China to Speed Up Overseas M&A, Chinalco¡¯s Xiong Says

Chinese companies will step up the pace of overseas mergers and acquisitions in a “new wave” of deals, said Xiong Weiping, chairman of Aluminum Corp. of China, the nation’s biggest producer of the metal.

“Chinese companies will reinforce the going-out strategy and participate in this new wave of M&As,” Xiong said at an industry conference in London today. There will be more mergers and acquisitions in the mining sector with the end of the financial crisis, he said.

China, undeterred by its failure to invest in London-based Rio Tinto Group, is boosting spending on oil and mining acquisitions by at least half this year to take advantage of lower valuations after prices slumped. State-owned Yanzhou Coal Mining Co. agreed to buy Australia’s Felix Resources Ltd. for about A$3.5 billion ($3 billion) in August.

Bids for resources by China, whose $2.1 trillion in currency reserves are the world’s largest, have been met with opposition in the U.S. and Australia. China has pressed ahead with purchases as the nation’s 4 trillion yuan ($586 billion) stimulus package boosts demand from builders and manufacturers.

“Chinese companies face huge challenges in ‘going out’ as they lack experience in the field,” Xiong said today. “We are growing from lessons.”

Rio Tinto, the world’s second-largest iron ore supplier, rebuffed a $19.5 billion investment from Beijing-based Chinalco in June in favor of a share sale and a joint venture with rival BHP Billiton Ltd.

Rebuffed

“There will be a new wave of M&A activities, but whether there will be any success is a different question,” Scott Matlock, Morgan Stanley’s chairman of mergers and acquisitions in Asia, said at the conference. “The main challenge is a combination of shareholder culture and national interest.”

State-owned Chinalco, which has been asked by the government to invest overseas, has held talks to invest in mineral projects in Western Australia state, Xiong said July 23. The company bought a stake in Rio Tinto last year.

“China’s growing demand for major commodities provides a lot of room for the prices to rise further,” Xiong said.

China Petrochemical Corp., the country’s second-biggest oil company, in June agreed to buy Geneva-based Addax Petroleum Corp. for C$8.3 billion ($7.8 billion).

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, dropped 36 percent last year, the biggest annual decline since at least 1957. The measure has gained 13 percent this year on signs that the global recession may be ending.

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