July 8 (Bloomberg) -- Central Asia, holder of some of the largest deposits of rare metals such as tungsten and chromium, is increasingly an investment target for China because of low regulatory hurdles and transport cost, Ernst & Young LLP said.
Governments in the region, which includes Kazakhstan and Uzbekistan, look favorably on Chinese investments because of close political ties, Eleanor Wu, an Ernst & Young partner on transaction advisory services, said in an interview in Beijing.
President Hu Jintao visited Central Asia in June, signing gas and nuclear agreements and promising cooperation in port construction and transport. The world's largest metal consumer has also promised billions of dollars in aid, investment and loans to Africa, in exchange for energy and commodity supplies as it depletes domestic resources.
"Central Asia is rich in mineral resources, particularly rare metals, copper and gold that China needs for economic growth," Wu said. "Central Asia is close to China geographically and the business cultures are to some extent closer -- companies there are operating under the socialist system, similar to Chinese companies in the 1980s."
The central Asian states of Kazakhstan, Tajikistan, Turkmenistan and Uzbekistan have presidential forms of government, with Kyrgyzstan shifting toward a parliamentary democracy. Wu didn't name Chinese companies.
Kazakhstan's zinc and tungsten deposits are the largest in the world, Xinhua News agency said last year. The nation is second only to Russia among the countries in the Commonwealth of Independent States in quantity of mineral production, according to a 2006 U.S. Geological Survey report.
Cap Domestic Production
The push in Central Asia comes as China is trying to cap domestic production of minor metals to conserve resources. The nation in March said it stopped accepting applications for new mines to produce tungsten and antimony until June 2011.
Mining deals by China in South America and Africa are increasing, while Australia and Canada will continue to be "promising" places, Wu said, without giving details.
State-owned companies will continue to lead the drive for overseas deals, though the number of private and local firms venturing abroad will sharply increase in 2010 and 2011, particularly in the manufacturing and service sectors, she said.
"We'll see more transactions done by assets swap or a joint venture, rather than a cash purchase of a stake" in companies or assets, Wu said. This type of investment, mostly adopted in oil industries, can help companies reduce risks and increase investment returns, she said.