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K. Palonka: Energy –a new focus of Chinese foreign industrial policy. A chance for Poland?

Substantial  investments are being made in China’s power grid, as the government has  to assure more reliable  power supplies in the industrial east of China. Investment in key infrastructure projects should provide opportunities for equipment manufacturers, and could also position China better in the global, advanced power equipment market . Investments in smart grids as well as the adoption of newer power transmission technologies could put China in a leading position in this sector [1]. Recent announcements form China present  energy supply situation in much better view. There shouldn’t be long-lasting breaks in energy supply during coming  summer. This optimistic prognosis was  published last Wednesday (June 13th) by China Energy Bureau. Due to previous investments, slowdown in China’s economic growth, increasing efficiency in energy consumption by industries , smaller demand  ( iron processing decrease in industry, among others ) and less energy consuming household equipment country energy balance looks more even.

Smaller demand on energy resources markets made the oil and gas prices less oppressive thus the energy prices in China did not raise neither for industries nor for individual households.

Significant commitment in energy and power projects is to be observed  in offshore activities and investments of China corporations. Until mid 2000s the main interest of China investments abroad were resources,, today they are only about 16% of all, the rest are services, manufacturing trade and infrastructure .Currently they focus on obtaining modern technologies in energy sector .

Among the biggest targets in the world were [2] ( upward scale ):

Myanmar With total Chinese FDI between  2004-2010  $1.6 billion .China’s foreign direct investment there augmented since 2008. It grew more than 2 1/2 times from $92 million in 2007 to $233 million in 2008 before accelerating to $377 million in 2009 and then $876 million in 2010.

China has invested in everything from infrastructure and hydropower dams to twin oil and gas pipelines to help feed southern China’s growing energy needs. China’s top three oil firms — CNPC, Sinopec Group and CNOOC— all operate in Myanmar, and China has pledged an additional investment of more than $14 billion in the 2010-2011 fiscal year. According to Myanmar government figures, about 47 percent of total foreign investment in the country went to power generation, while 34 percent went toward oil and gas — Myanmar’s biggest export commodities. 

 Russia With amount of Chinese FDI between 2004-2010: $2.5 billion .Chinese FDI in Russia more than doubled in 2005 to $203 million from $77 million a year earlier, and China’s investments gradually rose to $568 million in 2010. Chinese interests have ranged from energy to infrastructure. Some important projects include China Huadian Corp.’s investment of $323 million in a joint venture with Russian firm TGK-2 OAO to build a thermal-electric power plant northeast of Moscow in 2011. Last October, the two countries announced a joint Russia-China investment fund to promote direct investment in Russia. Sovereign wealth fund China Investment Corp.-CIC- would invest $1 billion in the fund, and state-backed Russian Direct Investment Fund committed the same amount.

Canada – With amount of Chinese FDI between 2004-2010: $2.9 billion . China has been a big investor in Canada’s oil sands. The province of Alberta, has the largest oil reserves outside Saudi Arabia and it  has seen a lot of interest from Chinese energy firms.

Deals between China and Canada date to 2005, when Canadian energy firm Enbridge signed an agreement with PetroChina to ship oil through a planned Northern Gateway pipeline. The pipeline would be the first project to transport crude extracted from oil sands to the west coast of Canada so it can be shipped to Asia. PetroChina also became the first Chinese state-owned company to wholly own a Canadian oil sands development after it bought out its partner’s stake for $674 million. The project is expected to start producing 35,000 barrels of oil a day by 2014 at a cost of $ 1.3 billion. Since July 2011, Chinese companies interested in energy have bought around $5.5 billion worth of Canadian assets. 

United StatesWith amount of Chinese FDI between 2004-2010: $3.4 billion.  Chinese direct investment in the U.S. has been growing rapidly, nearly doubling in 2009 to $909 million from $462 million a year earlier and reaching $1.3 billion in 2010.

