world growth

world growth

Wednesday, September 30, 2009

China's economic ties with Iran

China’s Ties With Iran Complicate Diplomacy

President Mahmoud Ahmadinejad of Iran, center, with Chinese workers at a highway tunnel project northwest of Tehran in June.

BEIJING — Leaders of the House Foreign Affairs Committee swept into Beijing last month to meet with Chinese officials, carrying a plea from Washington: if Iran were to be kept from developing nuclear weapons, China would have to throw more diplomatic weight behind the cause.

In fact, the appeal had been largely answered even before the legislators arrived.

In June, China National Petroleum signed a $5 billion deal to develop the South Pars natural gas field in Iran. In July, Iran invited Chinese companies to join a $42.8 billion project to build seven oil refineries and a 1,019-mile trans-Iran pipeline. And in August, almost as the Americans arrived in China, Tehran and Beijing struck another deal, this time for $3 billion, that will pave the way for China to help Iran expand two more oil refineries.

The string of energy deals appalled the Democratic chairman of the Foreign Affairs Committee, Representative Howard L. Berman of California, who called them “exactly the wrong message” to send to an Iran that seemed determined to flout international nuclear rules.

But some analysts see another message: as the United States issues new calls to punish Iran for secretly expanding its nuclear program, it is not at all clear that Washington’s interests are the same as Beijing’s.

That will make it doubly difficult, these analysts say, to push meaningful sanctions against Iran through the United Nations Security Council, where China not only holds a veto but has also been one of Iran’s more reliable defenders.

“Their threat perception on this issue is different from ours,” said Zalmay Khalilzad, who as the American ambassador to the United Nations under President George W. Bush helped persuade China to approve limited sanctions against Iran. “They don’t see Iran in the same way as we do.”

François Godement, a prominent China scholar and the president of the Paris-based Asia Center, put it more bluntly. “Basically,” he said, “the rise of Iran is not bad news for China.”

To be sure, China and the United States, leading members of the club of nuclear nations, share a practical interest in halting the spread of nuclear weapons to volatile areas like the Middle East. And it is in China’s interest to avoid alienating the United States, its economic and, increasingly, diplomatic partner on matters of global importance.

But beyond that, many experts say, their differences over Iran are not only economic but also ideological and strategic.

The United States has almost no financial ties with Iran, regards its government as a threat to global stability and worries that a rising Tehran would threaten American alliances and energy agreements in the Persian Gulf.

In contrast, China’s economic links to Tehran are growing rapidly, and China’s leaders see Iran not as a threat but as a potential ally. Nor would the Chinese be distressed, the reasoning goes, should a nuclear-armed Iran sap American influence in the region and drain the Pentagon’s resources in more Middle East maneuvering.

“Chinese leaders view Iran as a country of great potential power, perhaps already the economic and, maybe, militarily dominant power in that region,” said John W. Garver, a professor of international relations at Georgia Tech and the author of “China and Iran: Ancient Partners in a Post-Imperial World.”

An alliance with Tehran, he said, would be a bulwark against what China suspects is an American plan to maintain global dominance by controlling Middle Eastern energy supplies.

Beyond that, China relies heavily on Iran’s vast energy reserves — perhaps 15 percent of the world’s natural gas deposits and a tenth of its oil — to offset its own shortages. The Chinese are estimated to have $120 billion committed to Iranian gas and oil projects, and China has been Iran’s biggest oil export market for the past five years. In return, Iran has loaded up on imported Chinese machine tools, factory equipment, locomotives and other heavy goods, building China into one of its largest trading partners.

China scholars say that the relationship is anything but one-sided. Iran has skillfully parceled out its oil and gas reserves to Chinese companies, holding exploration and development as a sort of insurance policy to retain Chinese diplomatic backing in the United Nations.

For its part, China has opposed stiff sanctions against Iran’s nuclear program, acceding mostly to restrictions on trade in nuclear-related materials and orders to freeze the overseas assets of some Iranian companies.

Many experts question how much more punishment Beijing would agree to support. Iran has already been cited three times by the Security Council, with Beijing’s backing, for flouting prohibitions against its nuclear program.

In each case, Beijing agreed to measures only after stronger American proposals had been watered down and after Russia, the Council’s other critic of stiff sanctions and a close ally of Iran, had signed off on the proposal.

One noted Chinese analyst, Shi Yinhong of People’s University in Beijing, said in a telephone interview this week that China would probably follow much the same course should a new sanctions proposal reach the Security Council.

“China will do its utmost to find a balance” between Iran and the United States, Mr. Shi said. If Russia joins the other Council members in supporting a new sanctions resolution, he said, “China will do its best to try to dilute it, to make it limited, rather than veto it.”

But it is unlikely to do so happily. Supporting stronger sanctions might elevate China’s image as a global diplomatic leader, but the United States, not China, would reap the real benefits.

