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China’s Multi-Billion Dollar Loans To Venezuela Face Uncertain Future

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As China’s economy expanded rapidly over the last two decades, the country massively increased the amount of money it spent on loans and investments abroad, in a bid to secure vital natural resources. Now, it appears, one of those investments is showing signs of going badly awry, according to a Wall Street Journal report.

State-owned China Development Bank, which loaned $37 billion to Venezuela, is seeing the value of that investment falter, as the country struggles to cope with the economic impact of low oil prices. The loans were supposed to secure China millions of barrels of Venezuelan crude. Venezuela, however, appears to be having trouble in meeting both its repayment and oil obligations.

In recent months, the Journal reported, China has extended loan maturities and eased repayment terms, allowing the energy giant to send it less oil than agreed and to pay back in bolivars instead of more robust currency. In January, China agreed to invest $20 billion in Venezuela, to help the country cope with the impact of the slump in oil prices. Beijing has also extended $50 billion in credit to Venezuela since 2007, mostly in exchange for oil shipments, the Guardian reported.

Venezuela exports about 600,000 barrels of oil to China a day, nearly half of which go toward repaying its loans. And data from Venezuela’s oil ministry suggests that the price the country gets for its oil has fallen almost 50 percent since last year — from $97 a barrel in April 2014 to around $50 a barrel in April 2015, according to a BBC report.

In recent months, the country has seen its currency plummet in value, its credit rating downgraded, and the price of its 10-year U.S. dollar-denominated bonds tumble. In addition, it has also had to cope with a widespread shortage of basic consumer goods, which has been so acute that, earlier this year, it prompted Trinidad and Tobago to propose swapping Venezuelan oil for tissue paper.

In addition to its investments in Latin America, China has also invested extensively in natural resources-focused deals in Asia and Africa. The massive scale of the country’s overseas investments prompted former U.S. Deputy Secretary of State Robert Zoellick to warn that China was generating a ‘cauldron of anxiety’ about whether it was pursuing an energy strategy to “lock up” supplies in Africa and elsewhere.

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14 Comments on "China’s Multi-Billion Dollar Loans To Venezuela Face Uncertain Future"

  1. joe on Sat, 20th Jun 2015 10:41 am 

    Wow, a country under economic attack can’t pay it’s debts, shocking. This is what awaits Greece if it doesn’t play ball. Though in the end the bankers will sacrifice every last german politician to keep greece in the EU and part of the globalist kum-by-ah agenda. Keep playing hardball Greece.

  2. BobInget on Sat, 20th Jun 2015 10:43 am 

    Russian oil companies are doing what they can to stimulate Venezuelan oil production.
    One huge problem, Venezuelan oil workers are among the lowest paid in the world.
    All the most talented moved abroad, mostly to Alberta.

    Russia’s state-owned oil company may provide its Venezuelan counterpart a much needed loan of $5 billion.

    Venezuela’s oil company, PDVSA, is in desperate need of capital in order to help boost oil and gas production. In exchange for the loan, Reuters reports that Rosneft could gain greater access to PDVSA’s oil and gas reserves.

    As it stands, Rosneft often only takes in discounted revenues from the Petromonagas joint venture, which processes and sells heavy oil at reduced rates to the local Venezuelan market. Rosneft is seeking more control, plus the ability to export production, which will bring in much higher revenue.

    Recommended: Five hopeful signs global energy is getting cleaner
    The loan comes only a few weeks after Rosneft agreed to invest $14 billion to help boost Venezuelan oil and gas. President Nicolas Maduro, along with the head of PDVSA, met with Rosneft’s Igor Sechin at the end of May. Venezuela has stated that it hopes to double oil production to 6 million barrels per day, most of which it plans to source from the Orinoco Belt, a source of heavy crude. (Related: How Much Energy Does The Super Bowl Use?)

    Five hopeful signs global energy is getting cleaner

    PHOTOS OF THE DAY Photos of the day 06/19
    That goal is likely way too ambitious, as PDVSA has not only failed to ramp up output, but Venezuela has actually seen its oil production fall over the past decade.

    Of course, decline is not inevitable, and Venezuelan officials think the Russian investment is just what PDVSA needs. Venezuela is sitting on an estimated 298 billion barrels of oil, the largest oil reserves in the entire world, more than even Saudi Arabia. It could have even more locked away in the Orinoco Belt in the form of extra heavy oil.

    Canada may go from bilingual to trilingual.

    http://www.bloomberg.com/news/articles/2014-12-04/venezuela-s-oil-industry-exodus-slowing-crude-production-energy

    http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/the-venezuelan-oil-bust/article16771856/

  3. BobInget on Sat, 20th Jun 2015 10:49 am 

    The Journal neglects to mention what should matter most to Americans.

