China amasses stake in BP
By David Barboza Published: April 15, 2008
SHANGHAI: A Chinese government entity has acquired a sizable stake in BP, one of the world's largest oil companies, for about $2 billion.
The investment is the latest indication that China, flush with cash from its booming economy, is becoming an increasingly important global investor and that the country has begun focusing on the world's most recognizable brands.
A spokesman for BP, which is based in London, confirmed Tuesday that the investment had been made, saying that over the past six months an unidentified Chinese entity had acquired a 1 percent stake in the oil company, which is valued at over $200 billion.
"We are aware that a Chinese entity has built up a stake in BP," David Nicholas, a spokesman for BP, said by telephone, adding, "We are a publicly traded company and we welcome investments."
Experts say the investment most likely came from State Administration of Foreign Exchange, an arm of the Chinese central bank that manages the country's massive foreign exchange reserves, or from China Investment Corp., the country's $200 billion sovereign wealth fund.
Officials at the two agencies could not be reached for comment Tuesday.
Both government agencies have the ability to make large overseas investments, but so do several other government entities, including state-owned Chinese banks.
Over the past year, China has tried to improve its returns and diversify its holdings by investing billions of dollars to acquire minority stakes in financial giants like Morgan Stanley and the private equity firm Blackstone Group.
A Chinese bank had also been planning a $1 billion investment in Bear Stearns before the company collapsed last month. And just last week, there were unconfirmed media reports that China had been accumulating a stake in Total, the French oil giant.
A spokesman for Total confirmed that a Chinese entity had acquired about 1.3 percent of the French company recently.
The spokesman declined to identify the entity, but said that the stake was worth more than $1.5 billion.
Last July, China Development Bank, a state-controlled policy bank, invested about $3 billion for a 3 percent stake in Barclays of Britain, which was trying to purchase ABN AMRO, the largest Dutch bank.
China Development Bank said that if the deal for ABN AMRO were successful, it would invest up to $10.5 billion to raise its stake in the bank.
Barclays, however, terminated its offer for ABN AMRO last October.
"China has a lot of cash, and a lot of dollar reserves," said Chang Chun, a professor of finance at the China Europe International Business School in Shanghai. "And this may be a good time to buy. They are not going for controlling interests, just for investments."
In recent years, some Western politicians have worried about the political and strategic implications of Chinese government entities acquiring major financial or energy assets around the world.
But with the global financial markets weakening, Chinese capital is being welcomed in many parts of the world, and even lured. On Tuesday, British officials in Beijing seemed to welcome the investment in BP.
"Our belief in open markets and free trade is reflected in the U.K.'s openness toward inward investment, including from sovereign wealth funds," Alistair Darling, the chancellor of the Exchequer, said in Beijing, according to Reuters. "We welcome the creation of the China sovereign wealth fund and its potential for investing in our country."
Darling is scheduled to meet with Prime Minister Wen Jiabao, as well as officials from the country's sovereign wealth fund, during a visit to Beijing this week.
Three years ago, China National Offshore Oil Corp., also known as Cnooc, failed in its $18 billion bid to acquire the U.S. oil company Unocal after heated political opposition in the United States.
But many economists and financial experts have said that money from the Middle East and China is now primed to play a larger role in global financial markets, and that the free flow of capital is necessary to stabilize and strengthen the economy at a time when some of the world's biggest companies are starving for capital.
