Chinese bargains

all smiles

Smiling Chinese President Xi Jinping poses with Ecuador’s Rafael Correa Delgado (left) and Alaska’s Bill Walker (right)/Chinese Embassy, Wikimedia Commons photos


Alaskans embracing the idea of Chinese investment in a massive, $44 billion project to transport natural gas from the North Slope to Cook Inlet and liquefy it for shipment to Asia might want to take a close look at what is happening to the south – far, far to the south.

The South American country of Ecuador hooked up with China to further resource development – most especially oil – almost a decade ago.

And now, the Los Angeles Times reports, the country is “straining under a huge budget deficit caused partly by obligations to the Chinese, whose loans financed roads, dams, schools and office buildings.”

The country is repaying most of those loans by turning its oil over to China.

It didn’t start out this way. The 2009 alignment of China and Ecuador was heralded as a win for both sides at the time.

“There is plenty of room to explore further mutually beneficial development between China and Ecuador,” the News of the Communist Party reported, citing Jia Qinglin, China’s top political adviser.

Then Ecuadorian President Rafael Correa Delgado said the move was a sensible strategic decision for his country.

“(Then) National Assembly Speaker (Fernando) Cordero echoed his president’s sentiments, saying China’s win-win approach to cooperation and its assistance was highly valued,” the Party News reported.

The Party News report came complete with those photos of smiling Chinese officials shaking hands with their smiling Ecuadorian colleagues. Everyone was visibly happy.

Why wouldn’t they be? Ecuador had untapped resources that required the sort of risky investment most lenders didn’t want to make. China had plenty of cash and a willingness to take risks.

Onward and upward

Three years after the cooperative agreement was struck, the Financial Post reported, “Marco Calvopiña, the general manager of Ecuador’s state oil company PetroEcuador, was dispatched to China to help secure $2 billion in financing for his government. Negotiations, which included committing to sell millions of barrels of Ecuador’s oil to Chinese state-run firms through 2020, dragged on for days.”

But a deal was eventually reached with Ecuador promising China it could claim up to 90 percent of the country’s oil in coming years.

Financial Post, a business publication, touted the deal as demonstration of “how the Asian giant’s oil firms are becoming powerhouse traders in energy markets far from home….

“(Ecuadorian) President Rafael Correa, a socialist who is critical of the power that Western oil majors and private energy trading firms once held in Ecuador, has touted the Chinese deals as a triumph of trade between close allies.”

Former Alaska Gov. Bill Walker, another man critical of the power held by Western oil majors, also turned to China. Walker was so critical of the oil majors he believed ExxonMobil was actually trying to keep Alaska natural gas off the market.

So the state took over an Alaska gas line project which the other major oil companies heavily invested in Alaska – BP and ConocoPhillips – had agreed to let Exxon head. BP and Conoco are not exactly friendly with the world’s largest, privately traded oil company, but they recognized Exxon’s established expertise in developing gas projects.

Walker thought he could do better than Exxon, but he needed capital. And so he turned to Asia.

“Our state will boom like no other time since the construction of the Trans Alaska Oil Pipeline,” the soon-to-be former governor proclaimed in an October oped sent to newspapers around the state as he prepared to vacate the Governor’s mansion in Juneau. “The opportunity is real. I know it because I have seen the pieces come together. I hosted China President Xi and his entire cabinet in Anchorage – they were so interested in our long-term gas supply that they came to us.

“And we got results…. In the presence of President Trump and President Xi, I signed a Joint Development Agreement with Sinopec, the world’s largest integrated oil and gas company; Bank of China, the world’s fourth largest bank; and, the China Investment Company (CIC), the world’s second largest sovereign wealth fund. We are in final negotiations with these companies to sign binding agreements.”


What could possibly go wrong?


China is a communist country, but it is also a global leader in what has come to be called “state capitalism.”

“State-directed capitalism is not a new idea,” as The Economist magazine pointed out in a 2012 special report. “But…it has undergone a dramatic revival. In the 1990s most state-owned companies were little more than government departments in emerging markets; the assumption was that, as the economy matured, the government would close or privatize them.

“Yet they show no signs of relinquishing the commanding heights, whether in major industries (the world’s 10 biggest oil-and-gas firms, measured by reserves, are all state-owned) or major markets (state-backed companies account for 80 percent of the value of China’s stock market and 62 percent of Russia’s). And they are on the offensive. Look at almost any new industry and a giant is emerging: China Mobile, for example, has 600 million customers.”

