Resources for Change

Three decades ago, China was an oil exporter—sales of its fossil fuels accounted for nearly one-quarter of the country’s GDP and helped finance its economic reforms. After 30 years of rapid economic growth, China has now surpassed the United States as the world’s largest net oil importer. The country’s surging demand for energy, as well as for mineral resources and food products, has contributed to rising prices and raised fears about Chinese state-owned companies scouring the world for resources and locking up supplies.

Is China’s global quest for resources a game changer? In By All Means Necessary: How China’s Resource Quest Is Changing the World, a wide-ranging analysis of Chinese resource-acquisition strategies, Elizabeth Economy and Michael Levi debunk alarmist myths about China’s growing footprint in global resource markets. They are uniquely placed to do so—Economy is an expert on China’s environment, resources, and foreign policy, while Levi is an authority on energy policy, climate, and technology. Unlike many recent books that focus on China’s demand for a particular resource, By All Means Necessary compares China’s global quests for oil, gas, minerals, food, and water. The authors argue that it is necessary to examine the particular dynamics in each resource sector to assess the impact of Chinese demand and corporate practices. In particular, Economy and Levi caution against attributing recent increases in resource prices to China’s pressure on markets.

Oil producers, for example, have revenue targets. Once met, if prices are high enough, there is little incentive to increase supply regardless of demand pressures from China and other countries (p. 26). Moreover, contrary to the oft-heard trope about Chinese state oil companies locking up supplies, their production activities actually bring more oil to world markets. Some economists further note that the oil used in China’s production of goods for export—known as embodied oil—obviates the need by other countries for that oil in their own production process because they buy the finished products from China. Chinese demand for oil, in effect, reflects global demand for goods produced in China.¹

In the case of iron ore, developments in the Chinese steel industry unintentionally made the dynamics of the global iron trade more market-oriented. Economy and Levi recount how the emergence of small steelmaking companies in China undercut efforts by major Chinese firms to demand lower prices from the three main global producers of iron ore, Vale, Rio Tinto, and BHP Billiton, which control 70% of the trade (p. 37). As a result of changes in the Chinese industry, the iron trade shifted radically from an emphasis on long-term contracts to a system where spot markets play a much greater role (p. 39).

According to Economy and Levi, it is in commercial relationships where China’s impact is increasingly felt, as Chinese companies invest more extensively in a wide variety of countries and sectors (p. 45). Chinese firms are relatively new players and have to work harder to make friends, drawing on networks of informal and personal relationships. This can cause deals to unravel when the leadership changes in target countries. Chinese companies may also overbid or overpromise to win a deal, only to see their projects collapse or turn out to be less profitable than anticipated (p. 73).

The complex interconnections between Chinese political and economic elites present both opportunities and risks. Unlike in other countries, Chinese companies can depend on top political leaders to act as “diplomat deal makers” (p. 72). However, this means that political disputes have the potential to spill over into trade and investment, as was seen in 2010 when increased tensions between China and Japan disrupted the trade in rare earths between the two countries (p. 75).

China claims to follow the principle of “noninterference” in the domestic affairs of other states, and its companies enter into deals with none of the preconditions...