Chinese companies have been wary of investing in the U.S. because of the political sensitivity of some  deals such as state-owned oil company CNOOC’s unsuccessful bid to acquire Unocal in 2005.

Since then, Chinese oil giants have been making a lots of attempts to enter  the U.S. energy market by acquiring minority stakes in American oil projects. CNOOC made in 2010 $1.1 billion deal with Chesapeake Energy to buy a 33 percent stake in shale oil fields in South Texas. Earlier the same year, Sinopec offered Oklahoma-based Devon Energy $2.2 billion for a one-third stake in a 1.3-million-acre drilling property in Ohio, Michigan and elsewhere. In both cases  the American companies keep full operating control, along with control over sales of oil and gas from the wells to avoid a political problems.

Singapore with FDI  between 2004-2010: $4.7 billion.  As one of the Asia-Pacific’s key financial centers, Singapore has attracted growing Chinese investments in recent years. China’s foreign direct investment in Singapore got its highest level in 2007, with investments more than doubling to $398 million from a year earlier. China’s FDI in Singapore peaked at $1.55 billion in 2008 before falling to $1.1 billion in 2010.

China Guangdong Nuclear Power Holding Corp. announced plans to build a$33.6 million biomass-solar power plant in Singapore by 2013, which is key to Singapore’s position as the gateway to the clean energy market in Asia.

South Africa with Chinese FDI between  2004-2010: $5.8 billion.  Africa’s largest economy exports $5.5 billion a year in minerals to China, which is also South Africa’s biggest trade partner. China’s foreign investments in South Africa peaked at $4.8 billion in 2008 — the same year the world’s biggest bank by market  value- ICBC bought a 20 percent stake in South Africa’s Standard Bank for $5.5 billion. Its worthy to mention that   Standard Bank was adviser on about 30 percent of the $5 billion in mergers and acquisition activity between China and Africa in 2009.

South Africa also acts as a gateway for China’s investments in Africa. China’s government has funded and helped build infrastructure projects for African governments in return for access to mines and minerals. China lent $4.5 billion in 2007 to infrastructure projects in Africa, according to the World Bank. Africa remains the only continent where China still maintains previous “row –materials oriented “ strategy in energy field.

Australia –  with Chinese FDI between  2004-2010: $6.97 billion.  China is Australia’s top trading partner. Chinese appetite for the country’s natural resources has made Australia one of the biggest recipients of Chinese foreign investment.

China’s FDI in Australia increased significantly after 2007. Net FDI from China doubled from $531.6 million in 2007 to $1.9 billion in 2008. Despite the global financial crisis, Australia saw another $2.4 billion in FDI from China in 2009. That same year, the Australia government changed its investment rules to limit Chinese investments in local mining companies. Than China’s state-owned Chinalco was denied an 18 percent acquisition in mining giant Rio Tinto for $19.5 billion.

Despite the disagreement, the two countries signed an agreement in April 2012 on stronger cooperation on infrastructure, which could allow more Chinese investment in Australian projects.

This kind of investments by Chinese companies have generated plenty of political concern in some countries, and several big deals have been cancelled. In 2011 alone, $32.8 billion worth of investments proposed by China failed to be completed, according to the Heritage Foundation. That’s more than half the $60.1 billion in overseas deals made by Chinese companies last year, according to the Ministry of Commerce. Some important failures include a $5.4 billion PetroChina deal in Canada and Bright Food Group’s $2.5 billion bid to buy French yogurt maker Yoplait.

The current, global financial situation is however convenient  for Chinese investors. The huge  financing demand of its two biggest trading partners — the U.S. and Europe — could give China opportunities,  as China plans to spend $560 billion in foreign investments over the next five years, according to Reuters.

China’s $410 billion sovereign wealth fund China Investment Corporation – CIC  has cut its stock and bond investments in Europe[3]  but , CIC has repeatedly announced its interest to buy European infrastructure and  to invest in some parts of Europe, with  a preference for physical assets. “Euro zone members need to upgrade their infrastructure, power supply, power transmission and distribution, water supply and water treatment”, said.Jin Liqun, chairman of the Board of Supervisors at the CIC in interview for CNBC ( April 2012) [4]

Is there any opportunity for Poland ?