The business of these state-owned companies, at least when it comes to China, isn’t just business either.

“As Chinese state-owned and private companies align their global ambitions with those of the government, the strategy represents an export of China’s state-led economic system,” the Financial Times warned in July. “This presents a challenge to the affected industries as well as to the economies of industrialised countries, in which innovation is driven by profit expectations rather than by strategic national targets. In more drastic terms: it represents a threat to the core of liberal democratic economic systems.”

The London-based FT went so far as to suggest that maybe, just maybe, U.S. President Donald Trump’s trade war with China had some merit.

The “hawkish and unilateral approach employed by the U.S. might be questionable, but it has its merits in that it brings to light China’s problems with its major trading partners, including the European Union, which have long gone unaddressed,” FT’s Max J. Zenglein wrote.

Ecuador is finding just how severe those China problems can become.

“Ecuador is one of several Latin American countries that in recent years benefited from China’s lending spree,” wrote the LA Times’s Chris Kraul. “But terms of Ecuador’s $6.5 billion in Chinese debt have become onerous with the global decline in the price of oil, Ecuador’s main source of revenue from exports. Moreover, some developments financed by the loans, including hydroelectric plants, are not producing the revenue that was anticipated.”

How onerous?

Ecuador, Kraul wrote, “made deals to sell the Chinese millions of barrels of oil in advance on favorable terms, committing the country to ship 90 percent of all its exportable crude to the Asian giant through 2024. Terms of the deals, by which he mortgaged to China much of the country’s future production of crude, remain shrouded in mystery.”

Commitments to sell large percentages of exportable hydrocarbons? Negotiations shrouded in mystery? Does anything in Alaska sound familiar?

An Alaska-China joint development agreement “outlines the prospect of Sinopec signing up for up to 75 percent of the project’s liquefaction capacity with the Bank of China and China Investment Corp., the country’s sovereign wealth fund, providing a corresponding level of debt and equity financing to fund it,” Elwood Brehmer reported in the Alaska Journal of Commerce in July.

“As AGDC makes deal, details remain confidential” read the headline above the story.

AGDC is the acronym for the Alaska Gasline Development Corp., which is Alaska’s version of state capitalism.

Federal over-reach

Alaska is not, like Ecuador, an independent country no matter how some Alaskans might wish that. Alaska is a U.S. state and as such there are certain restrictions on what sorts of deals it can cut with foreign powers.

The Committee on Foreign Investment in the United States (CFIUS) has already warned AGDC about this, according to sources connected to the former governor.

CFIUS exists to protect the U.S. against exactly what happened in Ecuador and more. No matter how much Alaskans might complain about “federal overreach,” CFIUS is almost certain to get deeply involved in any Alaska gas line plan that locks in large shipments of the state’s natural gas to China if Alaska LNG ever moves past the talk and planning stage to something approaching a real possibility.

The U.S. has more than just economic interests at stake in dealing with China. The two countries are clearly in a global-power struggle.

Just this week, Bloomberg reported the arrest of the CFO of a Chinese tech company in Canada indicates a “deeper U.S.-China battle for global influence.

“…The arrest shows that the U.S.-China conflict goes far beyond trade. The world’s biggest economies are now engaged in a battle for global influence that will ultimately determine whether the U.S. remains the globe’s predominant superpower, or China rises as a viable counterweight,” wrote David Tweed and Enda Curran, although the U.S. insists the charges against Meng Wanzhou, the chief financial officer of Huawei Technologies Co., are linked solely to violations of U.S. sanctions against Iran.

Wanzhou is accused of lying about ties to a Hong Kong company that tried to circumvent trade sanctions, NBC News reported last week. She was arrested in the Vancouver, British Columbia, Canada airport at the request of U.S. officials as she was changing flights in that country.

A Canadian judge released Wanzhou after a three-day bail hearing, but she had to post a  $7.4 million bond and agree to wear an ankle bracelet, the BBC reported. The Canadians also said Wanzhou will be under 24-hour surveillance as she awaits an extradition hearing.

Though former Gov. Walker repeatedly expressed confidence an Alaska LNG deal with China could avoid entrapment in a U.S.-China trade war, it seems increasingly unlikely that a LNG project committed to selling large volumes of gas to China will be able to escape involvement.

“Team Trump scheming to escalate trade war with China,” the New York Post headlined above a Monday story that claimed the Justice Department is soon “expected to announce the indictments of multiple hackers who the feds suspect work for a Chinese intelligence service and are up to their necks in a massive espionage campaign that targeted American networks.”

