HONG KONG - Chinese resource companies have been snapping up assets around the world for the last couple of years but don't expect them to add to their haul any time soon.

Investment bankers in Asia say China's appetite for splurging on overseas resource businesses, including Canadian assets, has almost completely dried up in recent weeks. The Chinese are now unlikely to be in the chase for mining and commodities companies even though shares in the sector are commanding low valuations around the world these days.

"The Chinese are much less active in the international resource acquisition market," said Warren Gilman, head of Asia Pacific for CIBC World Markets.

"The impression we get from our Chinese resource sector clients is that they are largely in a period of digesting recent [overseas] acquisitions," Mr. Gilman said.

The dearth of interest in foreign deals coming out of China follows an 18-month shopping spree when the country's major resource companies spent billions picking up mineral and energy assets from Australia to Africa. Companies like Aluminum Corp. of China and China Minmetals Corp. trawled the planet as they looked to secure commodities needed to fuel economic growth that had averaged more than 10% for five years leading up to the end of 2007.

But China's appetite for buying more resource assets has stalled just as its export driven economy is slowing down amid fears of a global recession. China's power output grew by only 3% in September – the lowest rise in eight years – and economic growth is expected to fall to about 8% in 2009.

Chinese resource companies have also had problems integrating some of the recent acquisitions, and foreign bankers believe Beijing is putting pressure on China's commodities companies to get their existing operations in order before they splash out on anything else. In fact, rather than looking to buy more overseas assets, many Chinese companies are actively looking for foreign partners to help them run the overseas projects they already own, Mr. Gilman said.

Another likely factor is that China's state-owned companies have lost billions of dollars on recent investments overseas as stock markets around the world are hit with record losses. The most spectacular reverses have been incurred on financial sector stocks, but acquisitions in other industries have also been hit hard.

If Chinese companies continue to sit on the sidelines, investors from other Asian nations such as Japan or South Korea are likely to step up and fill the void, said a Hong Kong-based investment banker. M&A bankers are "literally flocking to Tokyo," where there is ready capital and also a strong demand for raw materials, he added. Japanese companies are buoyed by a strong Yen, and are willing to come out onto the global scene after years of conservatively paying down debt and stockpiling cash following Japan's own financial crisis in the early 1990's.

Meanwhile, the weakening of Chinese demand for raw materials has been largely blamed for a sharp decline in the price of many commodities ‑ aluminum prices have fallen 33% from their peak, and steel prices in China are down 37% from their highs.

Resource company stocks have also been pummeled. Industry giants BHP Billiton Ltd saw its shares plummet 13% on the Sydney Stock Exchange yesterday while Rio Tinto Group fell 16%. Smaller resource companies have also seen their share prices tumble. Also, on Wednesday, Rio Tinto chief executive, Tom Albanese also said the company is "reviewing its timeline" for the planned sale of US$10-billion of assets because of "challenging financial markets."

Still, China's thirst for resources will continue to be a dominant factor affecting the sector, said Ken Courtis, who formerly headed Goldman Sachs in Asia. "Mid and long term, China is and will continue to be a major investor in natural resources around the world," said Mr. Courtis, who is one of the leading investment bankers in Asia.

Financial Post

dmavin@nationalpost.com