SHENZHEN (ResourceInvestor.com) -- Chinese President Hu Jintao returned to Beijing on Thanksgiving Day after a two week visit to Latin America. It should prove to be a fruitful harvest for Chinese resource companies.
In past years, iron ore from Brazil, copper from Chile and oil from Argentina went mainly to one destination-America. Now China is intent on intercepting or diverting the flow to feed its voracious economy.
That was the rationale for a large entourage of diplomats and business executives undertaking a trek through South America. Managers from top Chinese companies like Sinopec, Petrochina, CNOOC and Minmentals participated.
Notably the mission sought to barter rather than do cash deals. This "energy diplomacy" tries to structure exchanges of industrial projects for fuel that China needs more and more of.
Brazil is China's biggest trade partner in Latin America with $9.29 billion bilateral trade volume in the first nine months of this year.
During the visit China announced plans to invest $8.5 billion in steel production, oil, mining (iron, aluminum and coal), and the production of aircraft. One big deal is the $1.2 billion natural gas pipeline project operated by China's Sinopec and Brazil's Petrobras with $1 billion financed by the Export-import Bank of China. The two groups will also launch oil cooperation projects in areas offshore of Rio de Janeiro and in the South China Sea.
Argentina gained a $20 billion investment agreement with China. The investment mainly focused on oil exploitation and rail infrastructure.
Chile signed a multi-million dollar metal export contract with China Minmetals, which suffered a setback recently in trying to acquire Noranda. China has become the single biggest importer of Chile's copper which underscored Minmetal's interest in Noranda. Minmetals signed a framework agreement with Chile's largest copper producer Codelco on mining investment and copper supply.
Cuba, which boasts the second largest nickel reserves in the world, has pledge provide 4,400 tons of nickel annually to China from 2005. China will invest $500 million in a new nickel plant in Moa, in the eastern region of Holguin. China also allowed Cuba a 10-year extension to repay four interest-free loans provided between 1990 and 1994 and made a token donation as part of the package.
As a result of the visit several negotiations are in process in other Latin American countries. Petrochina has secured oil joint ventures with Venezuela, Peru and Ecuador. China Petroleum & Chemical is talking with a private Venezuelan oil firm to develop an offshore oil field.
Altogether the deals reflect China's concern with resource security.
In 2003 China consumed 267 million tons of oil, of which with 100 million tons had to be imported. This year consumption is set to reach 300 million tons with imports up to 120 million tons.
One of the primary concerns is the concentration of supplies with 50% coming from the Middle East, 25% from Africa, 10% from Russia and Central Asia, and only 15% in the Asia-Pacific region. The intention is to develop more regional reserves.
Overall it confirms that Latin America stands to be one of the primary beneficiaries of China's march to modernity.