“The tariff war is a bit of a sideshow to the broader geopolitical competition that is almost inevitably going to heat up,” Ely Ratner, executive vice president of the Center for a New American Security, a think tank, told Post reporter Bob Fredericks.

“There is essentially no overlap between Xi’s vision for China’s rise and what the US would consider an acceptable outcome for Asia.”

Given all of this, it would seem unlikely the U.S. would approve the sale of Alaska LNG to help fuel China’s rise. But then that might save Alaska from becoming another Ecuador.
















17 replies »

  1. China’s actions in Ecuador are their exact game plan as Peter Navarro lays out in “Death by China.” Same thing is happening in African countries. So, it’s no surprise that another 3rd world country i.e. Alaska, would be similarly duped into following this yellow brick road to ruin.

    Just finished reading “Poorly Made In China”. Good insight into the minds of Chinese business people. Bottom line, then don’t care about anything except themselves and mother China. Everything will be rosy and win-win when the deal is signed. But soon after, a living hell begins as the Chinese do anything possible to twist, weasel and ignore the contract and do whatever the hell they want to maximize their wins and enslave the suckers that thought they could do fair business with China.

    Bill Walker should have read the two books mentioned above. But the way Walker works: why listen to others with experience when you can surround yourself with $500,000 yes men in nice suits to tell you what you want to hear.

    • Exactly. China is slowing taking over third world countries and their resources needed to feed the Sinobeast.
      When the US decided to transfer our industry and technology to China we made a huge mistake. Short term profits were made but long term economic woes are now being seen.China is a world power because of manufacturing, sort of like we use to be before we were sold the lie that information is more important than manufacturing. Now China owns a huge portion of our ever increasing debt.

      China is polluting the globe and slowly poisoning us all,
      carelessly extracting raw resources from poor countries. I will be shocked if FERC will allow Alaska to get in bed with the Red Commies. Feeding the beast keeps it healthy and it will most assuredly bite back.

  2. Gas liquefied at the North Slope and shipped by tankers may be economically feasible. Perhaps a more knowledgeable reader will comment.

  3. Natural gas is selling for 1/6 of what an Alaskan Gas Line would need to charge to just service the massive debt(climbing daily as permits and other obstacles will slow the progress) required for this pipe dream. The historical doomed projects(dairy, barley, etc.} are brushed aside by current snake oil salesmen. Cheap natural gas is plentiful worldwide and new fields are being developed worldwide. The only time that a gas line was feasible was when the camps, equipment, and workers were in place at the conclusion of TAPS.

  4. Excellent big picture perspective, Craig. Again, and with world-wide references; you used fresh ones I had not seen before. I have often experienced that in any business enterprise, if your customer is also your lender, that business will be on his terms. It is better to finance your own project when the market is ready for your product. ExxonMobil already was the litmus test for the current viability of AK LNG. Larry Persily has documented other LNG projects that ExxonMobil has financed in the meantime since it passed on Alaskan gas. Those were in the middle-East and Africa, perhaps elsewhere as well. If it is necessary for a deep pocket, a state supported business, as France does with Airbus to undercut privately financed Boeing, it is better that the US government fund AK Gas. That way, we have an export product ready to go that doesn’t mortgage 700,000 Alaskans, and we have holding time to sell when the price is right, and to change the terms when there is a better market price. And on that note, audacious President Trump ought to nationalize Pebble mine. I’m opposed to Pebble, but if it is going to be permitted by our federal government, Americans should benefit beyond being paid for the service jobs of driving a few trucks and cleaning uniforms. Pebble is a project entitled and protected by 1800’s mining laws meant to protect a lone miner from claim jumpers when he headed off the claim for grub or a winter break. Today it protects middle-Eastern wealthy oil sheik individuals who masquerade under the cloak of a Canadian LLC. Muslims at that. Could you or I, Craig, go to Saudi Arabia and stake out a ten acre plot and tell the Saudis that if we strike oil, it’s ours? Never. Americans are spoiled by decades of stability and wealth that collectively we forget that the world is a competitive place. We toss away opportunities to protect and increase our wealth. Our behavior with Alaskan Gas and China and Pebble and foreign ownership is no better than poor African nations succumbing to exploit by wealthy foreign entities extracting oil and diamonds, or South American and Indonesian countries exploited for their hardwoods. The one bright spot is our current success at becoming energy independent and not needing to export dollars to import oil. Thank you again for your lucid concepts and thorough reporting. Best regards, Bob Breeden

    Sent from my iPhone


  5. Calling the new emerging world economy “State Capitalism” does not soften the blow in any way to Americans…
    These are old school “Communist Party” leaders in power in China and the U.S. Private Sector economy will pay dearly as “Maoist Principles” spread throughout the world. (This is precisely what we fought in the Vietnam and Korean Wars).
    Ecuador is essentially a “Third World Country” and for the U.S. to be making the same sort of economic deals with China to fund our infrastructures just proves how our national economy is circling the drain and moving closer and closer towards an Authoritarian Socialized Regime in Power.

