China's resources policy
attracts attention of
congress By Benjamin Shobert
The
congressional US-China Economic and Security
Review Commission (USCC) last Thursday focused its
attention on, as they put it, "China's Global
Quest for Resources and Implications for the
United States". As Commissioner C Richard D'Amato
said when the hearing began, the USCC wants to
learn more about China's pursuit of "water, fuel
and non-fuel mineral resources, and fish". Each of
these presents questions about what lengths
Beijing is willing to go in order to ensure access
to precious raw materials.
D'Amato went on
to state "These are the resources upon which the
Chinese 'economic miracle' depends. Although
Mao-era policy emphasized economic, energy, and
political self-reliance, China's
endowment of natural
resources no longer sustains its massive
population and export-driven economy."
Aware of the extreme domestic natural
resource limitations China faces, policy makers in
Beijing have aggressively sought out alternatives.
In doing so, the country has turned towards others
like Iran and Venezuela which have been largely
ostracized by the developed West.
As China
would have these moves be understood by the
international community, decisions to do business
with countries such as Iran are ones born of
extraordinary necessity. These decisions can also
be seen as China going where other more developed
nations have either chosen not to go, or are
prohibited from going in the first place.
However, critics of China believe that
much of what animates Beijing's willingness to do
business with Chavez's Venezuela and Ahmadinejad's
Iran is that China shares a similar distrust of
modern democratic governments and Western
institutions as do the leaders of these two
countries.
In this vein, the opening
statement of Commissioner Daniel Slane pointed out
the many areas where China's pursuit of natural
resources has, as he put it, "had significant
security consequences worldwide". Referencing the
numerous recent instances where China's
involvement in Africa has drawn either formal
sanctions or criticism from human rights groups,
Slane noted that Beijing will not hesitate to use
whatever leverage is at its disposal in order to
continue its pursuit of those critical natural
resources it requires.
Additionally, as
China's power has grown in the world, it has come
to understand that one of its few natural
resources that the world desperately needs - rare
earths in particular - can be used as a very
effective tool at the negotiating table.
As Slane put it, "China's unofficial ban
on rare earth exports to Japan in 2010 indicated
to the world that China was willing to use
critical resources as leverage in its diplomatic
relationships." A World Trade Organization panel
on Monday ruled that China had violated trading
rules by curbing exports of raw materials that
included bauxite, coke, magnesium, manganese and
zinc - but limits on Chinese exports of rare
earths were not part of the ruling. China
clearly understands the role natural resources
plays in allowing countries to pursue its own
domestic strategies and is signaling its
willingness to use one of its few advantages in
this area for its own gain.
This worries
some who recognize that, as David Menzie the chief
of the US Geological Survey (USGS) at the
Department of the Interior who testified last
week, "For many of the more than 80 mineral
commodities tracked by the USGS, China ranks as
the world's leading producer." Menzie went on to
add "In a number of cases, China is not only the
leading producer, but dominates world production."
He pointed to three minerals plus rare
earths where China has more than 80% of the
world's production and an additional 15 where
China produces "between 50% and 80% " of the
world's total.
Like many perspectives on
China, interpreting what drives Beijing's
willingness to leverage its natural resources for
gain or how it goes about obtaining these needed
materials in the first place says as much about
the country's actual ideology as it does the frame
of reference Western policymakers use when judging
China's motives.
Washington is grudgingly
coming to terms with a more sophisticated and
confident Beijing, one that is more willing to put
out and fight for its own interests. For those in
DC who thought that China's evolution towards the
poorly defined "responsible stakeholder" would
mean the country would ultimately come to step in
line with Western policies, China's pursuit of
natural resources with little consideration of who
they are doing business with has been
disconcerting.
American and European
policy makers certainly wish that Beijing would be
more selective in who it chooses to do business
with; however, as Mikkal Herberg, the Research
Director for the Asian Energy Security Program at
the National Bureau of Asia Research shared last
week, "Energy security has become a critical
political and economic concern for Beijing's
leadership."
