China has been waiting for an opportune time to spend its billions in cash reserves to secure its energy supply that is imperative for its further economic development. Chinese companies are building up their “strategic oil and gas holdings” in North Africa besides the Middle East. Proof of this lies in the acquisition by CNPC (China National Petroleum Corporation) of a Canadian company, Verenex Energy whose major activity is in Libya, a typical Chinese trait of grabbing every opportunity in this sector. CNPC is interested in the 50% stake that Verenex has in the Area 47 oilfield in northwest Libya, and also other similar assets in the vicinity. The drop in oil prices has had a negative impact on the price of oilfields as well. In Liberia, the Chinese have purchased iron-ore rights for $2.7 billion. The winning bidder is the China-Union Company that has a 25-year contract for exploring and mining iron ore in the Bong Range of Liberia. The deal involves a $40 million payment before initiating mining of the ore. South African raw chromite ore is also finding ready buyers in China. This is due to the growth in demand as a result of increased levels of ferrochrome and stainless steel production. Supply of chrome is relatively restricted.
According to Martyn Davies, the CEO of Frontier Advisory, African commodities are in demand in the first, second and third tier cities of China, and in return Chinese goods find their way into African markets. The Chinese strategy is likely to affect the current system of trading, as it is redefining rules and acquiring commodities at source, besides controlling the asset. According to him, he who controls the asset will control the entire market. This disruption from China will be complete in 10-20 years time, as they are likely to own the banking system as well as the mining companies.
China has been called a manufacturing vortex. But the manufacturing units need to be fed with power and raw materials continuously and consistently. This is the part that Africa can provide at lower rates at the present moment and for a longer period of time, keeping in mind the vast natural resources it has.
