Buy Me; Rent Me

The world is falling apart, commodity prices are crashing, and commodities companies that are over-borrowed can’t pay their debts. So if you can’t grow enough of your own food, and if you need to import tons of natural resources – from oil to bauxite (from which aluminum is extracted) – what do you do? Add a couple of additional variables. You are a huge manufacturing, net exporting country, you have trillions of dollars in foreign currency reserves (including lots of dollars that you think are going to lose value in the not-so-distant future), have been growing by double digits or high single digits every year, have relatively strong banking system and despite some short term unemployment, you are elevating your educational/training standards and widening the reach of the number of people who can access higher education.

I’ll answer the “what do you do” question in a moment. And yeah, we all know that country is China . Centralized economic focus, tons of cash, and not as severely impacted in long-term core values as the West. Sure the export markets are suffering, and unemployment is painful, but the cash reserves needed to “stimulate” the economy are precisely that – existing cash reserves. No borrowing necessary.

Not enough arable land to grow enough high quality food? No problem. Rent a country. “ China ’s search for new land has led Beijing to aggressively seek large land leases in Mozambique over the past two years, particularly in its most fertile areas, such as the Zambezi valley in the north and the Limpopo valley in the south. The Zambezi valley is the richest region of Mozambique with an area of 230,000 kilometers (88,800 square miles) spread between Tete and Zambezia provinces…. One thing seems to be certain: China is committed to transforming Mozambique into one of its main food suppliers, particularly for rice, the basic element of Chinese diet. An analysis of China ’s activities in the valley in the past two years provides some strong indication of China ’s long term intentions.” A Report entitied, The Zambezi Valley : China ’s First Agricultural Colony? by Loro Horta for the Center for Strategic & International Studies, Africa Program.

Worried about having enough steel or aluminum to feed your industrial machine? No problem. Buy large over-leveraged and distressed mining companies with vast global holdings of mineral rights. According to the May 1^st theDeal.com, Aluminum Corp. of China (a/k/a/ Chinalco), is seeking to acquire assets and stock in debt-laden mining giant Rio Tinto plc (NYSE:RTP) for $19.5 billion, which in turn has interests in mines all over the world… including Australia . And there is a hot debate in Australia whether or not to allow what is effectively a massive change in control over Australia’s supply of bauxite (again, aluminum ore) to take place.

Australian Treasurer Wayne Swan recently approved “ China 's Hunan Valin Iron & Steel acquisition of 16.5% of Australian iron ore miner Fortescue Metals Ltd. for $769 million; and China Minimetals Corp.'s $1.8 billion cash offer for assets of Melbourne 's Oz Minerals Ltd.” theDeal.com. But in the end, these deals are just the tip of the iceberg; China ’s on the hunt.

Oil shortages got you worried, bunky? No problem. Make deals with the African nations that have oil! “In Angola, which exported roughly 465,000 barrels of oil per day to China in the first six months of 2007, Beijing secured a major stake in future oil production in 2004 with a $2 billion package of loans and aid that includes funds for Chinese companies to build railroads, schools, roads, hospitals, bridges, and offices; lay a fiber-optic network; and train Angolan telecommunications workers…. Analysts say China 's most successful African energy investment has been in Sudan , which now sends 60 percent of its oil output to China .” A June 6, 2008 article by Stephanie Hanson in the Council on Foreign Relations. And the Middle East and Latin America too.

Need new expertise and technology? Hey, that’s for sale too. Even nice houses. China recently set up teams of mergers and acquisitions specialists, shortened the time and reduced the approvals necessary for Chinese entities to acquire stakes in (if not outright ownership of) manufacturing, technology, research and commodities companies all over the world. They have the bank account. Choice pieces of commercial and residential real estate are also being sold to Chinese interests. Lenovo (the former IBM PC unit that was sold to Chinese interests) is old news. Wait till you see what they buy next!

So is this bad or good? In the end, the West over-leveraged and over-priced itself in large segments of value-added markets, particularly the U.S. With about 40% of the U.S. profitability – measured by Wall Street’s numbers – coming from the financial sector over the past few years, Americans made the bulk of their money from other people’s value-added mining, manufacturing and distribution activities. We didn’t make so much stuff; we found ways to make money by financing it, repackaging it, refinancing it and buying and selling the companies that did it. We did this to ourselves.

So if it weren’t China buying all of this future value, someone else would be. They were smarter than we were, and we’d do the same damned thing if we could. In a strange way, all of this economic force in China may actually be the driver of whatever global recovery happens anytime soon – a ray of hope of potential economic buying (pulling) power in a dismal global economy (India’s around the corner too). That said, I’ll repeat a question I have asked before: How’s your Mandarin?

I’m Peter Dekom, and I approve this message.