China – A Race for Resources

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However, according to Dambisa Moyo and her new book “Winner Take All”, China has shown no signs of similarities with European colonialism, such as religious conversion, use of military force, or handpicking the local political leadership. On the contrary, China seems highly uninterested in taking on sovereign responsibilities or political control. Indeed, China’s ‘No Strings Attached Policy’ confirms its disinterest of interfering in other countries domestic affairs. My colleague, Sina Blassnig, explores this angle more deeply in her article.

Nonetheless, even if China is not engaged in a type of new colonialism, there is yet a reason why the rest of the world should worry – China’s recent quest for natural resources. A decade ago, China had invested little in commodities. Today, it is a key player in underwriting resource-related transactions all over the world. Of course, in terms of percentage, Africa still only represents a small part of Chinese outward foreign direct investment (OFDI), about 3-4 % ( Nonetheless, China’s investment into Africa may increase by 70 % from 2009 to 2015. Moreover, in “Winner Take All”, Moyo states that between 2005 and 2011, China engaged in more than 350 foreign direct investments at a value of over $400 billion, of which much is invested in resources.

The drive behind this huge investment is the fact that China needs to feed its rapidly growing economy. Commodities are the inputs used to produce goods and services. Hence, they pervade every aspect of a modern lifestyle: gas to drive cars, trucks, travel by airplane; electricity grids; water; arable land to grow foodstuffs. In addition, there is a long list of the many minerals needed to produce cell phones, computers, TV screens and other type of machinery. It is no surprise that the demand for commodities is rapidly increasing with China’s bustling economy and growing wealth. According to McKinsey Global Institute, China will have added about 400 million people to its urban population by 2025. That means 64 % of the China’s population will then live in cities. As it is, China already has forty cities with populations of a million people or more, and by 2020 China projects to add about 225 newly constructed cities with each around 1 million people. Thus, the implications of such a huge urbanization wave will no doubt put even more pressure on the global demand for commodities.

It is nothing new that these valuable commodities exist in a finite supply and commodities experts such as Jim Rogers have long stressed its importance, for example, in his renowned book ”Hot Commodities”. In addition, China is now investing in natural resources like never seen before and has already passed the US as Africa’s biggest trading partner.  The fact that China is acquiring a vast amount of the world’s natural resources is likely to increase its already powerful role at the world stage. With its campaign being both global and one of the most aggressive in history, it will undeniably affect everyone. With the huge demand from China and other developing nations, there is also a risk that commodity demand will expand faster than the supply side will be able to accommodate. Furthermore, China’s increased influence on the continent alongside its “No Strings Attached Policy” is also likely to result in lessfocus on environmental and social aspects as there is little standards attached to the business deals with the Chinese.

Yet Moyo argues that little seems to be done by the rest of the world to counterfeit China’s takeover, and that the rest of the world should definitely take China’s hunt for oil and important minerals more seriously. Some might argue that Europe and US have enough problems to deal with at the moment, with stuttering economies and debt burdens. Albeit, the more they wait to deal with other problems, the bigger they will become. Therefore, even though China has not embarked on a new type of colonialism, China’s rapid influence in Africa should definitely be taken more seriously.

2 thoughts on “China – A Race for Resources

  1. Exactly for this reason, the World Resources Forum states in its (draft) chairman’s summary of the 2012 Beijing Conference that:

    “Better international resource governance would be beneficial for all, since it leads to stability, predictability and hence lower prices. Establishing a neutral international platform comparable to the International Energy Agency (IEA) should be considered for resources as well, involving developing countries from the start, and leading to better transparency on the international commodity markets and dialogue and cooperation.”

    This would – in the long run – also be beneficial for China, as in today’s globalised world, no state is capable of managing the resource problems on their own.

  2. Thanks for your comment Martin!
    One of the positive aspects of living in a interconnected world is indeed that it leave us with few options other than cooperation. Even if China is a big player it can not simply ignore the rest of the world and looking at recent developments in its foreign policy I think it’s becoming more and more pragmatic in this sense!

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