used to hold up political regimes accused of human rights abuses.

Taking direct action against PetroChina itself would be much more difficult.

In its report on the Fidelity sell-off, Bloomberg noted that PetroChina’s head of investor relations said earlier in May that the company has no energy exploration or production facilities, investments or employees in Sudan.

This is probably true. If the 1999 IPO debacle taught PetroChina anything it was that sensitive overseas operations must be kept well away from the books of the company’s listed subsidiaries. The sizable stake in the Greater Nile Petroleum Operating Company, which controls Sudan’s oil fields, is held by PetroChina’s state-owned parent, China National Petroleum Corp.

Untangling relations between parent and subsidiary would be a long and perhaps never-ending road for even the most driven of human rights lawyers.

Some 30 years ago, a politician in Paraguay whose name has disappeared in the waters of history made himself the laughing stock of the local community shortly after proposing to build hospitals, schools and bridges.

“But sir,” one of the locals corrected, “we don’t have any rivers.”

“No problem,” said the erstwhile leader, “we will build those too.”

The story stayed around for years, long enough to wonder at its accuracy, but it highlights the penchant of Latin American leaders to rely on promises with only limited veracity. This makes it very difficult to do business.

On Monday, Venezuela’s president Hugo Chavez announced a deal to supply China with crude petroleum and oil to the tune of 300,000 barrels per day. This is double the 150,000 bpd the country supplied in 2006 but less than the 500,000 bpd Chavez had committed to providing during a speech last year.

Spokespeople for the president said he misspoke himself. He has so many numbers in his head that he made a mistake. But then, this is a president that wants to build a coalition to oppose the US among countries he sees as potential counterpoints to the one existing superpower.

It is not altogether unlikely that the president saw more than was there. Venezuela’s non-privatized oil industry is famously inefficient and unreliable. China needs the oil and it is willing to invest to get it, which is not to say it is eager to form any kind of coalition with Chavez.

Speaking to his country’s media, Chavez said that Venezuela and China would launch a series of joint ventures in both countries “in the next two or three years” with a view to supply China with 1 million barrels of oil per day by 2012.

These deals, he said, will make Venezuela one of China’s main strategic partners. Trade between the two countries doubled last year to US$4 billion, which makes it about 2% of the trade surplus China has with the US and less than a fifth of India-China trade. So, other than its ability to supply oil, Venezuela is far from being one of China’s major partners.

Assuming the Chavez government doesn’t squander the money building rivers, it should help shore up an important industry in that country and fill up China’s oil reserves a little more.

The trick will be for Venezuela to stick to its part and avoid the tendency of many a Latin American government of the last fifty years to replace agreements with empty words that offer much and deliver little.