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China is now Latin America's second-largest trading partner, surpassing Europe. From 2001 to 2006, exports from the region to China rose more than 500%. In 2004 alone, Hu signed letters of intent worth $100 billion over the next 10 years, according to published reports. Here are the key developments by country, according to CEB Monitor:
Brazil: The largest South American country exports iron ore, soybeans, cotton, oil and sugar to China and jointly develops satellites and aerospace equipment. China has promised $10 billion in additional investment in the short term.
Argentina: China has signed agreements offering $20 billion in investment over 10 years. Cnooc is developing an offshore oil field.
Venezuela: This is the third most important source of foreign oil to the US, but political and social disputes have led strongman Hugo Chavez to seek alternative partners. He plans to double oil exports to China to 300,000 barrels a day, about a fifth of the 1.5 million barrels a day that are sent to the US. The Chinese are buying stakes in several oil fields, making their output unavailable to U.S. consumers.
Ecuador: This country is a top-three producer of oil for the West Coast of the US. The Chinese just purchased one oil field and are in negotiations for more.
Meanwhile, in the Middle East, Hu has found in Saudi Arabia another repressive regime that wishes to ease away from a highly dependent relationship with the US. He visited in January, and turned around and visited again this month on his way home from Washington, with weapons sales and technology transfer high on the discussion list. China gets an eighth of its oil imports from the Saudis, and trade has increased ninefold since 2000 to $14 billion.
As you might expect, Iran is China's fastest-rising partner in the region. There have been unconfirmed reports that Hu has committed to spend $70 billion to $100 billion to develop a single large oil field in Iran, about a fifth of which involves a $20 billion order to purchase liquefied natural gas over the next 25 years. Zhou says that one Chinese company is expanding Tehran subways, another is building out the city's fiber-optic networks, and others are setting up auto and electronics factories. It probably won't be long before Iran becomes China's largest source of imported oil; this would put its economic and political interests directly in opposition to U.S. politicians and consumers.
Neighbors: Theirs and Ours
And finally we get to Central Asia republics, which formerly belonged to the Soviet Union, all nestled up against China's back door. They deliver almost 500,000 barrels of oil a day through pipelines and tankers. This has been a boon to the commissars of Kazakhstan, where gross domestic product has reached $56 billion due to the development of its robust energy fields by U.S., European and Russian explorers. The country shares a border with the gigantic Xinjian province of China and has developed fast-expanding bilateral trade, not just in oil and gas but also in cement and small manufactured goods.
Of course, the Chinese have not left democratic countries' resources off its shopping list. A couple of years ago, it bought a large stake in the big Canadian miner Noranda, and it has dozens of supply relationships with individual Alberta and Saskatchewan oil, gas and coal producers. No rock is left unturned, so to speak; a venture capitalist in my Seattle office building has helped Chinese entrepreneurs acquire privately held coal, gold and silver mining interests throughout the western US.
For stone-cold US investors, the obvious play here is to simply tag along by taking positions in foreign and domestic companies supplying the Chinese juggernaut, whether they are base metal producer Falconbridge in Canada; a producer of Turkish energy like Toreador Resources of Texas; a producer of Venezuelan oil and gas like Harvest Natural Resources; or the two big Chinese energy companies Cnooc or China Petroleum & Chemical.
For consumers, outraged indignation is about the best you can do, along with new personal choices about limiting the use of fossil fuel. China has no incentive to bend to U.S. demands to force change on its repressive foreign energy partners. And our politicians are unlikely yet to ease up on rules preventing US companies from participating in the sort of bribery and weapons brokerage that has become de rigueur for doing business in the equatorial zone where most new energy sources are being discovered.
So this really is just another case of joining 'em when you can't beat 'em. Shake your fist at the Chinese if you must, but also continue to buy global miners and drillers on dips in this bull market for commodities, sell your SUV, move closer to work, install solar energy panels and make peace with nuclear energy.
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