Herberg pointed out, "China's
leaders fear that energy shortages and rising
energy costs could undermine the country's social
instability." As long-time China watchers know,
these fears are central to understanding China's
policies. Herberg made this point in his testimony
when he stated, "For a regime that increasingly
stakes its political right to rule on economic
performance and living standard, the threat of
economic stagnation could threaten the continued
political monopoly of the Chinese Communist Party
(CCP)."
Herberg's USCC testimony pointed
out what he calls China's "energy nationalism";
namely, as he describes it, "an energy version of
economic nationalism and mercantilism prevalent in
Asia". He believes that China's fears - one he
suggests are shared by other regional players who
have similar concerns about access to oil and
natural gas - are critical to understand why China
acts as it does in pursuit of natural resources
internationally.
Beyond how China's rapid
modernization impacts the world's supply of
natural resources, Beijing's efforts to not only
secure supply but ensure safety during
transportation into the country are making waves
in the South China Sea. Herberg pointed out that
"China's growing dependence on oil and liquid
natural gas (LNG) flowing through the Indian
Ocean, Malacca Straits and [the] South China Sea
is also a key driver of its naval modernization
and move towards 'Blue Water' power projection
capabilities by the PLA Navy."
Experts
like Herberg understand and fear that these moves
by the PLA Navy are "setting off alarm bells
across the region and contributing to a regional
naval arms race."
While much of last
Thursday's testimony focused on China's pursuit of
oil and natural gas, Dr Elizabeth Economy, a Starr
Senior Fellow and Director of Asia Studies at the
Council of Foreign Relations, pointed towards
China's pursuit of water as equally important.
According to Dr Economy, "More than 40 mid- to
large-sized cities in Northern China, such as
Beijing and Tianjin, boast crisis-level water
shortages."
Water shortages due to
depletion are not the only problem. As she shared
last week, "over 90% of groundwater [in China] is
polluted by urban sewage, refuse and industrial
waste." This means that, according to research by
Jon Bowermaster that Dr Economy referenced,
"estimates are that 400,000 people are driven from
their homes annually as a result of lack of
water". As with many challenges the Chinese
government must face, this is another that poses a
threat to the country's social stability.
In many ways, China's pursuit of each of
these natural resources is understandable and
should be seen as an inevitable outgrowth of the
massive economic gains experienced across the
country over the last several decades. The US
Congress has at least three fears, as evidenced by
last week's hearing.
First, whether China
can be convinced to join the developed West in
ostracizing countries like Iran specifically, or
whether China's pursuit of natural resources will
take precedent.
Second, Washington fears
that China's model for obtaining natural resources
through its national oil companies (NOC) and their
"go-out" strategy may be locking up resources to
which Western countries will also need access.
Because the NOC approach is built on a
state-to-state relationship, in many cases it
prevents private operators in the West from
competing.
China can, and has, brought to
bear more than a simple commercial transaction for
oil; rather, the NOC can weave together
government-sponsored loans, infrastructure
projects and other amenities to convince a foreign
government to work with China. Washington thus far
does not have a good answer to this.
Third, and perhaps most pernicious, is
Washington's fear that China's pursuit of natural
resources will destabilize the region, whether
intentionally or accidentally. This fear might be
made real by a military confrontation in the
crowded South China Sea, where multiple borders
and territorial disputes still exist, or this fear
could be realized if China's modernization causes
it to damn waterways that nourish the many river
deltas throughout Southeast Asia.
Cumulatively, China's pursuit of natural
resources brings together many concerns and
criticisms about China's current position in the
world. However, unlike many areas where outsiders
are not clear as to Beijing's decision making or
priorities, the country's single-minded pursuit of
those commodities necessary to its economic growth
are much easier, if no less unsettling, to
understand.
Benjamin A Shobert
is the managing director of Rubicon Strategy
Group, a consulting firm specialized in strategy
analysis for companies looking to enter emerging
economies. He is the author of the upcoming book
Blame China and can be followed at www.CrossTheRubiconBlog.com.
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