      • Bryan,
        I agree with your article, but let’s not forget about Snowden’s disclosures on the “Post Patriot Act” United States.
        The NSA is already collecting ALL of our texts, emails, cell calls and contact lists, along with FB and Google to monitor our search habits.
        Remember China recently looked to Google to root out dissidents throughout their own country…many software engineers spoke out to the media.
        The collaboration b/w fascist regimes must end.
        Your article said:
        “It remains to be seen if President Trump sees this regime as what it is. Does he have the moral clarity to realize what communist China is to this generation of Americans, the Soviet Union was to another generation of Americans and to free people throughout the world?”
        At the heart of this lies property rights in the U.S. and lack of rights in China.
        “Housing makes up more than 70 per cent of personal wealth in China. But homeowners cannot own the dirt beneath their houses. Land in China belongs to the government, an enduring Communist legacy in a country that has embraced market economics.”
        Americans need to wake up and research the U.N. Agenda 21 which was signed and implemented in the 90’s…pushed forward by China.
        Depopulation, State Ownership of Land and Mega Cities are all part of this Agenda 21.
        After each “natural disaster” in Texas, California and many Eastern States, Chinese Nationals are sweeping in and buying large tracts of land.
        Agenda 21 moves to migrate everyone into large “5 G Cities” where the population may be eaiser to monitor and control.
        Private vehicles look to be phased out and replaced by new high speed trains.
        Orwellian Nightmare for Americans!

      • Steve, we don’t see eye-to-eye on Global Warming (as I feel it is nothing more than a money generating, job killing scheme China takes full advantage of), but, I agree with you 200% on this and then some. With apps like Snapchat, FB, etc.. the gov will have individual life stories of hundreds of million Americans. Scary but, amazing the data collect on individuals from education, health, financial, criminal, personal, etc.. The cellphone is the worst culprit. Crazy times we are heading for. All part of the Democrats borderless, one World Order of domination.

      • Bryan,
        Let’s not forget China also now owns Smithfield Farms and is not operating with sound environmental principles on U.S. soil.
        It would be a mess if they broke ground in AK on a large infrastructure project and “owned” a large percent of this pipeline.
        Even the Russians are not selling their pipeline to China only the Gas.
        “In July 2013, Larry Pope, the CEO of Smithfield Foods, the largest pork producer in America, was called to testify before a U.S. Senate committee about the pending sale of his company to a Chinese conglomerate now known as WH Group. The $7.1 billion purchase, the largest-ever foreign takeover of its kind, had attracted concerns.”

  6. Nice article Craig. Too bad the Walker administration didn’t apply even a tenth of their “all in, let’s go” bullishness for LNG to China to the export of logs to China. Now we have 2 million acres of dead spruce.

  7. Craig, did you have a reason for including the arrest of CFO of Huawei (Weng) as somehow being related to the rest of your commentary? Are you suggesting this arrest has something to do with anything other than her being accused of lying about a subsidiary company of Huawei relative to Iran sanctions?

    • yes, Bill. the reason is in there:

      Just this week, Bloomberg reported the arrest of the CFO of a Chinese tech company in Canada indicates a “deeper U.S.-China battle for global influence.

      “…The arrest shows that the U.S.-China conflict goes far beyond trade. The world’s biggest economies are now engaged in a battle for global influence that will ultimately determine whether the U.S. remains the globe’s predominant superpower, or China rises as a viable counterweight,” wrote David Tweed and Enda Curran, although the U.S. insists the charges against Meng Wanzhou, the chief financial officer of Huawei Technologies Co., are linked solely to violations of U.S. sanctions against Iran.

      i’m not sure Bloomberg is right about that, but they are a reputable news source; they quoted som authorities on the subject; and the argument is reasonable although i did feel compelled to ad the caveat that the U.S. insists it is solely about Iran.

Leave a Reply