China Development Bank, one of China’s largest state owned enterprises, has agreed to lend $10 billion to Brazil’s Petrobras (PBR) in exchange for a long term supply of oil. Beijing has been very active and smart by using the global downturn to further its long term domestic agenda.
China has been for some time building investment stakes in some of the world’s largest natural resource companies. These companies have been made vulnerable to Chinese offers due to depressed commodities prices, tumbling profits and falling stock prices. In only the last few weeks Aluminum Corp. of China Ltd. (ADR: ACH), or Chinalco, has invested $19.5 billion in Australian/British mining giant Rio Tinto PLC (ADR: RTP), and China Minmetals Corp. acquired Australian zinc miner Oz Minerals Ltd.
China Development Bank has been especially active. Earlier this week, the bank lent $15 billion to OAO Rosneft Oil Co., Russia’s state-owned oil company, and $10 billion to the Russian state pipeline monopoly Transneft (PINK: TRNFF). In exchange for the needed financing, Russia agreed to supply China with 15 million tons of oil annually for 20 years.
The contrast between the United States and China’s approach in attempting to secure needed commodity resources for the growth of their economies is striking. The US seems to be relying on its military, as in the Wars in Iraq and Afghanistan and its continued interest in placing permanent bases in the Mid East, as a means of securing oil supplies and oil pipelines. The US has also established a separate unified military command structure in Africa, the source of many needed commodity resources.
On the other hand, China is busy entering into long term commercial deals with countries around the world, including those in our own hemisphere, like Brazil and Venezuela, to supply them with commodities in exchange for financial investment in their countries production and transportation of commodities.
One can only wonder how much better off the US would be if it could overcome its paranoia and use the Chinese approach of money over military. Oh yes. The problem for the US may be that it is out of money and effectively insolvent. Perhaps a reduction in military expenditures, at least in the purchasing of new extremely expensive weapons systems and Pentagon toys for all the boys working there, would generate the funds needed to carry out a China like commodity procurement strategy. When China enters into long term oil supply agreements with our South American friend Brazil we should know that we are in trouble.
The US is going to need that Brazilian oil when Mexico is unable to export due to declining production and its own domestic needs. That day is not so far away.
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Thanks for your insightful comment, Eugene. I agree that President Obama is an intelligent man and sincerely wants to reform the practices that have lead to the decline of the US in stature and economic might. Unfortunately, I fear that even Obama and his team do not understand what the US is up against. President Obama seems determined to take America back to what it was. Those days are gone. The challenges we now face with a financial meltdown, climate change, and peak oil, insure that we can never get back to the days of happy motoring and of happy shopping, largely with credit. Unless, Obama and his team realize that we must downsize almost every item in the national inventory and agenda and can explain to the America people why that is urgently necessary the US will stay in a permanent depression. Trying to bring back the US “America way of life” to what it was in a world of cheap energy resources and plentiful cheap credit will be a waste of the remaining resources that we still have.
Well written and informative post travelwell, and I’m in full agreement with you. The militaristic approach by the US to secure oil in the mideast was a mistake from day one. China’s long term bartering agreements with oil producing countries certainly makes better sense. But then, we had a president for 8 years that was quite low on the “good sense meter” other than what might line his own pockets. I think Obama is the right man for the job ahead, and hopefully can find some way to restore a once great America.. But he’s not a magician and I believe we have a long time coming to get the country back up and running, if in fact it ever happens. The thing we have to remember is that Obama inherited this mess and did not create it. No one should be blaming him, not even in years, for the mess we’re in today. He’s highly intelligent, but the best we can do is hope for a better future for the US, and in fact the world. We may or may not see that in our generation.
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