China and Russia forge closer ties

It¡¯s no secret that China needs energy and natural resources to sustain its industrialization and urbanization path, nor that it has to look for them abroad.

But more than that, China is looking for non-traditional export markets, as it moves up the value chain by seeking next generation technologies in advanced manufacturing, electronics and aerospace.

At the Eurasian Energy Summit held at Hong Kong¡¯s Le Meridien Cyberport hotel on December 12, delegates from China and Russia/CIS, including a large representation from energy companies, discussed the potential for extending links between the two vast, emerging regions.

Chinese exports to Russia have risen from just $2.7 billion in 2001 to $28.5 billion in 2007 ¨C although as a percentage of its total exports, the increase from 1.4% to 2.4% is perhaps less impressive.

Possibly, the greatest potential lies in corporate mergers and takeovers. China¡¯s share in the global M&A market is growing. Last year, the country¡¯s enterprises participated in deals worth nearly $4.5 trillion or 9% of the world¡¯s M&A value, according to data-provider Dealogic.

Cross-border activity is also increasing rapidly. Between 2002 and 2007, deal value has shown a compound annual growth rate (CAGR) of 47%. But Sino-Russian tie-ups barely register. In terms of deal size, 2006 has been the peak year so far with seven deals valued at $6.23 billion.

In the mining and metals sector, the preference is for companies with a market capitalisation or potential deal value of more than $500 million, and a leading franchise in aluminium, coal, copper, gold or nickel. Cao points to Aluminum Corporation of China¡¯s joint purchase with Alcoa of a 12% stake in Rio Tinto for $14 billion in February this year as an example. Another requirement is a skilful and experienced management team.

But China's acquisitive ambitions extend beyond the primary sector. The country¡¯s firms are also looking at opportunities among financial groups and in technology, using traditional assessment measures such as market position, track record, asset quality, profitability and growth potential.

But there have also been notable transactions where the buyer has been a Russian or CIS firm. In 2007, Eurasian Natural Resources Corp paid $1.3 billion for a 49% stake in Jiuquan Iron & Steel, and in February this year, Evraz Group bought the whole of steel products maker Delong Holdings for $1.6 billion.

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