China to use forex reserves to acquire energy assets

17 February 2009

China, which replaced Japan as the second-largest oil consumer after the US in 2003, is mulling utilising its huge foreign exchange reserves to create a fund for its state-owned oil companies for overseas energy exploration and acquisitions.

The Chinese government floated this idea at the recent National Energy Work Conference that looked into the country's three-year energy plan aimed at boosting its oil and gas output.

Armed with a massive $1.85-trillion foreign exchange reserves, China will make available ample funds at low interest rates to its state-owned oil companies to spend on overseas energy assets by either investing in, or acquiring foreign energy firms.

China National Petroleum Corporation (CNPC), the country's largest oil producer posted this news on its website, though with few details on the size of fund or when it is expected be set up.

China is currently the third-biggest importer of oil, as its strong economic development has made the country into a giant consumer and importer of oil. Since 1993, China has become an oil importing country and the decreasing domestic oil production has since driven the three big state-owned oil companies into acquiring assets overseas.

Analysts say that China is making a strategic move in exploiting the current global economic slowdown to create a fund to acquire energy assets at possibly rock bottom prices, more so since the price of oil has hit rock bottom from last July's highs of $147 a barrel seen in July (See: Oil reels under triple blow, rises to record $146.90 a barrel) to the current $40 a barrel.