The Milken Institute Review
China is hardly imperial Japan, but there isa plausible case to be made that, as Asia’s newsuperpower, it is anxious to reduce its depen-dence on the commercial goodwill of foreign-ers. Rapid, sustained economic growth wouldbe far more difcult without large and grow-ing imports of oil, metal ores, timber and or-ganic chemicals. And while nobody is threat-ening to isolate China from world markets forthese resources, it is worth noting that Beijinghas chosen to risk its relationships with Viet-nam, Indonesia and the Philippines in claim-ing rights to exploit oil in disputed territory in the South China Sea. What’s more, oneneed not be paranoid to imagine circum-stances in which China’s access to foreign re-sources could be at risk. China might, for ex-ample, reasonably fear some sort of resource-linked retaliation down the road inresponse to its reluctance to join in efforts tocontain climate-changing carbon emissions.Plausibility is not evidence, though. What-ever China’s motives may be, what counts arethe consequences of its actions. And here,there is more than one way to interpret theimpact of China’s resource strategy. WhenChinese companies take equity stakes in Afri-can oil elds, extend loans to mining and pe-troleum investors in Latin America or writelong-term procurement contracts for miner-als and liquid natural gas from Australia, dothese steps reduce other buyers’ access toworld supplies? Or, might these tactics actu-ally serve the interests of non-Chinese buyersby multiplying suppliers and opening up freshsources of raw materials for global markets?To be sure, China’s vast appetite for energy and minerals has the potential to put tremen-dous strain on the international natural-resource sector. (And, as I dis-cuss later, Beijing’s investmentsoften undermine internationalefforts to link governance re-forms with economic integra-tion in some of the shadiercorners of the globe.) But onthe supply side, Chinese effortsto procure raw materials might smooth thebumps along the road as global markets re-spond to resource scarcity. The only way totell is to look at the evidence.
testing the lock-up hypothesis
I’ve divided recent Chinese natural-resourcesprocurement deals into four categories:
Equity stakes in large, established producers.
Equity stakes in start-ups and smallproducers aiming for expansion.
Loans to established producers in whichthe debt is linked to a purchase.
Loans to back the expansion of small,developing rms.If an arrangement simply gives a Chinesecompany a legal claim on the output of an es-tablished producer – the rst and third cate-gories – it has zero-sum implications. That is,China’s greater access comes at the expense of other importing nations. However, if the pro-curement arrangement expands and/or diver-sies sources of output – the second and fourthcategories – all resource users stand to gain.I then examined China’s 16 largest resource-
Td . M is the Marcus Wallenberg pro-fessor of international business an nance at GeorgetownUniversity an a senior fellow at the Peterson Institute forInternational conomics.
n the supply side, Chinese effortsto procure raw materials might smooththe bumps along the road as globalmarkets respond to resource scarcity.
feeding the dragon