China’s growth is phenomenal – everybody is writing about it. Everyone who’s been there will spout anecdotes of skyscrapers that erect themselves in a matter of days; of instances where three layers of road exist as fly-overs; and of an intricate network of impressively fast trains. China is building. Recent statistical releases by the bureau of statistics, Bloomberg and the IMF indicate that China will keep on building and that their ever-burgeoning current account balance will allow them to afford to in monetary terms.
But can China continue to afford it in material terms? By this I question whether China has sufficient access to the raw materials that are required to build the impressive physical features that guarantee it growth. Any economist can tell you that holding impressive quantities of cash (be it RMB, US dollars, Pounds Sterling: whatever) does not necessarily guarantee you a greater standard of living. And indeed Keynes famously confirmed that “in the long-run we’re all dead”- so what is the earthly good of the government having the potential to bestow wealth, harmony, better infrastructure and development if it can’t physically convert buying power into actual gains?!
Luckily and unsurprisingly, the Chinese government has been puzzling over this for quite some time. Instead of questioning the method of growth, they have enacted a shorter-term solution: go out and find this material! This makes plenty of sense: the political economy and sunk costs of the incumbent infrastructure could not be persuaded to change to something else even if it does exist. Furthermore, if the engine of the world was to grind to a halt to have a healthy debate on how else to improve growth, the world economy would “double-dip”; domestic projects would cease; companies world-wide would dissolve and the Chinese people would be back to the decaying infrastructure of the bad old times.
So it is only natural that the Chinese government should sure-up its supply of raw materials. For quite some time now, China has been the largest consumer of copper, tin, zinc, steel, iron ore and coal. It has been the second-largest consumer of aluminium, petroleum and lead and has won a bronze in the consumption of nickel. The most crucial (although all are needed) are iron ore, steel, coal and petroleum. The Chinese government needs to ensure it has access to all of these.
To meet these ever increasingly demands, China has reached out the hand of prosperity, trade and “peaceful development” to countries that are often deemed too volatile to trade with. Indeed, most trade that does deal with these countries often comes with “strings” attached as part of either a World Bank development project or an IMF Poverty Reduction Scheme. China requires none of these strings and the local governments rightly jump at the chance to benefit. Due to this, China has been observed to extend the trading hand to countries such as Gabon, West Guinea, Angola, Mongolia, Peru, Algeria, Iraq, DR Congo…the list goes on.
What this builds is a picture of country that is determined to continue its impressive rate of growth and attain the level of raw-material intensity that establishes “developed” infrastructure. At what risk though? Already it can be seen that this veracious appetite is blind to some painful realities. For example, political climates for international investment are often dangerous (Iraq); the cost of developing those resources is often seen to increase (eg. West Guinea); and the viability of these projects depends on the international joint ventures that bring with them their own host of problems (eg. MCC versus Cape Lambert Resources).
But what other, less-risky choice can China make? Its domestic resources are rapidly running out and the domestic industry (especially in steel-making) is often too fragmented to be cost-effective. In which case, international resources provide the cheapest and best solution – the price to pay is risk.
But the potential rewards are immense: China is able to achieve its development goals today and preserves its own resources for the future. This has caused some controversy such as the Indian ban on iron ore exports but that is to be expected: China is constraining other countries’ future growth. I doubt that there is any credibility in arguing that China will exercise this “resource power” in the future when other nations are eager to grow but it’s interesting to contemplate.
Whilst speculation on the future political motives of China is fascinating, it is more productive to examine just how crucial these resources are to the nation. In a time of government supported economic growth, rising inflation and a currency under-fire, the government is under pressure to maintain the support of the people. Certainly most of the eastern provinces have come to feel used to the modern infrastructure and impressive projects (which offer jobs) that I referred to earlier. This is a perception that is progressively percolating into the central and western provinces. If this impressive infrastructure halted its advance and literally crumbled, there would be over 1.4 billion disenchanted people to contend with – a sentiment that the world saw boil over in 1989’s Tiananmen ‘disagreement’.
It is not sensible to warn of another Tiananmen Square incident at this stage. This example just serves to highlight the possible ramifications that could come attached to a scenario of rapidly deteriorating growth. This growth does rely on the raw materials that provide the real economy with infrastructure projects, jobs, improved business interactions, efficiency and technology. This growth and prosperity is at the core of the CCP’s mission: “to get rich is glorious” after all.
In order to provide this, China must engage in risky joint ventures and expensive international exploration so as to ensure that the materials for this growth are secured. It is probable that China will do this in ever-increasing volumes and frequency as the steel mills and power plants continue to cry out for more.
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