Does This Gov’t Edict Mean A New Wave Of China Overseas Investment? by Dave Forest, Pierce Points
A big news item the last few weeks has been China’s efforts to curb domestic coal and steel capacity.
That’s been a difficult development for China’s local producers — and their employees. But reports emerging this past week suggest it may also be a major opportunity, for the right projects globally.
Those signals came last Thursday, when China’s central bank posted new guidelines on the coal and steel sectors.
As expected, the bank said it will support tighter lending to China’s domestic coal and steel companies. With the statement saying that commercial banks should stop lending to projects that aren’t part of China’s national planning — and reduce loans to projects that “lack competitiveness”.
But the bank also announced another part to this strategy — an effort to move projects overseas.
The central bank said that China’s banking system should provide support for coal and steel companies to move investment outside of China. With the statement specifying this could include both export of product — as well as projects.
The bank further said it would look at helping Chinese companies manage foreign exchange risks associated with overseas investment.
This is an extremely interesting development — suggesting that Chinese steel and coal companies may now be able to tap funding and support for projects globally. Much the same mechanism that has fed rampant growth in these sectors inside China for the past ten years.
If this does come to pass, it would be great news for projects in these sectors. Which would become targets for partnerships with Chinese funding partners — or perhaps complete takeovers.
The obvious targets would be coal mines and export terminals — as well as steel mills, and iron ore mines and facilities. Key exporting nations like Australia, Indonesia and South Africa would be obvious destinations for coal investment. With iron ore being a little more far-flung — potentially encompassing Eastern Europe, West Africa, and much of South America.
Watch for more details on this emerging foreign investment plan. And knock-on deals happening in these strategic spaces.
Here’s to catching the next wave,
Dave Forest