“China is not anxious to jump on this American train,” said one Chinese analyst, who spoke on the condition of anonymity in order to freely assess China’s foreign policy.

Wednesday, September 23, 2009

China's Pig Farmers Amass Copper, Nickel

Private investors in China, the world’s largest metals user, have stockpiled “substantial” quantities of copper as the government ramps up stimulus spending to spur the economy, according to Sucden Financial Ltd.

Pig farmers and other speculators may have amassed more than 50,000 metric tons, Jeremy Goldwyn, who oversees business development in Asia for London-based Sucden, wrote in an e- mailed report after a visit to China. That’s about half the level of inventories tallied by the Shanghai Futures Exchange, which stood last week at a two-year high of 97,396 tons.

Sucden’s estimate underscores the difficulty analysts face in gauging metals demand in China amid increased speculation by retail investors, whose holdings remain outside the reporting framework undertaken by exchanges. Private investors in China also had as much as 20,000 tons of nickel, Goldwyn wrote.

“People who have nothing at all to do with the copper trade have been buying copper as a store of value, much like they would with gold,” said Jiang Mingjun, an analyst at Shanghai Oriental Futures Co.

Copper on the London Metal Exchange has more than doubled this year as China’s 4 trillion yuan ($586 billion) stimulus plan and record $1.1 trillion of lending in the first half spurred purchases of the metal used in construction and autos. The metal traded today at $6,470 a ton, which would value a holding of 50,000 tons at $324 million.

‘Private Stockpiles’

“Private stockpiles, built by many including the much- vaunted, pig-farming speculators, have clearly absorbed substantial quantities of metal,” Sucden’s Goldwyn said. “Much of this metal will remain out of the normal market place.”

Scotia Capital Inc. analyst Liu Na highlighted the role of Chinese pig farmers and other private speculators in the metals markets in an Aug. 17 note that cited reports from state-owned China Central Television. These speculators may become “quick sellers” if sentiment turned, Liu said in that note.

To be sure, Sucden’s Goldwyn wrote that the stockpiles of copper and nickel held by farmers and others in China may “not be ‘dumped’ back in the foreseeable future as some have recently suggested, wherever prices go.” Goldwyn didn’t give a reason.

The metals holdings by pig-farmer investors and other private speculators give “the impression that there is strong demand in China,” said Jiang at Shanghai Oriental. “But it is actually those who take a pessimistic view of the economy and are looking to preserve their wealth who are buying.”

Rising Imports

China’s imports of refined copper rose to a record 2.1 million tons in the first seven months, driven by purchases by the State Reserve Bureau and other consumers, and shortages of scrap. The State Reserve Bureau had contracted to take 300,000 to 400,000 tons of refined copper into its stockpiles from overseas this year, according to Macquarie Group Ltd.

“Restocking continues, though it seems to have moved further downstream, including manufacturers building end-product stocks,” Goldwyn wrote. In some industries, such as the makers of copper tubes for air-conditioners “demand is back to pre- crash levels stimulated by government incentives, and will show significant year-on-year gains in the coming weeks and months.”

Thursday, September 17, 2009

China and Venezuela sign $16 billion oil deal

China is going around the globe to grab oil resources.

Venezuela says signs new $16 billion China oil deal

CARACAS (Reuters) - President Hugo Chavez said on Wednesday Venezuela signed a $16 billion investment deal with China over three years to raise oil output by several hundred thousand barrels per day in the OPEC member's Orinoco belt.

Chavez gave few details of the deal he said was signed on Tuesday. But he appeared to be talking about a new investment, separate from a similar amount China has promised Venezuela in return for future shipments of fuel oil.

"We have struck an agreement with China for the Orinoco belt over the next three years for $16 billion more," Chavez said on state television. He said that between a recently signed Russian project and the Chinese deal, output would rise by 900,000 bpd.

Last week, Venezuela and Russia formed a joint venture to develop the Junin 6 field with a $20 billion investment. Venezuela says the project will produce up to 450,000 bpd.

Thursday, September 10, 2009

US firm to build world's largest solar plant in China

NEW YORK — First Solar Inc. said Tuesday it has received initial approval from the Chinese government to build what may become the largest solar field in the world.

First Solar, which makes more solar cells than any other company, said it struck a tentative 10-year deal to build in China's vast desert north of the Great Wall. The project would eventually blanket 25 square miles of Inner Mongolia — slightly larger than the size of Manhattan — with a sea of black, light-absorbing glass.

The solar field would dwarf anything in operation in the U.S. or Europe. At 2 gigawatts, or 2 billion watts, the solar plant could pump as much energy onto China's grid as two coal-fired plants, enough to light up three million homes. Like most solar plants, however, it wouldn't produce electricity at night.