Polish deputy prime-minister Waldemar Pawlak visited China at the end of May. The focus of this  pragmatic visit was economic co-operation in energy . Poland is very interested in mutual potential  efforts in shale gas exploitation – the resources were recently discovered in Poland. Mr. Pawlak suggested that research institutes of both countries could join efforts in this field. Poland is also interested in developing “new energies’ to diversify the energy resources and decrease  CO2 emissions, so is China .As  it is already known, China became world leader in manufacturing solar panels and  is also among major producers of wind turbines. Polish delegation was received by Mr. Chin Miao Wei the Minister of Industry and Informatysation and both sides expressed  mutual interest in prospects of developing renewable energy potential.

Polish prime-minister underlined that Poland has really  great potential and convenient geographic location for Chinese businesses . Both countries  have also similar structure as far as  major resources of energy are concerned, where coal is a dominant product . Thus we should both develop the instruments to promote and encourage new, “green” energy utilization.

There were at least four attempts of Chinese companies to invest in Polish energy sector. China National Electric Engineering Corporation –CNEEC-was interested in taking part in tenders for power plants modernization in Poland. CNEEC  offered also financial  support for the projects according to president CNEEC-  Zhao Ruolin  (Jaworzno, Kozienice oraz Elektrowna Północ). Consortium CNEEC/Covec put an offer for part of power plant  Kozienice (Enea), and  Jaworzno III (Tauron). Each of its bids values around 5bn PLN. and  12 bn PLN worthy  Elektrowna Północ (Kulczyk Investments) [5] Bank of China –BOC- officially opened its operations in Poland with clear aim to support Chinese investments in Poland with particular focus on infrastructure, energy and new technologies projects[6} Two other Chinese energy corporations  are interested in investing in Poland –  China Three Gorges Corporation and  State Grid Corporation of China, clients of Banco Espirito Santo Investmento(BESI),  (according to Jose Maria Espirito Santo Ricciardi- the  president ) State Grid Corporation of China is a Chinese operator of power grid that supplies in energy 88% of country territory and employs c.a.1,5 mm workers. [7] CNEEC is potentially interested in investments In 77 MW extension of  Lubelski Węgiel Bogdanka. None of this offers was yet terminally decided. There are concerns and tensions, however the time comes to consider is it win-win situation for Poland or not.


[1] Power up: massive investment in China’s power grid ;  ECONOMIST INTELLIGENCE UNIT

[2] Still incomparably great receivers of Chinese FDI are:  Hong Kong – FDI 2004-2010: $139.5 billion , , Cayman Islands-FDI 2004-2010: $27.3 billion, British Virgin Islands-FDI 2004-2010: $13.9 billion , all that capital going retransferred farther more with not so transparent monitoring.

[3] Lou Jiwei CIC manager-was quoted as saying that China was also unlikely to buy common euro zone bonds, should they eventually be sold as part of a resolution of the European debt crisis, as „the risk is too big, and the return is too low”.  Reuters.

[4] Europeans are nervous about letting it move into sectors such as „nuclear power”.

[5]   wnp.pl

[6] PAP  |  28-05-2012 1

 

[7] Dwie chińskie firmy energetyczne zainteresowane inwestycjami w Polsce; PAP;16.05.2012r. 14:08

 

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K. Palonka: Energy –a new focus of Chinese foreign industrial policy. A chance for Poland? Reviewed by on 20 czerwca 2012 .

Substantial  investments are being made in China’s power grid, as the government has  to assure more reliable  power supplies in the industrial east of China. Investment in key infrastructure projects should provide opportunities for equipment manufacturers, and could also position China better in the global, advanced power equipment market . Investments in smart grids as

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