Part I of ICBC and Argentina. Click here for Part II: "The mystery behind ICBC's reported push for Standard Bank Argentina"
Offshore oil exploration projects, railroads, highways, telecommunications, housing, farming, tourism, iron ore -- and soy oil. These are just some of the targets -- or potential targets -- of Chinese investment in Argentina in recent years.
And rumours that China's ICBC, the world's largest lender by market capitalisation, is eyeing Standard Bank's Argentine unit, at first blush, should come as no surprise: China has worked hard to penetrate the LatAm market for years now, and Argentina is no exception.
Still, as FT Tilt reported, if this deal materialises, its importance should not be over-stated: Standard Bank Argentina is a vanilla personal and business banking business rather than the corporate and investment banking unit that ICBC so covets in Argentina.
Nonetheless, the macro-economic and investment rationale for ICBC beefing up its presence in the country is clear. It has a goal to provide financing to the Chinese construction companies that have already secured large contracts in the region, an executive for global development at the bank told FT Tilt.
"Once we've established our corporate presence there, we'll then target the retail clients," he said.
Here's a run-down on the size, depth and financing strategy behind Chinese investment in Argentina in recent years. (Read: it's more than you probably think -- and it's not all about commodities.)
- For ICBC, a bigger presence in Argentina would make sense: China and the South American country signed about $10bn in deals last July, underlining vast potential for increased trade between both regions.
- As the FT reported then, about 85 per cent of Argentina's purchases of Chinese equipment and goods would be financed by China, and the agreements would also include large contracts to develop the local railway and subway systems. China also agreed to invest in 10 separate rail projects in Argentina over the next two to five years, including a $2.5bn rail-renovation project in Buenos Aires.
From railway networks to resources and the renminbi
- China is also the world's largest soya oil buyer and imports three-quarters of the resource from Argentina, the world's largest soy oil exporter, according to the FT. Although relations between the two countries soured a bit after China banned Argentine soy oil, a $1.4bn per-year revenue stream for the South American country, according to the Canadian Council for the Americas. The move was largely a response to Argentine protectionist measures against Chinese products. The Chinese government lifted the ban after Argentina's president, Cristina Fernández de Kirchner, visited China in July.
- The same strategy that China pursued in Africa and Central Asia seems to apply in Argentina as well: help the local government improve infrastructure by connecting the cities to far-flung mining regions or, in Argentina's case, farmlands. China is pursuing a similar strategy in Brazil, analysts have said.
- China’s Metallurgical Group operates an iron mine, Sierra Grande, in the commodity-rich province of Río Negro and is looking to expand its presence.
- Then there's the $10.25bn currency swap system that China and Argentina set up in 2009: The agreement essentially allows trade to be settled in renminbi, which means that Argentine companies can pay for imported products from China in the Chinese currency. Argentina was the fifth country to sign currency swap agreements with China, after South Korea, Malaysia, Belarus and Indonesia.
- There are other compelling reasons why ICBC would want to enter Argentina. Last year, state-run CNOOC, China's biggest offshore oil exporter, paid $3.1bn for a 50 per cent stake in Bridas, and Sinopec purchased all of US-based Occidental's oil and gas assets in Argentina for $2.4bn.
- Argentina is also one of only four LatAm countries to have purchased military vehicles from China, including four WMZ-551 armoured personnel carriers, and is one of the few countries to cooperate with China in space, according to CCA. The Argentine nuclear agency, CONEA, is apparently in talks with the Chinese about joint venture projects, and both Huawei and ZTE operate in the region as well.
Don't bank on ICBC snapping up Standard Bank Argentina any-time soon. But remember, Argentina is increasingly a coveted crown jewel in the international portfolio of China's large banks: for example, China Development Bank is said to have extended a $10bn loan to the National Bank of Argentina for railway construction, according to the WSJ.
The mystery behind ICBC's reported push for Standard Bank Argentina - FT Tilt
The price of overseas expansion for ICBC: $1 - FT Tilt
Full coverage of Chinese banks - FT Tilt
China: Brazil's headache could be Washington's opportunity - FT Tilt
China's automakers target Brazilian consumers - FT Tilt
What is China’s interest in Latin America? - International Viewpoint