China Moves Again – Sovereign Wealth Fund
China’s sovereign wealth fund has been quiet. Too quiet. The fund that made up some of the biggest acquisitions in 2008 is back from the dead, this time, in another major international purchase.
The sovereign wealth fund of China has entered a deal to purchase $1.7 Billion of Canadian oil sands. The deal follows several large commodity deals completed in 2008 in which China, through its sovereign wealth fund, purchased natural resources all around the globe. This purchase, however, is more long term, with China opting to buy resources for the future rather than for today.
5 Billion Barrels for $1.7 billion
The latest purchase by China appears to be a purely speculative deal. Though modern technology suggests that the oil sands can be tapped for their energy, it has not been declared at what price. I would suspect that China’s purchase is more long term, following several other short term investments in mines and oil pumps that are already producing.
A Long Term Investment
As there is not yet any idea of how much it might cost to bring the oil to the surface, it can only be said that China’s investment was meant only for the long term. It is interesting to see the transfer between the short term and the long term. During 2008 China focused solely on investments that would provide a hedge to the cost of commodities or firms that were producing. What does this long term strategy mean?
Is China Dropping the Buck
It may seem to be a stretch, but China has for a long time been selling the dollar in favor of commodities. In this long term move, China not only avoided a block by legislation, but it was also able to work itself slowly from the US dollar. Though $1.7 Billion is a small portion of its reserves, every step counts, especially considering the mileage each dollar is getting. With an estimated 5 billion barrels, each is valued at $.33, minus the expense to bring it to the surface.
No one can argue that China has greatly grown its economic status in the world through borrowing components of capitalism. Red China, a communist country, is looking less like a communist state each year, as her economic might advances. Some who have held onto at least many of the fundamental ideals of communism believe China is missing the boat on her way to becoming a Super Power.
Still, I’d disagree and submit that China does not need to catch that slow boat, as it now has nuclear submarines and jet aircraft travel to assist. Many in China say that the nation “must find a fair way to distribute wealth and exercise social justices.”
But, How does one determine “Fair” as that is a rather tough concept, what is fair? Indeed, many educated Chinese are aware of Capitalist Theory and Theories of Socialism. So, are they suggesting that wealth from the state be diverted from needed infrastructure upgrades, military defense, education, basic services like; police, emergency, government administration, water, dams, roads, transportation and then given to individuals in the form of perhaps health care, food subsidies, and various social assistance programs?
And if so do the Chinese academic elite really think China should only borrow some capitalist methods and remain committed towards socialism in other regards like Europe, rather than the proven methods of Australia, and the US; sort of a hybrid system? If so, how might they design this? And would it actually work anyway?
“Mixing communism, socialism and capitalism, is like mixing wine, sewage, and oil in no particular order.”
Please consider all this.
Never know what the Chinese gov will pull. Communist, socialist, Capitalist, who knows?