Similarly, the Chinese deal with Kazakhstan – in which CNPC and the China Export-Import Bank will lend $5 billion each to Kazmunaigaz (KMG) and the Development Bank of Kazakhstan, respectively – marked a turning point in a trade relationship that has proven difficult in recent years. When CNPC acquired PetroKazakhstan in 2005 – at that point the largest overseas acquisition by a Chinese NOC – the Kazakh government introduced new legislation that granted pre-emptive rights to KMG in future deals. CNPC was criticized for paying too much for the PetroKazakhstan acquisition, but its 67 percent stake in that company has now been accompanied by a 50 percent stake in MMG –giving CNPC a much larger foothold in the upstream in Kazakhstan. The Chinese government views the effort to secure additional crude supplies from Russia and Kazakhstan through the lens of energy security; additional pipeline imports serve as a hedge against possible supply disruptions elsewhere, for example in shipping lanes in the Straits of Hormuz or Straits of Malacca.

Finally, the loans-for-oil agreements will open new opportunities for Chinese service companies. CNPC's service sector subsidiaries in manufacturing and engineering could win pipeline construction contracts for the ESPO phase one and its spur line to China. China's loan to the Development Bank of Kazakhstan will be partly used to construct a "West Europe-West China" highway that would likely employ Chinese construction laborers. Other potential opportunities for Chinese companies in Kazakhstan as a result of the bilateral loans include the construction of a gas pipeline and potential joint work in uranium mining – all projects that would meet job creation objectives of both governments in underdeveloped areas. And China's loan agreement with Petrobras stipulates that the Chinese could supply the Brazilian NOC with "equipment and services in the areas of LNG facilities, offshore drilling rigs and service ships."

Brazil is a particularly enticing market for Chinese service companies, given the enormous demand for engineering, construction and drilling contractors as Petrobras tackles its $174.4 billion five-year investment plan. Although the Brazilian government (and Petrobras) may prefer to turn to domestic companies, the capacity of the Brazilian service sector is limited, and those firms may not be able to match the cost competitiveness of Chinese companies.

Willing partners

China has shrewdly seized an opportunity to make long-term loans in a down cycle, at a time when project finance is hard to come by and traditional bank lending has become difficult to secure. In all of these deals, the Chinese government has found that its partners are more willing to make compromises – whether on interest rates, loan guarantees, or upstream access – in order to attract capital.

While foreign governments may have begrudgingly accepted some of the Chinese terms, the new investment model still holds some distinct advantages for them. In most cases the Chinese NOCs are not directly investing in the upstream – or have acquired only smaller assets – so host governments are not forced to defend themselves against charges that China has seized control of their oil resources. The interest rates charged by the Chinese for these loans are in most cases fairly low – under 6.5 percent in the case of the CDB's loan to Petrobras. Those terms are easier for China's borrowers to accept, and while the interest rates may be low they still exceed China's return on investment in US Treasury bills. And China will essentially pay market prices for its oil imports, in contrast with a past loan to Russia that was renegotiated when Russian companies complained that the Chinese were receiving barrels at a substantial discount.

Perhaps most importantly, many governments are finding it easier to negotiate directly with the Chinese than to make deals with numerous international oil companies; the Chinese government can leverage its finances and the capabilities of its NOCs and service companies in a single deal. As Petrobras CEO Sergio Gabrielli stated last month, "there isn't someone in the US government that we can sit down with and have the kinds of discussions we're having with the Chinese."