President Hu’s visit to Africa - or hadn’t you heard?

May 6, 2006

After President Hu of China visited President Bush, he visited Saudi Arabia, Morocco, Nigeria and Kenya. Although not widely reported in the U.S. media, his visit was a significant part of China’s worldwide effort to secure key natural resources for its continued growth.

Saudi Arabia
His trip to Saudi Arabia solidified relations with this critical oil producing nation. Saudi Arabia supplies 17% of China’s oil. State oil giant Saudi Aramco said yesterday that it was committed to providing China’s state owned oil company Sinopec with one million barrels of oil a day by 2010. Saudi Arabia and China signed defense, security and trade agreements. They also discussed a $5.3 billion petrochemical project in China in which the Saudis are interested in investing.

He also visited the Secretary-General of the Gulf Cooperation Council, who applauded China’s role in Iraq and the Palestinian/Israeli conflict, and asked for more involvement by China to help resolve the Iranian issue.

Morocco
President Hu signed a series of bilateral cooperative agreements with the King of Morocco in the fields of economy, trade, science, technology, culture, health care and tourism. China-Morocco trade reached $150 million in 2005, up 28% in the past year.

Nigeria
China will invest in six oil fields, two of which are in the undeveloped Chad River area. This is in addition to the 45% interest in off shore oil mining signed by CNOOC in January. China will invest $4 billion in infrastructure, and $5 million in anti-malarial programs. Earlier this year China’s New Sun Group agreed to invest in a $2 billion railway project. In 2005, Nigerian non-oil exports to China totaled more than $500 million.

Kenya
China signed bilateral cooperative agreements covering economy, trade, culture and education. These agreements built on Kenyan President Mwai Kibaki's visit to China last August. The total value of projected contracts between the two countries reached $780 million last year,doubling the total spent in 2005. As a follow up, CNOOC, China’s state-owned oil company, signed production sharing contracts for oil and gas exploration in a 115 thousand square kilometer area.

What It Means:
China is the world's second-largest energy consumer after the United States - 6.5 million bbl/d vs 20 million bbl/day. The U.S. Energy Information Administration projects China's oil demand will reach 14.2 million bbl/d by 2025, with net imports of 10.9 million bbl/day.

While U.S. foreign relations policy in the Middle East is dominated the war on terrorism, China’s is completely focused on their economic growth. China makes it easy to do business with them; for example, Middle Eastern businessmen don’t have to wait months for to get visas, as in the U.S.

China set up the China-Africa Forum in 2000. Since then, bilateral trade between China and Africa has quadrupled, reaching nearly $40 billion in 2005. China eliminated tariffs on 190 kinds of imported goods from 28 of the least developed African countries.

Action Steps:
Although the recent spike in oil and gas prices is largely a result of speculative fear, China’s focus on feeding its energy needs means the value of these commodities will only increase in the long run. Talk to your financial advisor about some good natural resource mutual funds to add to your portfolio.

Source: China Daily News: Trade with Africa, Kenya Trip a Success, CNOOC press release