China's Strategy to Secure Natural Resources: Risks, Dangers, and Opportunities

The rapid emergence of China as a major industrial power poses a complex challenge for global resource markets. Backed by the Chinese government, Chinese companies have been acquiring equity stakes in natural resource companies, extending loans to mining and petroleum investors, and writing long-term procurement contracts for oil and minerals. These activities have aroused concern that China might be "locking up" natural resources supplies, gaining "preferential access" to available output, and extending "control" over the world's extractive industries. On the demand side, Chinese appetite for vast amounts of energy and minerals puts tremendous strain on the international supply system. On the supply side, Chinese efforts to procure raw materials can either exacerbate or help solve the problems of high demand.

Evidence from the 16 largest Chinese natural resource procurement arrangements show that Chinese efforts---like Japanese deployments of capital and purchase agreements in the late 1970s through the 1980s---fall predominantly into categories that help expand, diversify, and make more competitive the global supplier system. Investigation of smaller projects indicates the 16 largest do not suffer from selection bias. However, Chinese attempts to exercise control over mining of rare earth elements may constitute a significant exception.

The investigative focus of this analysis is deliberately narrow and precise, assessing the impact of chinese resource procurement on the structure of the global supply base. The broader policy discussion in the concluding chapter raises other separate important issues, including the impact of Chinese resource procurement on rogue states, on authoritarian leadership, on civil wars, on corrupt payments and the deterioration of governance standards, and on environmental damage. Such effects may make patterns of Chinese resource procurement objectionable, on grounds quite apart from the debate about possible "control" of access on the part of China and Chinese companies.

Theodore H. Moran, nonresident senior fellow, has been associated with the Peterson Institute since 1998. He holds the Marcus Wallenberg Chair at the School of Foreign Service in Georgetown University. He is the founder of the Landegger Program in International Business Diplomacy at the university and serves as director there. In 2007 he was invited to join the Director of National Intelligence Advisory Panel on International Business Practices.
His books include Three Threats: An Analytical Framework for the CFIUS Process (2009), Harnessing Foreign Direct Investment for Development: Policies for Developed and Developing Countries (2006), Does Foreign Direct Investment Promote Development? (2005), International Political Risk Management: Exploring New Frontiers (2005), Beyond Sweatshops: Foreign Direct Investment, Globalization, and Developing Countries (2002), and Foreign Investment and Development (1998)