Ethnic feuds, political strife, underdeveloped infrastructure, and a lack of domestic support have left most Western oil majors “unimpressed” by the prospects awaiting them in Iraq, MEES’ said. And at prices of less than $50 a barrel (it closed yesterday at $45.88), crude oil currently offers very little market incentive for these companies to risk large sums of capital.

But while Western oil majors are backing off from Iraq, Chinese companies continue to pour in.

At a time when low commodity prices have most global players standing pat, China has been scouring the globe, buying companies and cutting deals. China’s objective: To lock up suppliers of key commodities - including crude oil, Money Morning reported earlier this year.

Iraq is a key part of that ongoing strategy.

China was actually the first country to sign an energy deal with Iraq in the post-Saddam era. China National Petroleum Corp. (CNPC) last year agreed to a $3 billion deal to develop the Ahdab oil field, 100 miles southeast of Baghdad.

The CNPC deal, according to Jabir, is every bit as invalid as the deal struck with Shell. However, he also made it clear that the parliamentary committee would prioritize revoking the Shell deal before turning its attention to CNPC’s deal, which is viewed as being less damaging to Iraq’s economy.

“If you have a deep wound on one hand and a cut on the other, you deal with the wound first,” Jabir said.

Chinese companies are ideally suited for projects in Iraq, because they have a shorter history, less experience, and fewer business opportunities than their larger Western counterparts.

And they are eager to gain ground.

Also, China took no part in the U.S. military endeavors in Iraq earlier this decade, avoiding what MEES termed “nationalist suspicion of foreign involvement in the country’s oil sector.”

With the hope of placating parliament, Iraq’s oil ministry has asked some of the larger Western oil majors to form international teams with smaller global competitors. That way, Iraqi fields would have access to the more-advanced technologies of Western firms, but without igniting domestic concerns about control of Iraq’s resources.

Also hoping to placate parliament, Shell is in advanced talks with CNPC and China Petrochemical Corp. - China’s two biggest state-owned oil companies - to bid jointly for oil licenses in Iraq, Reuters reported.

“We indeed have had discussions about bidding,” Shell Chief Executive Officer Jeroen van der Veer said in Beijing, according to Reuters. “Chinese companies for certain are part of the bidding partnerships.”

The Kirkuk oil field in northern Iraq is widely believed to be the site of any potential joint venture between the Anglo-Dutch oil group and one or both of the Chinese companies. It’s also one of the fields cited by MEES as a possible liability for Western oil partners.

“The 10-billion-barrel Kirkuk field, which straddles the border between central government and Kurdish Regional Government (KRG) areas has, despite the size the reserves, attracted relatively little interest,” the MEES report said.

While its export market is flagging, China’s government is trying to boost its prospects in a way that it can directly control: Spending.

And with a $585 billion stimulus package rolling through its economy, China is adhering to the notion that if you want the best results, you have to spend a bit to get them. China’s banks have lent more money over the past three months than in the past year, according to the New York Times. The number of loans in February alone quadrupled to just over one trillion yuan ($157 billion).

A large portion of the money is going towards repairing and rebuilding China’s aging infrastructure. The National Bureau of Statistics said fixed-asset investment spending shot up by 26.5% to 1.03 trillion yuan over the first two months of 2009, compared with the January-February period in 2008. That thrashed estimates by 5%.

In turn, the improvements could give China a crucial competitive advantage. While others bail out their economies and slide into debt, China is using its strong cash position (ironically borne largely from its export growth) to now help offset export declines and its reliance on that area by improving prosperity from within.

Already, railroad spending tripled over the first two months of the year - much-needed investment for an industry that has struggled to cope with industrial production and demand. That’s in addition to increased spending on the country’s roadways. Construction equipment sales are projected to climb by 20% over the second half of 2009. Education, research and development, and social programs are also enjoying increased spending.

In some ways, the global downturn has forced China to stop relying on its exports and real estate market for growth and instead adopt a wider, more strategic focus.

China’s already steep $585 billion (4 trillion yuan) stimulus could double over the next three years to as much as $1.2 trillion (8 trillion yuan), a figure that would put the country’s economic growth back on track, an economist said at a Beijing summit.

Mingchun Sun, chief China economist for Nomura International PLC, said the Chinese government could formally announce the bigger spending plan in March or April.

Since the original stimulus proposal was announced, state and local governments unleashed a long list of projects previously held back because of initial concerns of keeping growth from getting out of control, Sun said. And with a surge in bank lending in January, China is better suited to finance more infrastructure investments.

“Looked at from the perspective of demand and financing capacity, I don’t think it will be a big problem to get to 7-8 trillion yuan,” Sun said in estimating the size of the eventual stimulus, Reuters reported. “It could be even higher.”

So far, several Chinese leaders have hinted that an increase in spending is on the way.

On Monday, the Communist Party’s council said that it would bolster investment to support growth, Reuters reported. A day later, President Hu Jintao said that China would take additional steps to boost domestic demand.

More spending could set off an investment boom similar to that of the early 1990s.

“This may be a harbinger of another investment boom. The only similar big encouragement made by the central government was by the late leader Deng Xiaoping and thanks to that the economic situation took a big turn for the better,” Sun said.

China’s government has pledged an enormous stimulus plan of more than $600 billion, far larger in terms of the Chinese economy than the U.S. counterpart proposed by American President Barack Obama.

However, with roughly $2 trillion in foreign-exchange reserves, huge domestic savings and a budget that is close to being balanced, it seems likely that China can afford its stimulus, and that by increasing domestic demand the stimulus will pull the country out of recession without causing excessive financing difficulties.

It is expected that China will grow at a 6% pace this year, but that number may well be conservative. China’s shares are still down 60% from their peak, but they have risen by 20% this year and look attractive at these levels.

Long term I think China is a sound investment, 2 yrs +.

China is turning the corner from a mostly exporting country to one that is going to have a huge internal economy as more and more of the Chineese want the things we take for granted. Add in the required infrastructure that they have to build and repair and the economy will grow as more and more people are employed in this area. China does not have the contracting procedures we have - the government says do it, and companies start working. Double digit growth maybe not, but high single digit growth is what I expect long term. And to sustain that growth there will be an increased demand for raw materials which I think will improve the shipping rates and commodities from where they are now to what they were a year or two ago.

So far this year, China’s economy has accounted for virtually all of the world’s economic growth. Including China, global growth is 1.6 percent. Without it, growth was flat to slightly down.

Here are just a couple examples of China’s successful stimulus:

• China’s auto market is now growing at 50% per year and has surpassed the United States as the world’s largest vehicle market.

• China has already employed more than 100,000 people and spent $50 billion this year on high-speed rail lines. Over the next decade, China will spend $250 billion on high-speed rail. By 2020, they will have laid 16,000 of high-speed track. By comparison, the United States has only about 450 miles of high-speed track.