Foreign Correspondence

[Amaunet]

China targets more overseas acquisitions
Plan to buy miner is just the beginning

Requires raw materials to fuel economy

Sep. 28, 2004. 01:00 AM

SINGAPORE—China's plan to buy Canadian mining giant Noranda Inc. is just the beginning of an overseas acquisition march fuelled by swollen foreign exchange reserves and a need to secure natural resources.

But bureaucratic state ownership and a lack of experience in running foreign firms could slow the pace of China's venture overseas, analysts said.

"You will see more and more overseas investment by Chinese enterprises in the form of corporate takeovers or others. The momentum is getting strong," said Chen Jiulin, the head of Beijing-run China Aviation Oil (Singapore) Corp. Ltd, which is buying a stake in a Singaporean refining company.

"But challenges are many," Chen said yesterday. "For one, China lacks its own human resources to run businesses overseas. There are few who really know how to handle international businesses." Chen is also president of an association of Chinese companies operating in Singapore.

Chinese companies have to date invested more than $15 billion (Canadian) overseas, Chen said, citing official data. Much of that was invested in individual assets rather than entire companies. The main Chinese investors have been oil and gas producers, and appliance firms like Haier Group and TCL that are trying to become global brands.

State-owned China Minmetals Corp., which is in exclusive talks to buy all of Noranda, is taking the game to a new stage.

The acquisition, which would be China's largest ever takeover of a foreign company, is driven by China's insatiable hunger for raw materials to fuel its economic growth. It is backed by surging foreign exchange reserves, which rose 20 per cent in the first seven months of 2004 to hit $483 billion (U.S.), the second highest in Asia.

Similar deals are likely to follow, analysts said, with firms in the natural resources sectors remaining the most acquisitive.

"We are going to see more resources and commodities firms with strong balance sheets buying overseas assets to support the booming economy," said Yang Liu, fund manager at Atlantis Investment, which invests in Asia.

State oil firms have spent $5 billion (U.S.) on overseas oil and gas fields in the past 10 years. PetroChina is looking at the oil assets owned by Calgary oil and gas exploration firm EnCana Corp. in Ecuador estimated to be worth more than $1.9 billion (Canadian).

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