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China National Offshore Oil Corporation's (CNOOC) oil rig in China's Bohai Sea is seen in this October 21, 2003 file photo. (CHINA NEWSPHOTO)
China National Offshore Oil Corporation's (CNOOC) oil rig in China's Bohai Sea is seen in this October 21, 2003 file photo. (CHINA NEWSPHOTO)

China's birthday present: More resources Add to ...

China's Communist regime is celebrating its 60th birthday this week with a massive parade in Beijing, and another big play for a greater share of the global resource pie.

Sovereign wealth fund China Investment Corp. sealed a deal yesterday to acquire an 11-per-cent stake in KazMunaiGas Exploration and Production, Kazakhstan's second-largest oil producer.

Also this week, the Nigerian government confirmed that government-controlled China National Offshore Oil Corp. has made a pitch to buy up to six billion barrels of Nigeria's crude oil reserves in a deal that could be worth as much as $30-billion (U.S.).

The moves are the latest in a string of deals aimed at satisfying China's insatiable global thirst for oil and other vital commodities, including coal, copper and nickel.

"China really does aspire to be the great nation that it has been in the past, and that implies rapid growth and it implies access to commodities," said Kent Hughes, a former top U.S. Commerce Department official who now heads the global economy program at the Woodrow Wilson International Center in Washington.

But China may have a second, more benign, reason for its resource shopping spree: reducing its exposure to a massive stock of U.S. dollar-denominated currency reserves.

Buying hard assets, such as oil or minerals, is a way to reduce investment risk, Mr. Hughes suggested.

"They are in the process of diversifying out of financial assets into real assets, and they're doing it in a way that fits these other goals," Mr. Hughes explained.

"What they're doing makes sense to them from several points of view."

Chinese overseas investment was $52-billion last year, about half of that in the resource sector.

The Kazakhstan deal, worth $939-million, is just one in a long list of major transactions. Two weeks ago China Investment Corp. (CIC) bought a 14.5-per-cent stake in commodities trading firm Noble Group, lent $1.9-billion to Indonesian coal miner PT Bumi Resources Tbk, and sealed a co-operation pact with Swiss-based commodity trader Glencore International AG.

CIC has also cast its net as far Canada, where in July it acquired a 17-per-cent of base metals miner Teck Resources Ltd. of Vancouver for $1.74-billion (Canadian).

Chinese companies are also betting big on Canada's oil sands, apparently anticipating that the United States may not be the only export market for Alberta heavy crude.

In August, Chinese oil company PetroChina said it would make its largest-ever investment in the oil sands, paying $1.9-billion for a 60-per-cent stake in two projects planned by Athabasca Oil Sands Corp. - MacKay River and Dover - that may eventually produce half a million barrels a day.

That investment, combined with the threat of U.S. penalties on high-carbon fuels such as bitumen, has revived interest in Enbridge Inc.'s planned Gateway pipeline to the West Coast. The pipeline would give China-bound tankers access to the oil sands.

Chinese companies have also made a number of smaller, but strategically important resource plays in Canada.

China's largest nickel trader has bought a 15-per-cent stake in Royal Nickel Corp., a privately held junior miner led by a group of former Inco executives, and Ningbo Sunhu Chemical Products Co. Ltd. is investing $21.8-million in the Toronto-based company, which is developing the $1-billion Dumont nickel project in the Val-d'Or region of Quebec.

In Nigeria, China's growing resource ambitions could undermine the influence of Western oil multinationals.

Nigerian Minister of State for Petroleum Odein Ajumogobia said state oil firm NNPC would sell part of its joint ventures with existing foreign oil partners if Beijing offered the right price.

"It's true that the Chinese have made a proposal which we are considering. They are asking for six billion barrels of oil from our reserves, but I can tell you that we are not going to give them all of that," Mr. Ajumogobia told reporters in the capital of Abuja.

Western oil firms, including Royal Dutch Shell, Chevron and Exxon Mobil, operate in Nigeria through joint ventures with NNPC.

Asked if the state firm could sell its stakes to China, Mr. Ajumogobia said: "It's an option we are also looking at. Why not? If the offer is very good and very attractive, why not? NNPC has the right to do whatever it likes with its own share."

Industry executives say Nigeria is using the spectre of a Chinese bid for its oil as leverage in difficult contract renewal negotiations with its existing Western oil partners.

Analysts say the sale of stakes to China by NNPC would likely be challenged by other partners in the ventures and that the prospect of putting a greater proportion of Nigerian oil reserves in foreign hands would face huge political opposition.

NNPC holds 55 per cent of SPDC, its joint venture with Shell, 60 per cent of its Chevron Nigeria joint venture, and 60 per cent of Mobil Producing Nigeria, its joint venture with Exxon Mobil.

China may be spending a lot of cash on resource assets. But Mr. Hughes of the Woodrow Wilson International Center said that doesn't necessarily mean Beijing controls the price or supply of the underlying commodities.

"They don't really control those assets," Mr. Hughes said.

"They have a financial claim over the companies that control those assets. It's quite different from buying up all the platinum in the world and storing it in a warehouse outside Shanghai."

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