Tuesday, April 19, 2011

China Unplugged

I recently returned from two weeks in China where, among other things, I participated in the China-U.S. Energy Summit. China is a veritable ant hill of activity. As anyone who reads a paper (or a blog) or watches the TV news already knows, China is booming. Besides the constant honking from Chinese drivers, the one constant during my trip was the sound of construction. Not surprisingly, China is also replete with newly minted millionaires and billionaires who have made their money from the expanding economy. Like their western counterparts, wealthy Chinese are eager to expand and diversify their portfolios. However, Chinese culture, and a traditional distrust of anything but "hard asset" investments, has lead many wealthy Chinese to place money into real estate. Of course, as recent experience shows, real estate is not all it's cracked up to be as an asset class. It should be a "no-brainer" then for these folks to want to invest in oil and gas right?


To my surprise, even some of the wealthiest and most sophisticated Chinese investors were unaware that private oil and gas investment was even available. A history of state (mainly military) control over natural resources has left would-be oil and gas investors ignorant of the potential upside of such an investment. Add to that the substantial restrictions on individual Chinese citizens for converting their currency, and you have a frustrated, yet potentially huge source of capital for new oil and gas development projects.

The good news for companies seeking capital is that there are some exceptions to the restrictions on private Chinese foreign investment, and potential investors are intrigued by the potential of oil and gas projects. For the companies with the patience to develop the long term relationships Chinese investors demand, literally billions await.

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