Winner Take All: China's Race For Resources and What It Means For Us
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To understand the events of the next fifty years one must first and foremost understand environmental scarcity or “diminishing natural resources.”
In order to understand China’s approach to securing global resources, we must set it in the broader context of the global demand for commodities.
Why global demand pressures across the commodity complex—arable land, water, energy, and minerals—are set to increase, and how these demand factors will exacerbate resource scarcity in the decades to come.
The exponential growth of the world’s population and the technology that has accompanied it over the past fifty years have placed unprecedented pressures on commodity demand of all manner of resources—from food and water (itself an input to food) to energy and minerals (as, say, heating and plumbing inputs for a rapidly expanding global population).
A scarier picture is emerging, one in which the resources on which we depend today—many of them nonrenewable—are depleting into nonexistence or are so poorly matched that their demand and supply might never be able to meet.
China seems to be the only country that’s preparing for this eventuality in a sustainable and deliberately constructive way, by making friends across the globe and systematically and continually investing across the commodities complex.
By 2050 there will be as many as 10 billion people living on the planet—a 40 percent increase in the world population in a mere forty years.
The tremendous economic progress around the world and the global wealth that it has unleashed has far-reaching and untold effects on the global demand for commodities. A richer average population will demand more and better quality foodstuffs, goods, and services—all of which require more resources. *
By 2030 at least 2 billion new people will join the global middle class, roughly the same size as the current total population of Africa, North America, and Europe.
A richer average populous is certain to demand more and better quality goods and services, all of which require more resources.
Global demand for food and water will increase by 50 and 30 percent respectively by 2030. *
China stands apart in the scale of its demand and its very deliberate plan to search for global resources.
In 2010 China already had forty cities with populations of a million people or more. By 2020 it plans to add around 225 fully functioning new cities, each to be inhabited by at least one million people.
The implications for commodity demand are tremendous.
If China’s strategy comes to fruition, its execution will require a lot of arable land, a lot of usable water, a lot of energy, and a lot of minerals.
The risk is that commodity demand will expand more quickly than the world supply can accommodate. The inevitable result would be recurring shortages of key materials, and it is these shortages that could foment global conflicts.
So where does the world stand on the supply side of natural resources?
The world’s most important commodities have one crucial thing in common: they are increasingly becoming scarce, as the earth’s (finite) natural resources supply has not adequately kept up with the rising demand.
In Februay 2011 Zhou Shengxian, China’s environment minister, acknowledged publicly that “the depletion, deterioration and exhaustion of resources and the deterioration of the environment have become serious bottlenecks constraining economic and social development.” *
In order to see what he saw, a similar-style global stocktaking is crucial.
Over 29 percent of the earth’s surface is composed of dry land. Of that, just 11 percent (or 1.4 billion hectares) is arable—that is, suitable for crops.
Despite having the world’s largest population, China has only around 12 percent arable land, and India, with roughly the same population, has over 50 percent arable land.
Between 1997 and 2008 the area of arable farmland in China fell by 12.31 million hectares—that is, a loss of around 1 million hectares per year—much of it attributed to the growth in urban centers. Other studies have found that as much as one-sixth of China’s arable land is polluted by heavy metals and erosion, whereas desertification has left more than 40 percent of the nation’s land degenerated. All in all, this is not a happy picture.
This is why China has embarked on aggressive land purchase and lease schemes well beyond its borders, particularly in fertile lands in Africa and South America. *
In theory, water should never be lacking. Water covers approximately 71 percent of the earth’s surface; however, 97 percent of it is too salty for productive use. Of the 2.5 percent that is usable freshwater, 70 percent is in icecaps, and much of the rest is in the ground. This leaves just 0.007 percent of the earth’s water supply in the form of readily accessible freshwater, and like arable land, that freshwater is not evenly distributed.
A large part of China’s resource rush relates to efforts to secure access to water for its population. China’s water problem is acute.
By 2025 fifty-two countries covering over 3 billion people, or 40 percent of the world’s projected population, are expected to face water shortages. According to Nature, an interdisciplinary science journal, in 2010 already 80 percent of the world’s population lives in areas with threats to water security.
In 2030 China’s water demand is expected to reach 216 trillion gallons, but its current supply amounts to just over 163 trillion. The numbers are large and hence can be hard to grasp, but the imbalance between supply and demand is stark.
The world is facing an unprecedented catastrophe brought about by an increased demand for food and clean water driven by burgeoning populations coupled with the relative scarcity of inputs (arable land, water).
Given that this book is about China’s global resource campaign, it is imperative that we understand the specific dynamics around its energy supply.
There is a “significant risk” that global oil production could begin to decline in the next decade.
The ease with which some government officials tap and divert oil revenues for personal use explains why some of the world’s most oil-rich countries are also ranked as the most corrupt.
Most prosperous countries, with the exception of Norway, import oil. Meanwhile, most oil—Norway again excepted—is controlled by powerful, often fabulously wealthy, frequently tyrannical ruling families or closed political cartels.
The ultimate interest of the ruling class is largely in the preservation of the status quo, with its unfettered access to oil wealth. It is against this backdrop that China’s resource machinations play out
Today coal generates half of the electricity in the United States, more than two-thirds of the electricity in India, and more than three-quarters of the electricity in China. The IEA expects demand for coal to grow by more than two-thirds in the next twenty years, as countries like China and India grow their economies and use their coal deposits.
Because oil is not a renewable energy source, it will be exhausted at some point in the future and, thus, should not be depended on as a long-term solution.
However, without convincing efficiency improvements, revolutionary strides in technology, and the discovery of credible alternative energy sources, traditional energy sources are the only source the world will continue to turn to in order to meet energy demand through 2030—the upcoming two decades when China is going to be most radically accelerating its energy consumption.