    As I’ve posted here over the last year and a half:
    When Vene sells Citgo’s three refineries,
    “We ain’t gettin Venezuelan oil”.

    http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_epc0_im0_mbblpd_a.htm

    The bottom line.

  4. Reginald on Sat, 20th Jun 2015 12:02 pm 

    A degenerate deadbeat is a degenerate deadbeat. I doubt that China cares if Venezuela can pay back in hard currency or not as long as they have proven reserves. So it does not matter if the current admin goes under or not the debt obligations will still be there. Also, given the ease at which these deadbeat countries default I bet china would rather have oil than currency anyday. Now if they can just bring in some Chinese workers to repair the oil equipment they could get some oil.

  5. davy on Sat, 20th Jun 2015 12:30 pm 

    Reggie, possession is 9 tenths of the law of reality. What if Venezuelans don’t want to give China oil or currency? What if a new power takes control and that power decides China played a leading role in supporting the previous degenerates in power.

    China does not have the military projection to enforce its claims. China has done this across the globe and it is going to find serious geopolitical losses as the global system unravels. This will happen at a time that China is grossly dependent on global imports to support its export economy and mass population overshoot.

  6. BobInget on Sat, 20th Jun 2015 2:55 pm 

    Predictions Of Oil’s Demise Premature

    The recent meeting of the Organization of Petroleum Exporting Countries provides an opportunity to understand the mysteries of the global oil market. As expected, OPEC decided not to cut its oil production. Barring unanticipated developments, prices will drop, says oil analyst Larry Goldstein. Potential oil supply, including drawdowns from bloated inventories, exceeds demand. Goldstein rightly cautions, however, that no one knows where prices will settle.

    Oil’s dramatic price changes seem baffling. In mid-2014, crude prices averaged around $100 a barrel; now, they’re gyrating between $50 and $60. Over the same period, U.S. gasoline prices have dipped from more than $3.50 a gallon to around $2.50. With the world economy slowly recovering, why have prices collapsed?

    The standard explanation comes in two parts.

    First, oil demand is what economists call price inelastic. Slight changes in supply and demand can produce large price swings. People and businesses need fuel. If oil is scarce, they still need fuel and will pay dearly to get it. If oil is plentiful, they don’t need much more fuel and, therefore, require huge price discounts before buying more.

    This is what’s happened. Supply and demand have unexpectedly expanded the global surplus, reducing prices. The increase in American shale oil (U.S. oil production is up about 80 percent since 2006) unexpectedly boosted supply. Weaker than predicted global economic growth depressed demand. The world now uses about 93 million barrels daily, or mbd, but can produce 95 mbd or a bit more.

    Second, Saudi Arabia hasn’t absorbed the surplus. OPEC isn’t a cartel, says Goldstein, because most of its 12 members won’t cut production to prop up prices. In the past, the Saudis have done that. But now they are refusing to play. They’ve flooded the market with oil. Reportedly, they don’t want to lose sales to other producers. They are also said to worry that excessively high prices will blunt the future demand for oil.

    All this is fine as far as it goes. It explains the mechanics of lower prices. But it misses a larger story: the retreat from “peak oil.”

    Peak oil would occur when new oil discoveries no longer offset annual consumption and provide for future growth. This seems unavoidable. Oil is a finite natural resource. There’s only so much of it. When it’s gone, it’s gone. The trouble is that this compelling logic has yet to play out in the real world.

    In 1950, global oil production was about 10 mbd. By 1970, it was nearly five times that, 48 mbd. Now, production and consumption are marching toward 100 mbd. Whenever peak oil seems to threaten, some combination of high prices, technological advances and happenstance expands global supplies.

    The upshot is public confusion, as oil analyst Blake Clayton shows in a fascinating new book “Market Madness: A century of oil panics, crises, and crashes.” We repeatedly veer from the psychology and reality of scarcity to the psychology and reality of abundance.

    The pattern dates to at least the 1920s, Clayton writes, when the explosion of car ownership inspired much talk of “oil exhaustion” and “gasoline famine.” Little wonder. From 1921 to 1929, the number of gasoline stations mushroomed from 12,000 to 143,000. In 1919, the average car traveled 4,500 miles a year; a decade later, the distance had nearly doubled. But gasoline scarcity was prevented by new discoveries in Texas and Oklahoma, advances in drilling (deep wells went from 6,000 to 10,000 feet) and improved oil refining.

    After World War II, the fear was that the United States, having supplied both its own and its allies’ oil needs, might soon drain its reserves. Never happened. Whenever prices are high, the notion that scarcity is permanent thrives. In 2008, 76 percent of Americans believed “the world is running out of oil.” Similarly, the fear of peak oil was one reason for thinking crude prices, until their recent collapse, would remain stuck in the $100 to $150 range.

