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How to Profit from China? Ask Australia


Country shows global investors how to maximize returns.

A $15 billion deal for liquefied natural gas (LNG) involving Australia, China, and global-oil heavyweight Exxon-Mobil Corp. (XOM) has prompted many investors to worry that China may be using its global-markets muscle to "paper over" cracks in the global economy.

In reality, however, this mega-deal is a harbinger of what's to come, and highlights the road that global investors must travel in their journey to maximize their own investment returns.

If you feel like you need a guide on that journey, just look to Australia. That country seems to be setting the pace when it comes to obtaining both a way out of the global financial crisis and an important new trading partner that could benefit their nation for years to come. What's happening there could be a model we'd best learn from.

As I've noted repeatedly, when China buys, it buys big. Most recently, China's global resource acquisition spree has centered on Australia (after tours through Canada, Africa, the Middle East and South America).

By some accounts, the timing couldn't be better. Following the recent arrest of four Rio Tinto PLC (RTP) employees in China last month on corporate espionage charges, the two countries needed to do something mutually beneficial to smooth-over relations. For China, the acquisition is viewed as a way to save face and further its strategic interests. For Australia, this deal is a source of cash that will flow right into the government coffers and help the country rebound from the global financial crisis.

The transaction involved a place most people here have never heard of: Barrow Island. Located about 30 miles off the northwest coast of Australia and about 80 square miles in size, Barrow sits atop a supply of natural gas -- a portion of which will now be liquefied and sent to China.

According to the terms of the deal made public recently, Australia is going to process and ship some 15 million metric tons of the fuel each year -- enough for this deal to be worth roughly $15 billion over the life of the contract.

Development of the project is expected to create 6,000 jobs initially, with another 3,000 to follow. It's also expected to yield some $6 billion for the Australian government, which -- like most governments around the world -- can really use the money since it's still struggling to come to terms with the global financial crisis.
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