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European oil giants boost investment in China
Suman Srinivasan

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Coinciding with the Chinese Premier Wen Jiabao’s visit to London, two competing oil giants, British Petroleum and Shell, announced that they were going to invest money in China’s exploding energy markets.

A BP spokesperson said that BP’s CEO, John Browne, met Premier Wen to discuss business opportunities during Wen’s state visit to London. The company announced agreements with China Petroleum and Chemical Corp. and PetroChina with a total investment of up to $1 billion. BP had announced earlier this year that it was committed to investing $3 billion in China over the next five years.

Shell separately announced a $200 million deal with China Petroleum and Chemical Corp. for a joint retail venture aimed at having service stations running in Jiangsu province.

After the announcements, BP and Shell shares went up in price. Reuters quoted Richard Rose, an analyst with Oriel Securities in London, as saying that the Chinese economy was growing at two to three times the rate of the West and fueling strong demand for petrochemicals and customer demand for gasoline.

Business analysts and prominent economists, though, are warning that slowdowns in China’s exploding economy could strongly hit markets around the world, especially companies investing in China. Andy Xie of Morgan Stanley, at the MS Global Economic Forum, recently warned of the bursting of China’s economic bubble.

“The Chinese economy comes up with a bubble whenever it has a chance. China is still in an early stage of economic development, i.e., its stock of wealth is still low. Its bubbles are mostly in quantities rather than prices.

“Bubbles burst for different reasons. A bubble often crumbles under its own weight, as there is not enough liquidity to satisfy its exponential appetite.”

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