Chinese foreign direct investment around the world can be expected to increase over the next two years, and resource-rich nations and regions will likely get the biggest share of the pie, Beijing Axis MD Kobus van der Wath said in Toronto on Monday.
Van der Wath told delegates at the Prospectors and Developers Association of Canada conference that, although the Chinese economy is currently in a period of vulnerability, growth will likely rebound by the fourth quarter of this year.
Further, he expects the surge in foreign direct investment (FDI) by Chinese firms that has gained momentum over the last three or four years to continue.
Chinese nonfinancial FDI rose to $40,5-billion in 2008, compared with just $700-million in 2001, and “the intention of CEOs in Chinese companies is to go global”, Van der Wath commented.
"Mindsets are shifting to become more bold, more assertive, and we can expect more prominent transactions and deal structures," he said.
The mining industry in particular is attracting heavy levels of investment, he said, pointing to the recent announcements by diversified mining giant Rio Tinto and Australia's Oz Minerals, which have both concluded transactions with Chinese firms.
“As a CEO, as a member of a board, as a planner, as a fund raiser, as an investment banker, as a corporate lawyer, you need to understand that this is one of the most important trends currently unfolding in the sector,” he said.
Countries rich in natural resources have already attracted a large percentage of Chinese FDI, and this can be expected to continue, Van der Wath said.
So far this year, upwards of 90% of FDI into Australia has been from China, compared with just 15% in 2008.
“So, for mining countries like Australia and parts of Africa, and I expect Canada, there is a higher likelihood of Chinese capital being deployed.”
NO SILVER BULLET
From a demand perspective, Van der Wath said that there has been a “profound” shift in the economic mood in China in the last six months, as a result of a sharp slowdown in economic growth.
China's GDP is only expected to grow by about 5% in the current quarter, “and it is likely to get worse before it gets better”, he said.
However, by the end of this year things are expected to be looking much rosier, and GDP growth in China is forecast at about 7,5% next year.
“China is not going to unravel, it will just be growing at a slower rate for a period of time,” he said.
In the medium to long term, the Chinese economy remains sound, and the 'rise' of the Chinese consumer, combined with inevitable waves of urbanisation, particularly into the inland provinces, will ensure strong and sustained demand for industrial and infrastructure commodities for many years.
Still, although commodities demand from China in both the short and longer timeframe will be real enough, it will not be a “silver bullet” that solves all of the mining industry's problems at the moment, Van der Wath commented.
“And certainly not a decoupled, free-standing entity that can counter the rest of the world when it is in contraction, or an economy that can fuel and irrational super-cycle,” he added.