Where is China Looking for Commodities Discounts?

The Chinese (NYSE:FXI) government is working on expanding its relationships with resource-laden South American (NYSE:ILF) nations. Demand for commodities (NYSE:RJI) is surging in China as the behemoth is burning through them to maintain its astounding 9-10% annual growth rate. In order to lock-up stockpiles of much needed natural resources the Chinese government is dumping political and monetary capital into Latin American nations such as oil-rich Venezuela, to whom China recently granted a $32 billion dollar loan.

Oliver Schell of the Asian Society in New York thinks the Chinese have been notably more aggressive than other nations in forging relationships with South American governments. In regard to Chinese policy efforts, Schell commented, “I don’t know of any other government which has done this sort of securing of rights for commodities and natural resources so systematically around the Third World… and they’ve used a whole host of new financial instruments to do this.”

China (NYSE:FXI) is leveraging these investments with expected returns in natural resources, and continues to foster admiration from leading political figures on the continent, such as infamous Venezuelan leader Hugo Chavez, who recently admitted, “I’m in love with China.”

Venezuelan oil (NYSE:USO) isn’t the only thing the Chinese are going after. In 2005 the rising economic superpower brokered a deal with Chile (NYSE:ECH), financing a $2 billion deal with the nation’s domestic mining industry in exchange for fixed-rate supplies of Copper through 2015. This has given the Chinese a huge discount and competitive advantage in acquiring reserves of copper.

In addition to its deals with Chile and Venezuela, the Chinese have also gotten on board with the continent’s economic leader, Brazil (NYSE:EWZ), and have recently become its largest global trading partner. Similar tactics were employed by the Chinese in their dealings with Brazilian companies, with the same end goal in mind, cheap oil. Last year China Bank negotiated a $10 billion dollar loan with Brazil-based oil exporter Petrobras in exchange for a steady flow of oil. China now accounts for 14% of Brazil’s oil exports.

Last but not least, China also continues to forge alliances with agricultural leader Argentina (ARGT). The China Development Bank granted Argentines a multi-billion dollar loan to help re-vamp infrastructure and expand the nations’ freight-rail system. In exchange for the cash Argentina is on call to provide the Chinese with a stream of wheat, corn, soy, and dairy products.

With a government uninhibited by ideological differences, China has been able to create economic relationships with countries that have been forcibly neglected by American trading policies (such as Venezuela). The competitive advantage these tactics have bestowed on Chinese growth has already been palpable, and may prove to indispensable to the continued rapid proliferation of its domestic economy. Not since the proclamation of the Roosevelt Corollary has the US seen the rise of such adamant economic competition in the hemisphere.

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