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Tuesday, April 15, 2008

China Becomes A BP Shareholder

HONG KONG -

China has quietly accumulated nearly a 1% stake in BP to help secure its oil supply to fuel rapid economic growth. The silent investment from China has come to the attention of Downing Street, which has been monitoring the situation carefully.

A Chinese sovereign wealth fund has purchased about 1 billion pounds ($2 billion) worth of BP (nyse: BP - news - people ) over a period of time, accounting for just less than 1% of the U.K.'s biggest enterprise. "We are aware of the Chinese holding and we welcome all shareholders," a spokesperson for BP said, confirming the investment without identifying which Chinese state fund had bought the stake, the Daily Telegraph reported Tuesday. Although the British government may publicly welcome the Chinese state fund's investment, the newspaper noted that all parties on Downing Street are keeping a close eye on developments.

U.K. Chancellor Alistair Darling is in Beijing this week for talks to tighten Sino-British economic links. He is speaking with Chinese government officials including Lou Jiwei, chairman of the China Investment Corp., the sovereign wealth fund that manages $200 billion, about 12% of China’s foreign exchange reserves. China Investment Corp., which invested $3 billion in Blackstone (nyse: BX - news - people ) last summer before the U.S. investment firm listed its shares on Wall Street, is not the company buying into BP, according to the Daily Telegraph.

Xinhua Financial Network News in Beijing said Tuesday that the buyer is actually SAFE Investment Co., a Hong Kong-registered investment vehicle of the State Administration of Foreign Exchange, which had already bought a 1.6% stake, worth around 1.8 billion euros ($2.9 billion), in France's Total (nyse: TOT - news - people ), the third-largest oil company in Europe. (See: "China Takes A Piece Of Total")

China's foreign exchange reserves hit $1.68 trillion at the end of March, the People's Bank of China, reported last week. In an effort to keep its rapidly expanding economy humming along, China boosted its crude oil production to 30.8 million metric tons during the first two months of this year, the National Development and Reform Commission disclosed earlier this month. But that constituted just a 1.2% rise from 2007; China will not achieve energy independence any time soon. Meanwhile, crude oil imports rose 9.5%, to 28.23 million metric tons, according to the agency. Still, shortages of gasoline and diesel fuel caused public discontent in some areas of the country.

To secure stable import supplies, China has been granting loans to oil-exporting countries in Africa such as Nigeria over the past few years. Investing in BP and other Western oil companies is seen as another way to raise China's bargaining power as a big importer.

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