China looking to diversify ?  

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The ABC has a look at “increasing speculation that China is about to unleash a new wave of buying physical resources, having become deeply disenchanted with its huge investments in US debt" - China looks to diversify.

NEAL WOOLRICH, PRESENTER: Takeover activity in the resources sector is starting to heat up again, with Shell and Petrochina teaming up for a $500 million bid for the Queensland coal seam gas outfit Bow Energy.

While it's not a massive deal, there's increasing speculation that China is about to unleash a new wave of buying physical resources, having become deeply disenchanted with its huge investments in US debt.

Stephen Letts reports.

STEPHEN LETTS, PRESENTER: China is absolutely flush with cash. Its foreign reserves are well over $3 trillion and rising rapidly on the back of a current account surplus that looks like being about $250 billion this year. Its economy is steaming along, growing at about 9 per cent a year and there's every likelihood it will be the world's largest economy before the decade's through.

As voracious as its domestic economy is, it can't soak up the frenetic output from its industrial base, which is now responsible for about 10 per cent of global trade. While that surplus of cash is a nice problem to have, it's still a problem.

DUNCAN INNES-KER, SENIOR EDITOR, ECONOMIST INTELLIGENCE UNIT: Particularly in a country where you've got a managed exchange rate. If you don't want the currency to appreciate and you have a big inflow of foreign funds, you have to take those foreign funds and push them out of the country again.

STEPHEN LETTS: Those funds traditionally have been pushed into safe havens like US treasury bonds, making China America's biggest foreign creditor, holding about $1.2 trillion of its debt.
The head of the Economist Intelligence Unit's Beijing office, Duncan Innes-Ker, says the very low returns and concerns about the greenback's future has China looking to diversify its investments - and that most likely means increasing its appetite for risk, with mergers and acquisitions.

DUNCAN INNES-KER: There's certainly going to be an increase. I mean, if we remember just 5 years ago we were talking about Chinese outbound direct investment of merely, sort of $10 to $20 billion a year. Now we're looking at that moving up by a factor of 10 in the next few years - most people expecting a $US100 billion of outbound investment on an annual basis at least by 2012-2013.

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