The cover story for China Economic Review’s newly published July issue, focuses on Chinese strategies for outbound investment in oil and gas. However, throughout the reporting of the story, CER staffers conducted interviews with analysts and insiders regarding outbound investment in a broad range of natural resources. Much of what analysts said was beyond the purview of our story, but interesting nonetheless.
China’s hunt for minerals and mining assets, particularly in Australia, has received a lot of press in the past months, culminating in the failed Chinalco bid to take an 18% stake in Rio Tinto. With a bid price of US$19.5 billion, the Chinalco deal would have been big news indeed.
But headline grabbing, multi-billion dollar deals are only part of the story, according to Jennifer Richmond, director of China analysis for STRATFOR, a Texas-based global intelligence company.
“The biggest [strategic] difference that we see for energy acquisitions has been in the mining and mineral sector. What we’ve seen is a new influx of small but flexible private equity companies that have been recently put together to take advantage of less visible, under the radar, smaller stakes,” she said.
One such homegrown PE firm is the China Mining United Fund, formed in May by about 300 mining entrepreneurs with capital of roughly US$73.3 million. This is hardly a jaw-dropping amount of money. Nonetheless, the fund’s government ties are clear, as you can tell by comments the fund’s chairman made to Reuters in early June. As the Reuters story makes clear, China Mining United is just one of several investment funds that have been launched with a mandate to invest in resources ranging from uranium to aviation fuel.
Richmond said that these funds demonstrate that China is shifting step and taking a broad approach when it comes to acquiring global resources.
“If [the government’s] goal is to operate small investments across the globe in a 401K-like investment strategy, this is financially smart and they should continue to seek these small minority shares and a diversity of projects around the globe,” she said.
However, these small PE firms are unlikely to make many acquisitions of crude or natural gas assets, as most of the world’s remaining supply is held by large national oil companies. But, in a broad sense, these small investment funds could eventually turn into the big story for Chinese outbound investment.