Market News International | 8 November 2011
By Charles Newbery
BUENOS AIRES (MNI) - China is ramping up investment in Argentina to secure natural resources to feed its growing economy and snare sales opportunities for its emergent manufacturing industry.
China over the past few decades has boosted and sharpened its manufacturing and technology capacity, allowing it to ship more value-added goods abroad, from equipment to finished products, said Mario Sotuyo, an economist at Economia y Regiones in Buenos Aires.
With limited land and resources at home, China is turning to the world for raw materials to feed the factories and its growing populace.
Argentina was China's second biggest destination for investment in Latin America last year, with $5.6 billion flowing in compared with $9.6 billion to Brazil, according to the United Nation's Economic Commission for Latin America and the Caribbean (ECLAC).
That figure is up from $143 million in investment flows to Argentina between 1990 and 2009, a sign of a new focus on the country.
The spending pace has continued this year, though perhaps not at the same pact, with $3.5 billion going to Argentina through Apri l5, compared to $8.6 billion in Peru and $9.9 billion in Brazil. About 90% of the total was in natural resources, according to ECLAC.
"China wants to produce raw materials in Latin America and process them in China," Sotuyo said. "It is buying land in Latin America."
The hitch in Argentina is that land is not readily for sale.
Argentine President Cristina Fernandez de Kirchner in April submitted a bill to Congress designed to limit foreign ownership of rural land to 1,000 hectares (2,471 acres).
The bill, not yet approved, proposes limiting total foreign ownership to 20% of productive land. Foreigners now own an estimated 11% of productive land, according to the Argentine Agriculture Federation, a leading farm group.
The bill will not be retroactive, so foreigners will not be forced to sell land they already own unless total foreign ownership is more than 20% of total land, or one country owns more than a 30% maximum of that 20%.
Many people are against foreign land ownership, largely in response to a stampede of purchases in the 1990s in Patagonia.
There are concerns that the foreign purchases were for drinking water rights, as the region is known for large deposits of water. Famous athletes, actors and businessmen like Joe Lewis and Ted Turner have bought land, capturing media attention including for allegedly limiting access to rivers and lakes on their land.
Instead of putting a wrench in its investment plans, China is seeking other avenues, such as by teaming up with local companies, said Gabriel Perez, who owns Mercampo, an agriculture consulting firm in Rosario.
"In Africa, the strategy is to buy land. But in Argentina, they are forming associations that allow them to grow crops and guarantee food supplies for their population," he said.
Heilongjiang, a northeastern province of China, last year signed contracts for it to invest in developing fields in Argentina's southern Rio Negro province, in exchange for rights to buy the harvests. It will work with farmers there on the project.
Heilongjiang, source of 11% of the food produced in China, will work on the project through Beidahuang Group, a state company.
It plans to invest $1.5 billion to expand the San Antonio Este port and put in irrigation systems over an area of 300,000 hectares in the Rio Negro and Rio Colorado valleys, which unlike in the country's farm belt in Buenos Aires province, Cordoba and Santa Fe require irrigation for crops like corn and soybeans, and less so for fruits and vegetables.
Rio Negro will pay back the investment in crops, the province has said, adding that national laws prevent a stripping of food supplies because only output in excess of domestic demand can be exported.
"Chinese investment is seen as positive as long as the land is not bought," Perez said.
Chinese authorities also are laying the groundwork for boosting crop imports by improving product standards so they can pass sanitation barriers in China, he said. Soy and barley can, but corn, beef with bone and other products cannot yet.
Despit the push in agriculture, one of Argentina's strongest sectors, China's biggest outlays have been in oil.
China Petroleum and Chemical Corporation (Sinopec) this year bought the Argentine assets of Los Angeles-based Occidental Petroleum for about $2.5 billion.
The purchase made Sinopec the fifth-biggest oil producer in Argentina and followed a deal to buy a 40% stake in Repsol's Brazilian upstream unit for $7.1 billion.
It also followed a move by China National Offshore Oil Company (CNOOC) and Argentina's Bridas Energy Holdings to seek the purchase of 60% of Pan American Energy from BP for $7.1 billion. Pan American is the second biggest oil producer and third for natural gas in Argentina.
Bridas, however, scrapped the purchase agreement Nov. 5 for undisclosed reasons, prompting CNOOC to say it will seek opportunities elsewhere in the world, without specifying where.
China is looking abroad for oil and gas reserves to offset declining output at home. South America and Africa are showing promise for oil and gas production growth, with Argentina estimated to hold the third largest resources of shale gas in the world after China and the United States.
Mining and fertilizer are other focuses. Beijing-based China Metallurgical Group Corporation, a state-owned mining company, has invested about $100 million in an iron mine in Rio Negro, pulling the mine out of a 14-year slump to restart shipments.
China's north-central Shaanxi province is investing $1 billion to build a urea plant and related infrastructure, including a power plant and port facilities with the aim of selling output to Argentina and any surplus to China.
There also are plans for investing in rail and sanitation works, purportedly for selling manufactured goods for the projects to Argentina, analysts said.
Buenos Aires has bought trains from China for its subway, and the city's mayor, Mauricio Macri, is in talks with China Railway Engineering Corporation's international division to build a new line, with the Export-Import Bank of China financing the $1.5 billion cost.
And beyond those sectors, in August, China's biggest commercial bank, the Industrial and Commercial Bank of China, agreed to buy an 80% stake in Standard Bank Argentina for $600 million from the South African parent company.
"China's steps into Argentina are slow but firm," Mercampo's Perez said. "We will see more investment."