"The potential is enormous" for projects like this in China, CEO Mike Ahearn told The Associated Press before the announcement. "The Chinese government is further along in its thinking about solar than we've imagined."

Ahearn said it would be nearly impossible to install a solar field of this size in the United States. There's plenty of land, but there's not enough near transmission lines, Ahearn said.

And efforts to build new power lines are regularly stymied by competing interests from government agencies, environmental groups and disgruntled residents.

"In the U.S., energy policy is made on the state level," Ahearn said. "Every state has a different approach."

In contrast, Ahearn said China has designated a region within the country for renewable energy production and transmission. It also has promised to guide First Solar through the approval process and make it profitable.

Tempe, Ariz.-based First Solar announced the deal Tuesday after signing a "memorandum of understanding" with Wu Bangguo, chairman of the Standing Committee of the Chinese National People's Congress.

The agreement outlines broad aspects of the project, including deadlines for a feasibility study and the government's role in helping with construction permits. But Ahearn said much of the deal hasn't been worked out yet, including how much First Solar would get paid.

Ahearn said a system like this would cost $5 billion to $6 billion if it were built in the U.S., though it likely would be cheaper using lower-cost Chinese labor.

First Solar plans to make money by selling the plant to a local operator, but it won't be able to estimate its profit until China determines the size of its subsidy for solar energy. The country is expected to offer a "feed-in tariff," which would require utilities to buy solar energy at a fixed price for a set number of years.

Industry experts say they're not sure when that will happen.

"We've been kind of in a holding pattern for six months or so," Mark Bachman, an analyst with PacificCrest, said.

Bachman said announcements of smaller solar farms have been popping up "all over the place" in China. But investors so far have been unimpressed because of the uncertainty surrounding its subsidy program.

First Solar stock added $8.33, nearly 7 percent, to $129.80 a share after the announcement.

For several years, solar panels have been rapidly spreading around the world as an alternative power source, appearing on rooftops of homes and businesses in most major countries. The solar industry has focused on a handful of European countries that offer the best incentives, but companies are starting to look elsewhere for longer-term projects that can keep their factories occupied for several years.

Ahearn said First Solar spent the past few months searching for partners in China, culminating with its 2-gigawatt deal in Inner Mongolia. Like the U.S., China has taken aggressive steps to move away from fossil fuels. It located the First Solar plant in Ordos, a gritty industrial city of 1.4 million people that is the main production base for China's largest coal company.

The project hasn't been given an exact location yet, but the agreement said it will be located within a massive development zone that is expected to eventually offer nearly 12 gigawatts of renewable energy from wind, solar, biomass and hydroelectric power. First Solar will provide most of the solar, with the first 30 megawatts installed by June 1, 2010. The company will expand the plant over the next decade, installing about 27 million thin-film panels by 2019.

Li Rong, director of the new energy department of the Ordos city government, said First Solar's project still faces a number of hurdles, including acceptance by the government's National Development and Reform Commission.

"It's hard to guarantee when exactly it will start or finish as the project hasn't been approved," Rong told the AP.

First Solar said the Ordos project will be the largest solar farm ever. But there are other projects that may provide stiff competition for that distinction.

The Clinton Climate Initiative said it is working with the Energy Resources Institute in India on a possible solar development that would be even larger. The project could install two solar farms — one in Gujarat and one in Rajasthan — that are larger than First Solar's. But CCI officials said the project is in an extremely early stage and most details haven't been worked out yet.

BrightSource Energy is developing one of the largest U.S.-based solar projects. The Oakland, Calif. company has power-purchase agreements with two California utilities to build 14 solar plants with a combined capacity of 2.6 gigawatts. BrightSource may spread the plants across California, Nevada and Arizona.

First Solar also is building solar farms in California and New Mexico, but Ahearn said he expects Asia to be home to the biggest solar plants for some time.

"There's an advantage to planning this from the top," Ahearn said. "The speed and execution advantage is in China."

Friday, September 4, 2009

China to buy $50 billion of first IMF bonds

BEIJING — China has agreed to buy $50 billion of the International Monetary Fund's first bond issue in a move that will help to strengthen the body's lending ability and diversify Beijing's foreign holdings.

The agreement announced Wednesday by the Washington-based IMF comes as the body tries to raise money to finance lending, especially to developing countries, to help economies weather the global downturn.

"The agreement offers China a safe investment instrument," said an IMF statement. "It will also boost the Fund's capacity to help its membership — particularly the developing and emerging market countries — the global financial crisis, and facilitate an early recovery of the global economy."

The purchase also would give China a new investment vehicle to help diversify its foreign holdings beyond U.S. Treasury bills, in which it keeps a large share of its reserves.

Brazil and Russia have indicated they will buy up to $10 billion of the bonds, the IMF said.