    The common error, Clayton writes, is that “no one at the time can see where more oil would come from.” There is a silent assumption that “if it has not been found yet, or cannot be extracted with today’s technology or at today’s prices” that it won’t ever exist. History has repeatedly refuted this premise.

    All this suggests deeper significance to the recent price collapse. Oil is not inexorably fading from the world stage. Peak oil remains distant. This, of course, has huge implications. To the extent that oil is a source of geopolitical and economic instability, the dangers remain. To the extent that it feeds global warming, the dangers remain. Unless history changes — and who knows, it might — the Age of Oil endures.

    hartford courant

  7. Alfredo Cortez on Sat, 20th Jun 2015 7:28 pm 

    Eat more rice and not crow China

  8. JuanP on Sat, 20th Jun 2015 7:32 pm 

    China fucked up by accumulating too many US Dollar denominated paper assets by exporting too much useless plastic crap to the USA. They had an unbalanced economic development and are now paying the price for it because they are stuck with a trillion plus dollars with a very doubtful future value.

    The investments that China and Russia have been making in Venezuela have a strong geopolitical component to them and I think they are comparable to the loans Greece and Ukraine received from the West. Nobody in their right mind expects any of these loans to be paid back. Their purpose is to prop up and keep these countries’ governments afloat a little longer for political or economic reasons.

    While I consider all these loans a terrible investment from a purely economic point of view, they do beat sitting on those US dollars indefinitely, and they serve a political purpose.

    But Venezuela is, and will remain for the foreseeable future, a basket case of a country with a truly bleak future.

  9. Makati1 on Sun, 21st Jun 2015 12:11 am 

    JuanP, you see the picture clearly, I think. China is spending those USDs as fast as they can, knowing that some of the ‘investments’ may fail. But in Venezuela, like many other locations, they are buying allies also. China is getting raw resources for Charmin dollars. This is another asymmetric form of warfare going on in the world today. This one will kill the West slower than war, but it will leave the East relatively unscathed.

    BTW: $37 billion is about the added income China had in March of this year from excess US trade. Also, $37B is a small percentage of the interest it gets from the US annually for the $1+ trillion in bonds it holds. It is losing nothing by getting rid of them as fast as possible. It is gaining resources, land, mines, food, etc in return. If you were holding $100,000 in Confederate money near the end of the American Civil War, would you spend it or save it? The Chinese are not stupid, but the West seems to be.

  10. Davy on Sun, 21st Jun 2015 6:48 am 

    China is in the worst shape of any major power. It has destroyed its ecosystem blinding creating a hyper export economy that is helping to destroy the world in the process. It has done this for no other reason than greed.

    It is throwing money around the world that it will likely never get back. Global debts are so large and represent mal-investments from a way of life with no future so China’s ROI on these investments has no future. China has been buying allies but these allies tend to be allies that eventually are taken out of power with the new powers to be not caring for China’s policies of supporting the previous dubious powers. China is a whore that will support anyone regardless of human rights policies.

    China in particular is so far in overshoot with population that its consumption needs are off the chart. This can’t end well. China has built mega cities and destroyed its best farm land and water sources in the process. China and Asia are near the bottom of the list of environmental destruction and the Mak wants to crow about them. Folks do you see an agenda anywhere.

  11. Davy on Sun, 21st Jun 2015 7:03 am 

    This says allot about Chinese greed and economic mismanagement that all the Pro Chinese here should read:

    http://www.zerohedge.com/news/2015-06-20/lesson-china-dont-go-bubble-first-place

  12. Makati1 on Sun, 21st Jun 2015 8:11 am 

    Davy, are you a paid government bot? It sure sounds like it. You can point to other countries but not admit that the Us is the deepest in debt, the biggest terrorist organization and is no longer a democracy. The Empire is fomenting a new World War that it cannot possibly win, but that is what happens to empires in decline.

    I would say that if China falls, so does the Us and it (the US) is already close to 3rd world levels from which it will never recover. China and Russia will survive and grow from the ashes, The West will not. Americans have no idea what sacrifice is. The East does, thanks to centuries of colonization and abuse by the Western countries.

  13. davy on Sun, 21st Jun 2015 9:17 am 

    The Makster and his delusions of the 1000 year Asian Reich. Master get a grip we are all on the same ship going down together. The one difference is the degree of population rebalance. Asia will need to cull 3.5BIL. The U.S. And Europe 500MIL. You get the picture now Mak?

  14. Makati1 on Sun, 21st Jun 2015 8:11 pm 

    Hahahaha. Davy, go feed your chickens and milk that cow…if you really have a farm. ^_^

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