By Charles Newbery
BUENOS AIRES (MNI) - China is ramping up investment in Argentina to secure natural resources to feed its growing economy and snare sales opportunities for its emergent manufacturing industry.
China over the past few decades has boosted and sharpened its manufacturing and technology capacity, allowing it to ship more value-added goods abroad, from equipment to finished products, said Mario Sotuyo, an economist at Economia y Regiones in Buenos Aires.
With limited land and resources at home, China is turning to the world for raw materials to feed the factories and its growing populace.
Argentina was China's second biggest destination for investment in Latin America last year, with $5.6 billion flowing in compared with $9.6 billion to Brazil, according to the United Nation's Economic Commission for Latin America and the Caribbean (ECLAC).
That figure is up from $143 million in investment flows to Argentina between 1990 and 2009, a sign of a new focus on the country.
The spending pace has continued this year, though perhaps not at the same pact, with $3.5 billion going to Argentina through Apri l5, compared to $8.6 billion in Peru and $9.9 billion in Brazil. About 90% of the total was in natural resources, according to ECLAC.
"China wants to produce raw materials in Latin America and process them in China," Sotuyo said. "It is buying land in Latin America."
The hitch in Argentina is that land is not readily for sale.
Argentine President Cristina Fernandez de Kirchner in April submitted a bill to Congress designed to limit foreign ownership of rural land to 1,000 hectares (2,471 acres).
The bill, not yet approved, proposes limiting total foreign ownership to 20% of productive land. Foreigners now own an estimated 11% of productive land, according to the Argentine Agriculture Federation, a leading farm group.
The bill will not be retroactive, so foreigners will not be forced to sell land they already own unless total foreign ownership is more than 20% of total land, or one country owns more than a 30% maximum of that 20%.
Many people are against foreign land ownership, largely in response to a stampede of purchases in the 1990s in Patagonia.
There are concerns that the foreign purchases were for drinking water rights, as the region is known for large deposits of water. Famous athletes, actors and businessmen like Joe Lewis and Ted Turner have bought land, capturing media attention including for allegedly limiting access to rivers and lakes on their land.
Instead of putting a wrench in its investment plans, China is seeking other avenues, such as by teaming up with local companies, said Gabriel Perez, who owns Mercampo, an agriculture consulting firm in Rosario.
"In Africa, the strategy is to buy land. But in Argentina, they are forming associations that allow them to grow crops and guarantee food supplies for their population," he said.
Heilongjiang, a northeastern province of China, last year signed contracts for it to invest in developing fields in Argentina's southern Rio Negro province, in exchange for rights to buy the harvests. It will work with farmers there on the project.
Heilongjiang, source of 11% of the food produced in China, will work on the project through Beidahuang Group, a state company.
It plans to invest $1.5 billion to expand the San Antonio Este port and put in irrigation systems over an area of 300,000 hectares in the Rio Negro and Rio Colorado valleys, which unlike in the country's farm belt in Buenos Aires province, Cordoba and Santa Fe require irrigation for crops like corn and soybeans, and less so for fruits and vegetables.
Rio Negro will pay back the investment in crops, the province has said, adding that national laws prevent a stripping of food supplies because only output in excess of domestic demand can be exported.
"Chinese investment is seen as positive as long as the land is not bought," Perez said.
Chinese authorities also are laying the groundwork for boosting crop imports by improving product standards so they can pass sanitation barriers in China, he said. Soy and barley can, but corn, beef with bone and other products cannot yet.
Despit the push in agriculture, one of Argentina's strongest sectors, China's biggest outlays have been in oil.
China Petroleum and Chemical Corporation (Sinopec) this year bought the Argentine assets of Los Angeles-based Occidental Petroleum for about $2.5 billion.
The purchase made Sinopec the fifth-biggest oil producer in Argentina and followed a deal to buy a 40% stake in Repsol's Brazilian upstream unit for $7.1 billion.
It also followed a move by China National Offshore Oil Company (CNOOC) and Argentina's Bridas Energy Holdings to seek the purchase of 60% of Pan American Energy from BP for $7.1 billion. Pan American is the second biggest oil producer and third for natural gas in Argentina.
Bridas, however, scrapped the purchase agreement Nov. 5 for undisclosed reasons, prompting CNOOC to say it will seek opportunities elsewhere in the world, without specifying where.
China is looking abroad for oil and gas reserves to offset declining output at home. South America and Africa are showing promise for oil and gas production growth, with Argentina estimated to hold the third largest resources of shale gas in the world after China and the United States.
Mining and fertilizer are other focuses. Beijing-based China Metallurgical Group Corporation, a state-owned mining company, has invested about $100 million in an iron mine in Rio Negro, pulling the mine out of a 14-year slump to restart shipments.
China's north-central Shaanxi province is investing $1 billion to build a urea plant and related infrastructure, including a power plant and port facilities with the aim of selling output to Argentina and any surplus to China.
There also are plans for investing in rail and sanitation works, purportedly for selling manufactured goods for the projects to Argentina, analysts said.
Buenos Aires has bought trains from China for its subway, and the city's mayor, Mauricio Macri, is in talks with China Railway Engineering Corporation's international division to build a new line, with the Export-Import Bank of China financing the $1.5 billion cost.
And beyond those sectors, in August, China's biggest commercial bank, the Industrial and Commercial Bank of China, agreed to buy an 80% stake in Standard Bank Argentina for $600 million from the South African parent company.
"China's steps into Argentina are slow but firm," Mercampo's Perez said. "We will see more investment."
