China Implements Loans-for-Oil Program

Ashby Monk

I mentioned last week that China was increasingly using its foreign exchange reserves in innovative ways to secure commodities and resources that meet the country’s strategic needs. Specifically, I talked about China’s new policy of loaning out foreign exchange reserves to resource rich countries in exchange for crude oil imports. As it happens, there is a pretty good article out in Caixing English today that goes into quite a bit more detail on the new policy:

“Major loan-for-oil swaps signed in recent months by China and several other countries marked a coming-out for the new policy…The adjustments are designed to help China diversify its foreign currency assets and provide a channel for some of the US$ 2.4 trillion in reserves held by the central bank…The reforms also expanded SAFE’s responsibilities beyond its traditional role of managing foreign exchange reserves, effectively turning the agency into a foreign currency lender.”

So, it sounds as if the new policy is already in a full implementation phase. Indeed,  China has already signed a series of high-profile loan-for-oil swaps:

“…China has signed loan-for-oil agreements worth more US$ 60 billion in recent months with Russia, Venezuela, Kazakhstan, Turkmenistan and other countries. Altogether, these agreements have given China the rights to import nearly 75 million tons of crude oil every year.”

Roughly speaking, this is enough crude oil to meet China’s import needs for close to four months. Indeed, in all of 2009 China imported 203.79 million tons. So, while this represents a pretty major policy shift for China, it seems to be meeting its objectives…

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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