For Brazilian companies and those is Latin America China’s voracious appetite for the region’s commodities is turning into a great opportunity not only because of the huge Chinese market but also as a great financial source.
With the world’s largest accumulation of international reserves, in the range of US$ 2.1 trillion, China is becoming the financial option for Latinamerican corporations in those areas considered strategic for Beijing long term development plans.
In 2008, Latin America absorbed 50% of the US$ 50 billion China invested overseas.
“The need to ensure supplies of copper, iron and nickel is forcing Chinese companies (government and private) to look for assets and supply agreements overseas,” said Erik Bethel CEO of the SinoLatin Capital investment fund.
“The Chinese appeal to several different forms of financing their operations with Latin American corporations: purchase of stock, share-swaps; debt with Chinese commercial banks or with development banks and long term contracts”, said Bethel.
China must ensure the long term supply of commodities, be it through direct investment or the purchase of assets related to the production and export of commodities.
China also finances projects with long term supply contacts such as the one recently subscribed between Brazil’s Petrobras and Petro-China involving US$ 10 billion for the provision of oil, from newly developed wells, during a decade.
Rafael Valdez another partner of SinoLatin Capital says that the Chinese system benefits those companies short of capital, liquidity or financing because of the international slowdown.
The operation usually involves a supply contract which for the mining company of soy planter not only is working capital but a buyer for the output.
Bethel said that mining companies such as Chinalco, Minmetals, Jiangxi Copper and Zijin among others are already involved in Latin America.
Chinalco has invested US$ 900 million in a Peruvian copper mine which will be demanding an additional two billion USD. In oil Chinese companies have associations with counterparts in Colombia, Brazil and Argentina.
Farming and fisheries are two other areas targeted by China, since the country’s is the world’s leading consumer of fish meal and in forestry the main consumer of wood for construction.
China is not interested in a quick financial return but long term results and supplies, and with this objective also invests heavily in the region’s infrastructure such as ports and railways.
Since China has been expanding for three decades at an annual rate of 10%, “soybeans demand has soared far beyond local production or reserves”, said Bethel. In 2008 China imported 40 million tons of soy, three times its 1980 capacity production when the country was a net exporter. However 75% of Chinese demand depends on imports from Mercosur members Brazil, Argentina and Paraguay.
Chinese investment so far has concentrated in those countries with which China maintains a hefty trade exchange such as Chile, Brazil, Argentina and Peru, but it is now opening towards “smaller countries” such as Costa Rica, following the establishment of diplomatic and political relations.