Natural resources have always been the moot point for many a conflict and have tempted Kings and kingdoms into conflicts and wars since ages. A quick journey across our history would be enough to realise that the mightiest regimes have made planned moves to conquer natural resources – be it precious minerals, radioactive elements, energy resources, drugs, water or even human power. Talking about modern history, countries like US, UK and other Western powers have invaded nations in search of human slaves to natural gas.
Amidst all this, the bad news is that the era of cheap natural resources is definitely far gone. Natural resources and illegal occupation are very closely linked together; yet the correlation is largely ignored. The one time champion and monopolist nation of natural resources today is finding it expensive to explore its own natural wealth and is rather depending on imports. As per the US Geological Survey, 2011, United States imports 93 per cent of its antimony and 100 per cent of its bauxite and indium, 50 per cent of its lithium, and astonishingly, 100 percent of its rare earth metals. In just two decades, the tables seem to have turned completely. Two decades ago, China was the largest oil exporter, and today it’s one of the largest importers. So much so that China’s consumption of essential metals has doubled in the last 10 years and is expected to double again in the next few years. Today, against all the odds, China has made its presence unshakeable in most of the Latin American and African nations. I have, in some of my previous editorials, written on how China is completely into Africa in all economic and non-economic sectors. And why not! Latin America and Africa are precisely the two continents, which still have enough natural resources to meet the global demands for years to come, and to make any country controlling these resources economically powerful for years to come. For instance, in 2007, China bought a 15,000 feet mountain in Peru for a whopping $3 billion. Mount Toromocho, which is spread across 138 km, has proved to be one of the most productive copper mines in the world and is reaping a profit that is almost 2000 per cent of the initial investment.
China is not leaving out promising opportunities even outside these two continents. China has recently signed a “laptops for pork” deal with Canada which will allow China to become a prominent player in the meat industry in no time. Simultaneously, China is exploring opportunities to make it big in the fertilizer industry. China, a few years ago, mobilised its state-owned enterprises to bid for PotashCorp (POT), the Canadian fertilizer giant which is the largest producer of potash and third largest producer of phosphate and nitrogen.
On a closer look, the entire resource-grab spree would reveal a couple of interesting and economically-intelligent strategies. China is tapping into the resources of those nations that are relatively weaker. In other words, they are entering nations that are politically weak and have poor governance (including India).
Moreover, these are precisely those nations where the West had never paid heed and had left them to their own fate. Various nations of Latin America, which were subjugated by the West through sanctions and regular invasions, and Africa where the West only went with an objective of plundering and looting, are the prime-interest areas of China. The dragon nation is offering countries in these geographies trade offers that are more than lucrative. Not only is China commercialising their dead industries but is also allowing them to develop support infrastructure. In any case, it’s a win-win situation for China from both the ends! Such deals give them free access to hinterlands and hidden resources and the support infrastructure removes the transportation bottlenecks too.
And interestingly, such huge deals are not hampering the domestic markets of these nations, unlike those nations where huge FDI can be disastrous for domestic traders. At the same time, learning from the mistakes of others, China too is concentrating equally both at home and abroad. Actually, its global resource shopping spree is to facilitate trade at the domestic front. Most of the nations where China has sealed bilateral ties have seen a huge influx of Chinese multinationals that are acquiring assets and resources from all directions. Going steps further, unlike the West which is mad over oil and oil only, China is buying everything from poultry to coal to copper to even scrap. And to top it all, Beijing has recently bought land in the United States to develop ‘special economic zones’ near the south of Boise, Idaho. China National Machinery Industry Corporation would build a 30,000 acre self-sustaining city in Idaho where it will establish numerous Chinese companies, outlets and would employ tens of thousands of Chinese workers. The same is also being planned in Milan, Michigan. In simple words, China is building a new Shenzhen in the heart of US.
Thus, China is going global and buying almost everything under the sun. The country recently bought AMC Entertainment Holdings, one of America’s largest movie chains, America’s biggest pork producer (Smithfield) and even vineyards in Bordeaux. Now the big picture – such purchases are galvanising the Chinese economy more strongly which will further help in making the yuan stronger, and this eventually would strengthen the already strong position of the Chinese domestic market on the global map. Plus, China is trying to route all manufacturing activity to their nation with the global supply chain channels essentially crisscrossing the Chinese geographies. Undoubtedly, this would leave all other nations at the mercy of China for global trade, and will definitely snatch away trading power from the West. It is undeniable. You can’t think of beating the Chinese anymore. In such a scenario, at a global level, global trade councils should draft trade policies that would focus primarily on nations with Chinese influence; and at a national level, countries should start aligning their trade policies towards the East.
- 22 August 2013 |
- Dr. Arindam On China