China regains appetite for resources

BEIJING – Recovering commodity prices are reviving Chinese investors’ interest in African resource deals, after nearly a year in which infrastructure projects dominated Chinese investment in the continent, the head of Standard Bank’s China operations told Reuters.

When Industrial and Commercial Bank of China took a 20 per cent stake in Standard Bank in 2007, Standard Bank executives like Craig Bond expected its Chinese clientele to use the new banking channels into Africa to snap up resource projects.Instead, resource deals have only perked up in the last few months, after a crash in commodities prices in the second half of 2008 left more opportunities for Chinese companies in infrastructure tenders, Bond said.’In the first six months of this year, Chinese companies … were really waiting to see what was going to happen with commodities prices. They didn’t want to overpay,’ Bond said in an interview.’What’s happened is the Chinese SOEs have now decided, ‘OK, the market’s starting to turn, we can’t leave it much longer, we’ve done our homework and these are the specific resources we want to see’.’Oil and copper prices rose strongly in the first half of 2009, stabilised in the third quarter and picked up again in October, reflecting renewed raw materials appetite from China where the economy is growing by over 8 per cent this year.Resources prices had crashed in the second half of 2008, as Chinese and global demand dried up and the global economic crisis caused a sell-off in futures markets.Many of those are classic structured finance deals, and big infrastructure tenders, in a departure from China’s traditional preference for government-to-government deals backed by state policy banks.’China believes that without renewing Africa’s infrastructure, you’re never going to be able to grow those economies, and if those economies don’t grow you’re not going to be able to develop a middle class, and if you don’t get a middle class you’re not going to ever get a new market developing for Chinese goods,’ Bond said.’It’s quite an unusual cycle, and its different to that traditional way of everyone thinking China’s going into Africa just because it’s got resources.’ – Reuters