China's Mining Strategy And Overseas Merger And Acquisition

On Feb 1,2008, Chalco invested 14 bl USD to buy 9% shares of Rio Tinto. This investment is the largest investment a Chinese company had made. It is also the newest movement of China's energy&mining overseas development strategy, to block the case of BHP Billinton mergering with Rio Tinto.This article analyzed the marcro background that this case implied. Because of the high-speed growth of China's economy and the growth model driven by investment and export, China's demand for energy and mining products grows dramaticly, which could not be supplied by both domestic and international production capability."China demand"brings a"super circle"for energy and mining industry, which means price soaring in a long period.The boom of mining industry led the new wave of Merger and Acquisition between global mining giants. Once the deal of BHP Billionton and Rio Tinto accomplished, it will change the structure of global mining market, influence the bargain power of China in several important mining products, especially Iron Ore.On the other hand, China's overseas investment develops well in recent years. Under the encouragement of government, many State owned enterprises improved their skills and confidence in cross-board M&A. For the deal of BHP Billionton and Rio Tinto, several proposals had been made by Chinese companies in steel and mining industries, but Chalco's plan had been choosen finally.The merger of BHP and Rio Tinto, in somehow, is somehow driven by the internal development principle or trend of the global mining industry. This trend, in turn, is driven by"China demand". The future of the blocking by Chalco is still unclear, but it is in certain that Chinese corportions have fully participated the reconfiguration of global mining industry. In future, China's mining strategy must focus on both resource acquiring and demand controlling. On one hand, the government should encourage the companies"go global", to increase the overseas mining product supply; on the other hand, the government should do its best to change China's growth model and control the demand for resources.