By DAN MOLINSKI And JOHN LYONS
CARACAS—China has promised to lend $20 billion to Venezuela, the country's President Hugo Chávez said over the weekend, underscoring the Asian giant's push to deepen ties to oil-rich nations in the developing world.
The credit—which Mr. Chávez said ranks among China's biggest foreign loans ever—shows the growing importance of oil in China's energy mix, and the lengths the fast-growing nation is willing to go to secure it. Once a net oil exporter, China is now the world's third biggest oil importer.
Mr. Chávez, an outspoken U.S. adversary in Latin America, has long grumbled that the U.S. remains the biggest buyer of Venezuelan crude. The loan is a boost to his efforts to diversify sales of the major oil exporter away from U.S. refineries.
Mr. Chávez announced the loan package during a ceremony Saturday at the Miraflores presidential palace in Caracas. The governments signed a half-dozen energy-related deals during the event. President Hu Jintao wasn't present, having cut his Latin America trip short to oversee earthquake recovery.
"Thank you, Hu Jintao, and thank you China," Mr. Chávez said.
An oil rig of Brazil's Petrobras, which is also getting a loan from China.
.China's state-run Xinhua news agency said the $20 billion in "soft loans" would be provided by state-owned China Development Bank. Chinese officials weren't immediately available to comment. In the past, some major international deals announced by Mr. Chávez haven't come to fruition.
The funds come at a key moment for Mr. Chávez, whose popularity has come under pressure as a crumbling infrastructure has led to energy shortages and other problems. Venezuela suffers the region's highest inflation rate of 25%. Making things worse, Venezuela's economy has been hit by growing energy shortages. Drought and chronic mismanagement of the country's hydroelectric resources have forced the government to impose rolling blackouts, further slashing economic output.
Mr. Chávez said the money will be used to build new power plants, highways and other projects and would be repaid with Venezuelan crude oil. The countries also formed a joint venture to develop an oil field in Venezuela's eastern Orinoco region.
China is deepening ties with resource-producing nations around the globe to fuel its rapid growth. But its rising appetite for oil is a top concern. While China is mainly powered on coal, oil demands have soared in recent years. Oil supply is now a crucial Chinese energy priority, according to the U.S. Energy Information Administration.
"China is not as concerned as they used to be about irritating the U.S.," said Michael Shifter, president of the Inter-American Dialogue, a Washington-based think tank. "I think they will continue to be very aggressive about investing in places like Venezuela."
The White House declined to comment on China's loan to Venezuela and the State Department didn't respond to requests for comment.
China's big state banks are a major weapon. By unleashing enormous loans, China can entice oil suppliers to lock in supply deals, as well as open up to Chinese companies. In recent years, China has signed tens of billions of dollars of commitments to countries such as Russia and Kazakhstan. Last year, China announced a $10 billion oil-for-credit deal with Brazil, in part to help explore massive offshore finds that could turn Brazil into a major global oil player.
The communist government's ability to sit down and negotiate broad loan agreements with foreign governments in places like Caracas or Brasilia may help it reduce the role of major oil companies at a time when much of the global oil reserves are in the hands of state controlled oil companies like Venezuela's Petroleos de Venezuela SA or Brazil's Petroleo Brasileiro SA.
If one counts heavy oil, Venezuela sits on the world's second biggest oil reserves outside Saudi Arabia, making it a prime target even if the country hasn't exactly been hotly disputed territory lately. Exxon Mobil pulled out of Venezuela after the Chávez government changed the terms of existing oil deals. Royal Dutch Shell PLC and BP PLC declined to participate in Venezuela's recent bidding round for contracts to develop its reserves.
China's imports from Latin American nations like Venezuela and Brazil remain tiny compared to its overall imports. The distance means such deals are more expensive. But the deals can bring other benefits: China often seeks to tie the loans to contracts for its oil services companies—a sector China is trying to develop.
Ultimately, U.S. consumers may benefit, experts say. Since most of the world's oil is sold on an international spot market to the highest bidder, Chinese willingness to extend credit to oil producers should boost supplies and keep prices from rising.
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.Boris Segura, a Latin America economist at RBS Securities, said the terms of the loan from China to Venezuela are essentially a promise to buy oil at a future date. He noted that neither country has indicated details of how the funds would be exactly paid back or any other conditions, except to say that Venezuela would offer oil.
"My impression is that China is making a commitment to Venezuela for this money, and the agreement is an expression of goodwill for the moment," Mr. Segura said. "It's the Chinese version of dollar diplomacy."
Mr. Chávez already has received, and spent, some $8 billion from China in recent years, which the nation has been paying back with crude oil. Mr. Chávez indicated last month he wanted to increase the credit-for-oil program.
Venezuela says it sends some 460,000 barrels a day of crude oil to China, although figures from the Chinese government indicate China only imported an average of 132,000 barrels per day from Venezuela during the first couple months of 2010.
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Venezuelan President Hugo Chavez speaks with Chinese Director of the National Energy Administration and Vice-Minister of the State Development and Reform Commission Zhang Guobao, right, during the signing of an oil agreement at Miraflores.
.Venezuela needs the Chinese funds to shore up its battered economy, which shrank 3.3% last year thanks in part to falling oil prices. Mr. Chávez also wants to reduce his country's dependence on the U.S.
The U.S. is home to most of the world's refineries that can process Venezuela's heavy crude. To change that, the Chinese government last year approved initial plans for a joint venture refinery between PdVSA and state-owned China National Petroleum Corp. to be built in Guangdong province.
Among the agreements announced Saturday, Venezuela's PdVSA and state-owned CNPC will develop the Junin 4 oil block in eastern Venezuela, which is expected toproduce 400,000 barrels a day of heavy crude.
Mr. Chávez's woes are growing ahead of important legislative elections in September.
Analysts say Mr. Chávez may need the Chinese money to prime the electoral pump as in recent months continuing economic recession and surging crime have eroded his popular support.
The government, which enforces strict currency controls, was forced to devalue Venezuela's currency in January.
But despite the devaluation and issuing millions of dollars in bonds to sop up dollar demand, Mr. Chávez has been unable to brake the sharp decline in the value of the Bolivar in the country's parallel, or black, market.
—José de Córdoba contributed to this article.
Write to Dan Molinski at Dan.Molinski@dowjones.com