Two Big Investment Stories in China

Two big China stories are taking shape as we write in the wee hours of this particular Friday morning in Beijing. Both of them say a lot about China, the United States and their positions of wealth and influence in the world.

For example, we’re not the only ones scoping out ways of investing in China this week. The premiers of Canada’s three westernmost provinces are here, too.

“We literally have what these [Asian] countries need” says the curiously named Saskatchewan premier Brad Wall, “and in biblically proportioned reserves.”

Wall’s peers from Alberta and British Columbia are here, too. Alberta, of course, is home to the tar sands…an oil reserve that’s as massive as it is difficult to produce. If oil doesn’t fetch $70-90 a barrel, the oil sands aren’t very economical.

No matter to the Chinese, who’ve struck two tar sands deals this quarter…

  • The state-owned oil producer Sinopec paid $4.65 billion to buy a 9% stake in Canada’s biggest tar sands project from ConocoPhillips
  • The sovereign wealth fund China Investment Corp. paid $801 million to buy 45% of a venture to produce tar sands oil.

Canada’s more than happy to open up the tar sands to China rather than the country next door. That’s partly because producing oil in the region is very carbon intensive, so the Obama administration frowns on it. But it’s also “common economic sense” for the Canadians, says Jeff Rubin, former chief economist with CIBC World Markets.

“China’s oil consumption has grown from just over 2 million barrels per day in the early 1980s to an estimated 9 million barrels per day this year,” Rubin says. “And at the rate that its vehicle market is growing, the country could double its oil consumption over the next decade or so.

“By comparison…this year there were four million fewer vehicles on the road in America than there were the year before.”

It’s not just oil in play, either. The region is also flush with uranium and potash, a key ingredient in fertilizer. Chris Mayer, who’s with us in China this week, has already identified players in those sectors that can’t help but rake in money from China’s demand. Watch for his special report next week.

After the Canadians depart, the American delegation arrives. These guys are sure to impress. Secretary of State Clinton and Treasury Secretary Geithner both head to Beijing. Their agenda couldn’t be more different from the Canadians. It includes…

  • Tougher sanctions against Iran for its nuclear program
  • Rising tensions on the Korean Peninsula, with the South accusing the North of torpedoing a warship and killing 46 sailors
  • The dollar-renminbi exchange rate.

Just for the sake of comparison: The Canucks are here to make business deals. The Yanks are here to, what, push their weight around?

By nature, we’re skeptical that politics can trump business. Clearly, we’re in the minority in our homeland.

Addison Wiggin
for The Daily Reckoning