Ray Goldie, an analyst with Salman Partners Inc. expects Robert Friedland to succeed in raising the funds to complete the Oyu Tolgoi Project in Mongolia by striking a deal to supply copper concentrate to smelters in Japan or China, in return for financing committments.
Copper prices plunged last year amid the global financial and economic crises, but have since rebounded sharply. “The world is so desperately short of copper feedstock, some of the financing will definitely come from an off-take agreement with a copper smelter. As for the rest, I believe the banks of the world are quite happy to bankroll this kind of project,” Mr. Goldie said.
Any investment in this project is part of a strategy by China to replace $US holdings with a call on natural resources or hard assets. Sovereign wealth funds, such as China Investment Corp.(CIC), have plowed more than $5-billion into the resource sector in the past few months. China wants to acquire ownership to ensure availability of commodities like oil and gas, copper and other metals. China sees uncertain value in massive $US holdings so hopes to convert them to hard assets like gold and oil.
China's leaders realise the next big global struggle will be the war for resources. The Chinese understand the “peak everything” argument; not just peak oil, but the fact that the world has run up against the limits of its resources. They are concerned with the prospect of the world running out of the hard materials which allow economies to thrive.
China is now America’s banker holding close to $2 trillion of American government IOUs. It also has the world’s biggest stockpile of dollars in its reserves. Chinese manufacturers are pumping out exports to the U.S. and the rest of the world, and consequently Beijing’s coffers are overflowing with dollars. The U.S. balance of trade deficit against China was $21 billion in July alone.
China is estimated to hold $900 billion in U.S. dollar assets. In comparison, the total number of dollars in circulation (as measured by M1) is $1.3 trillion. If China were to start dumping its dollars, U.S. interest rates would spike, inflation would soar, the housing market would get pummeled, and the economy would likely plunge into a serious recession.
Once the world’s dominant creditor, America is now its largest debtor, relying heavily on foreign nations to finance government spending. Borrowing much of it from China. As of the end of 2006, the federal government owed $2.2 trillion to foreign entities. Over one fifth of America’s official $9 trillion debt is now held by non-U.S. citizens.
America is in for some tough economic times ahead due to its massive debt loads. Although China could wreak havoc on the dollar by dumping the currency, they appear to have an alternative strategy. Instead of buying the ore on world markets, they want to own the mines which they can purchase using unwanted American currency.
China realizes that it has everything except resources, and in order to secure supplies in the future it must buy the mines not just the materials. The Chinese government, via its big state-run commodity companies, is buying up mines all over the world from Brazil to Canada, Australia to Africa. paying for these assets with US dollars.
People in the commodities business say the Chinese are always paying “top dollar”, outbidding all others because the Chinese want out of the dollar. They want to reduce their exposure to American risk by converting it to resource ownership around the world.
China needs Americans to continue buying Chinese goods in order to keep its factories employed so it converts the dollars received by buying mines, extraction companies and oil concessions. Thus, reducing the financial risk of keeping America afloat and at the same time securing the resources it needs to keep its economy growing.
Before the financial meltdown/credit crunch America had attempted to block China's efforts to make investments in things like major oil companies. China's strategy is moving forward now because America has been weakened by the consequences of de-regulation and Wall Street spreading financial calamity around the world.
No comments:
Post a Comment