A strategic capital alliance with China’s CITIC (2015)

Turning a 43-year relationship into capital: a non-resource trader’s bet

The core of this decision is that, on a road apart from the trading houses’ royal way of earning on resources, Itochu tried to maximize its own strength. In an age when resource prices set the ranking of the general trading houses, it used its accumulation in non-resources — textiles, food, consumer goods — as the weapon to step, capital and all, into the internal demand of 1.3 billion people. Turning the intangible relationship of a 1972 “friendship trading company” into a tangible $5.7B (¥689bn) investment over 43 years was an attempt to cash the long-built China relationship as a competitive advantage.

By teaming with the C.P. Group rather than going alone, and holding 20% through a joint venture, the design carried a calculation to dilute the political risk inherent in investing directly in a state-owned enterprise. Even so, a structure in which Itochu’s profit swings when CITIC’s results swing was unavoidable, and the $1.3B (¥143bn) impairment of 2019 was the price of that. A large capital alliance is at once a chance to take in a partner’s growth and a contract to shoulder the partner’s slumps. Where a trader that fights in non-resources should place its big bet in place of resources — the CITIC investment is rich in suggestion as one answer to that question.