(Chinapost, Oct 28, 2006) China will push its companies to increase overseas investment and cooperation with foreign counterparts under a motion passed Wednesday by the State Council, the country's top governing body.
"Encouraging eligible companies to invest and expand business overseas is a crucial step for China's opening-up policy, and will help them better utilize both domestic and international markets and resources in both markets," the council said in a statement on its Web site Wednesday.

The government will regulate overseas expansion by companies to avoid irregular competition and prevent asset losses, the council said, without providing further details.

The Chinese government wants more local companies to invest abroad as part of a plan to cool the domestic economy and manage the country's almost US$1 trillion of foreign reserves.

The government introduced the so-called qualified domestic institutional investor, or QDII, program to relax foreign- exchange outflow restrictions on individuals and companies.

China aims to boost its overseas direct investment to US$60 billion in the five years from 2006 to 2010, according to a commerce ministry development guideline.

The country's non-financial overseas investment rose 26 percent last year from 2004 to US$6.9 billion, according to commerce ministry data.

This includes equity investment by companies and re-investment with proceeds, mainly in the manufacturing, mining, telecommunications and transport industries.

The largest recipients include Hong Kong, South Korea, Cayman Islands and the U.S, according to the ministry data.

China International Trust & Investment Corp. will pay US$1.9 billion to buy the Kazakhstan oil assets of Canada's Nations Energy Co., according to a statement by Nations Energy Thursday.

Citic, a government investment company, is buying assets that produce 50,000 barrels of oil a day and hold more than 340 million barrels of oil equivalent, the statement said.

Citic's acquisition follows China National Petroleum Corp.'s US$4.2 billion purchase of PetroKazakhstan Inc. last year.

China's central bank, in an effort to boost capital outflow and reduce the pressure on the country's currency to appreciate, in April announced rules to allow companies and individuals to hold more in foreign currencies, and qualified financial institutions to invest abroad after getting a license. Chinese money managers can purchase overseas securities, including stocks, and insurers can buy fixed-income and money-market products.

The foreign-exchange regulator has so far awarded a total of US$11.6 billion in quotas for financial institutions to invest outside the country.

The State Council will also push Chinese companies to work as project and labor contractors in other countries, it said in Wednesday's statement.

The study noted that "the non-discretionary nature of oilsands capital spending, long lead times to first oil production and escalating costs in a highly competitive environment combine to create significant potential financial and execution risk for companies with major oilsands projects should prices weaken".

Several companies are having second thoughts about their projects.

Upgrade

For instance, Husky Energy, controlled by Hong Kong businessman Li Ka-shing, is reconsidering plans to build an upgrader for its project.

"Under the current economics and also the labour supply, and the cost of construction, it is very difficult and it is very challenging to maintain the building in Canada," John Lau, Husky's chief executive, said earlier this year.

Murray Edwards, vice-chairman of Canadian Natural Resources, which has big plans for the oilsands, argued last month that many of the projects now being proposed would need oil above $50 a barrel to be profitable.

However, different companies take different views. Integrated oil companies have the ability to benefit from taking the oil they extract and to refine it and sell the products, which the companies that only have upstream operations cannot. That should help make the business viable at lower oil prices than for some competitors.

However, while oilsands may have their difficulties, none of the other options available to international oil companies is easy.

"International oil companies are having to adapt to survive," says Jason Kenney of ING.

"Politically, outside of the OECD countries, things are getting worse and worse. With oilsands, at least companies have got a chance of keeping the reserves in the long term, and they know they can get earnings out of them."

Source:Chinapost