Are there enough energy resources so a billion Chinese can live like three hundred million Americans?
Imagine the implications for oil demand as China—with thirty-five cars per thousand people—converges to US levels of roughly 800 cars per thousand people.
China’s impressive economic record has had a marked impact on domestic incomes, and incomes have a dramatic effect on the consumption of all sorts of goods and services.
Copper is used in wires and cables and electrical transmission.
By the end of 2010—that is, in just over five years—China’s share of global consumption of refined copper shot up to 41 percent>
The prospects for medium- to long-term copper supply are worrisome, and much of the world is ill prepared for the eventualities of such shortfalls. Much like the oil story described earlier, the world continues to rely on copper deposits from discoveries of days gone by while having to spend more and more money to extract it.
The world is arguably facing seemingly insurmountable constraints across the whole gamut of commodities—arable land, water, energy, and other minerals.
Clearly China has the financial muscle to meet the cash calls needed to participate throughout the commodities arena.
Save China, which has faced the prospect of the forthcoming global resource disaster and is doing what it can to avert the crisis, the world is ill prepared for a commodity calamity.
China’s commodity crusade is multifaceted. It encompasses what China does to secure the assets, how China gains ownership or access to global commodities (using an intricate web of strategies), and what the sheer scope of China’s resource rush means for the world.
China’s strategy is not solely to get a full range of commodities from a variety of countries; it also is actively pursuing the underlying infrastructure to ensure that once the resources are extracted, they can be transported back to China in the quickest and most reliable way.
Already, more than half of the world’s top-ten container ports are Chinese. As the world’s largest producer of crude steel and the largest importer of iron ore, China is central to the dry bulk–shipping business. As the world’s second-largest importer of energy, China’s importance in tanker shipping—used in the transportation of crude oil and refined products by sea—is key.
China’s more integrated approach of securing global resources and then moving the commodities using its own infrastructure is much more cost competitive and also secure.
China’s resource strategy is not just about using shipping lanes and leading trade routes; it’s also about owning the underpinning infrastructure.
Whether it’s much-needed investment, job creation, or trade, hundreds of millions of people across the globe are in desperate need of exactly what China is happy to provide.
Amid the multitudinous variables of commodity trading, perception still counts a great deal, but so does mass, determination, and strategy—the mass to move the market, the determination to make it happen, and the underlying strategy that directs the mass and informs the determination. And that gets us back to China. Beyond broader shifts in demand and supply, commodity price fluctuations will in the future come to be instigated and dominated by the global excursions of China. Its influence in determining global commodity prices is not predicated only the fact that China wants the resources but also on how this most populous and now wealthy of the world’s nations is going about getting access to them.
Simply stated, China has developed into the global price setter par excellence for numerous commodities through its specific relationships with resource-rich countries.
China provides the cash that other countries need in exchange for the access to resources that China so desperately requires. In so doing, the long-term relationship that can thrive—at least until the diminishing resources are depleted.
One well-known example is the so-called Chimerica relationship, by which China has lent vast amounts of money to the US government in return for virtually unshackled access to America’s consumer market.
China’s commodity acquisition campaign is designed to lock in countries all over the world in a similar symbiosis.
Such dependency is strongly reinforced by the threat of financial catastrophe; breaking out of the cycle requires a country’s willingness to severely damage its own economy. *
Whether the asset being traded is access to the world’s largest consumer market or African nickel mines, the outcome and the essence of the trade is the same—long-term dependency. Escape is futile, and everyone is left in hock to China.
China’s growing role and relevance in global commodity markets means it will ultimately drive how resource prices are derived. To a large extent, this is already the case.
The nation’s substantial amounts of cash enable it to become the marginal buyer across a whole spectrum of commodities—the buyer who is the top bidder of assets and thus dictates the market price.
China could, in fact, corner the market. *
No coordinated global body deals singularly and comprehensively with the legal and policy issues related to resources.
Meanwhile, China will likely continue to increase its market share, access, and control in land acreage, energy, and minerals worldwide. *
In a world of mounting resource scarcity, the leverage of the rest of the world on China is declining.
To say that energy concerns are an important strategic concern for China is an understatement.
The world in general is believed to be expanding by one hundred million people a year, a staggering number akin to adding a new United States to the global population every three years. Even if the new rising middle classes of the emerging economies prove to be more prudent in their resource demands than the established middle classes of the developed world—and sheer number of new people on the planet demanding survival basics in the decades ahead is terrifying to contemplate.
Any thorough understanding of global resource supply and demand in the decades ahead has to begin with a thorough understanding of China’s agenda.
Over the past two thousand years many of mankind’s most brutal wars have been borne of clashes over resources.
Since 1990 at least eighteen violent conflicts have been fueled by the exploitation of commodities.
The problem the world faces is that the sheer scale of the forecasted demand-supply imbalances are so big that the familiar or tried-and-tested interventions of individual governments will not be enough to avoid the wrath of global-resource scarcity and its consequences in a cost-effective way. A truly cohesive worldwide approach is the best way to stem the tide. But where is the global strategy to combat and counteract a global resource Armageddon? There is not one: the world is ill prepared.
Countries have mostly opted to address the risks of commodity imbalances unilaterally, at the national level (via subsidies, stockpiling, military incursions, etc.) rather than give the risks of resource scarcity the airing they deserve in a global arena. *
The schism between the commodity haves and have-nots, increases the risk of substantially higher global commodity prices, and becomes the crucible for future war.
China seems to be the only country that is preparing for this eventuality in a sustainable way.
We find ourselves on earth at a unique time with the extraordinary challenge of managing and navigating the headwinds of commodity shortages that the world faces over the next two decades. At present we are ill prepared to contend with this eventuality, yet the challenges we face go beyond our living standards to the survival of the planet as we know it.