Where Does China Invest Its Money?

I talk to international investors a lot. Many of them have questions about investing in China, a place where they’re eager to put their money to work. So I have a question for them: Where is China investing its money? If I wanted to get rich off China, that’s what I would want to know.
And the answer is that China puts most of its overseas investments (outside of buying U.S. Treasury bonds to prop up the ailing greenback) not in Japan … or Thailand … or anywhere in Asia. It’s Latin America. Some facts ...
Fact #1. Latin America recently surpassed Hong Kong as the largest recipient of overseas investment from China. China invested $889 million in Latin America in the first 11 months of 2004, accounting for more than 49% of China’s total overseas investment. That’s much more than China’s investment in Asia ($515 million) or Europe ($296 million).
Fact #2. Tilting the flow of money in Latin America’s favor is that most of China’s overseas investment (51%) is in the mining industry.
With an economy geared for manufacturing and growing at close to 10%, China is Tony-the-Tiger hungry for resources, and Latin America is a good place to get them.
Fact #3. China’s trade with all of Latin America is booming. In 1975, total trade between China and Latin America was just $200 million. In 1998, it had reached $2.8 billion. By 2004, it climbed to over $36 billion, THIRTEEN times more.
And the best guess is that in 2005, trade between China and Latin America jumped well over $50 billion.
I can attest to this from personal experience. In June of last year I stood at the edge of the Panama Canal and watched one container ship after another parade through, stuffed with Brazilian raw materials on their way to the Far East. China buys huge quantities of Brazilian bauxite, iron, zinc, soy and lumber.
Deals, Deals and More Deals
Trade between China and Latin America was helped along by a 2004 visit to Latin America by China President, Hu Jintao.
He toured Brazil, Argentina, Chile and Cuba, signing 39 bilateral agreements to improve trade, tourism, and more.
Then in 2005, China’s Vice President, Zeng Quinghong, traveled to Venezuela, Mexico, Peru, and a host of other Latin American and Caribbean countries, negotiating new trade and investment agreements every stop along the way.
These are just SOME of the deals China is working on in Latin America right now …

• China will invest $500 million in a Cuban nickel plant and prospect for nickel throughout Cuba. (Cuba is a big source of nickel, as well as supplying 10% of the world’s cobalt).
• Minmetals, a Chinese mining company, is making plans to open a huge new copper mine in Chile.
• Petróleo Brasileiro (Petrobras), Brazil’s state-owned oil company, has inked a deal to sell China 12 million barrels of crude oil. The deal is worth $600 million a year, and Petrobras hopes to expand it to $1 billion a year.
• Peru signed an $83 million contract with China National Petroleum Corporation allowing the Chinese firm to explore for oil in the country's southeastern rainforests.

The biggest relationship of all?
Two of the world’s largest countries in the world: Brazil and China.
The sign: Their leaders, Luiz Inácio Lula da Silva and Hu Jintao, are coming together like a Roosevelt and Churchill to establish a political, economic and financial alliance to challenge the U.S., Europe, Japan and Russia.
Overall, China’s imports of raw materials from South America are expected to reach the $100 billion-per-year mark by the end of this decade. China is already Brazil’s third-largest overall trading partner and Argentina’s fourth largest.
Speaking of Brazil, during his visit, China President Hu offered $7 billion in port and railway improvements to Brazil. China is also building the world’s second largest dam in the Brazilian Amazon. The energy from that dam will go to power mines that provide raw materials … to China.
Latin America’s economy may have grown by “only” 4.3% in 2005. And that may be below the 5.7% average of all developing countries (and far below China’s 9.8% growth for that matter).
But, heck! Morgan Stanley's weighted measure of regional stocks, the MSCI Latin America index, soared 45% in 2005 in dollar terms. That’s even better than the previous year's increase of 39.4%. And it’s bound to get even better as more China deals spur growth at a faster pace.
Why is money pouring into relatively lackluster economies? Because the smart money knows that these economies have bottomed, they’re going to ride the global commodities boom for many years to come, and a lot of stocks in Latin America are cheap, cheap, cheap!
Now for the good news: There are plenty of small- and mid-cap companies listed in the U.S. and Australia that are making money on the China natural resource story.

Check out my new gold and energy blog at MoneyAndMarkets.com