By Michael T Klare
Think of it as a tale of two countries. When it comes to procuring the resources that make industrial societies run, China is now the shopaholic of planet Earth, while the United States is staying at home. Hard-hit by the global recession, the United States has experienced a marked decline in the consumption of oil and other key industrial materials. Not so China. With the recession's crippling effects expected to linger in the US for many years, analysts foresee a slow recovery when it comes to resource consumption. Not so China.
In fact, the Chinese are already experiencing a sharp increase in the use of oil and other commodities. More than that, anticipating the kind of voracious resource consumption that goes with anticipated future growth, and worried about the availability of adequate supplies, giant Chinese energy and manufacturing firms - many of them state-owned - have been on a veritable spending binge when it comes to locking down resource supplies for the 21st century. They have acquired oil fields, natural gas reserves, mines, pipelines, refineries, and other resource assets in a global buying spree of almost unprecedented proportions.
Like most other countries, China suffered some ill effects from the great recession of 2008. Its exports declined and previously explosive economic growth slowed from record levels. Thanks to a well-crafted US$586 billion stimulus package, however, the worst effects proved remarkably short-lived and growth soon returned to its previous high-octane pace. Since the beginning of 2009, China has experienced significant jumps in car ownership and home construction - along with worries about the creation of a housing bubble - among signs of returning prosperity. This, in turn, has generated a rising demand for oil, steel, copper, and other primary materials.
Take oil. In the United States, oil consumption actually declined by 9% over the past two years, from 20.7 million barrels per day in 2007 to 18.8 million in 2009. In contrast, China's oil consumption has risen in this same period, from 7.6 million to 8.5 million barrels per day. According to the most recent projections from the US Department of Energy, this is no fluke. The Chinese demand for oil is expected to continue climbing throughout the rest of this year and 2011, even as American consumption remains nearly flat.
Like the United States, China obtains a certain amount of oil from domestic wells, but must acquire a growing share from overseas suppliers. In 2007, the country produced 3.9 million barrels per day and imported 3.7 million barrels, but that proportion is changing rapidly. By 2020, it is projected to produce only 3.3 million barrels, while importing 9.1 million barrels. This situation has "strategic vulnerability" written all over it, and so leaves Chinese leaders exceedingly uneasy. In response, like American officials in decades past, they have moved to gain control over foreign sources of energy - and similarly many other vital materials, including natural gas, iron, copper, and uranium.
China binging on energy
Chinese energy companies initially started buying up foreign firms and drilling ventures (or, at least, shares in them) as the 21st century began. Three large state-owned oil companies - China National Petroleum Corp (CNPC), China National Offshore Oil Corp (CNOOC), and China Petroleum & Chemical Corp (Sinopec) - took the lead. These firms, or their partially privatized subsidiaries - PetroChina in the case of CNPC, and CNOOC International Ltd in the case of CNOOC - began gobbling up foreign energy assets in Angola, Iran, Kazakhstan, Nigeria, Sudan, and Venezuela. On the whole, these acquisitions were still dwarfed by those being made by giant Western firms like ExxonMobil, Chevron, Royal Dutch Shell, and BP. Nonetheless, they represented something new: a growing Chinese presence in a universe once dominated by the Western "majors".
Then along came the great recession. Since 2008, Western firms have, for the most part, been reluctant to make major investments in foreign oil ventures, fearing a prolonged downturn in global sales. The Chinese companies, however, only accelerated their buying efforts. They were urged on by senior government officials, who saw the moment as perfect for acquiring crucial valuable resources for a potentially energy-starved future at bargain-basement prices.
"The international financial crisis ... is equally a challenge and an opportunity," insisted Zhang Guobao, head of the National Energy Administration, at the beginning of 2009. "The slowdown ... has reduced the price of international energy resources and assets and favors our search for overseas resources."
As a policy matter, the Chinese government has worked hard to facilitate the accelerating rush to control foreign energy resources. Among other things, it has provided low-interest, long-term loans to major Chinese resource firms in the hunt for foreign properties, as well as to foreign governments willing to allow Chinese companies to participate in the exploitation of their natural resources. In 2009, for example, the China Development Bank (CDB) agreed to lend CNPC $30 billion over a five-year period to support its efforts to acquire assets abroad. Similarly, CDB has loaned $10 billion to Petrobras, Brazil's state-controlled oil company, to develop deep offshore fields in return for a promise to supply China with up to 160,000 barrels of Brazilian crude per day.
Prodded in this fashion and backed with endless streams of cash, CNPC and the other giant Chinese firms have gone on a global binge, acquiring resource assets of every imaginable type in staggering profusion in Central Asia, Africa, the Middle East, and Latin America. A very partial list of some of the more important recent deals would include:
And that's only in the energy field. Chinese mining and metals firms have been scouring the world for promising reserves of iron, copper, bauxite, and other key industrial minerals. In March, for example, Aluminum Corp of China, or Chinalco, acquired a 44.65% stake in the Simandou iron-ore project in the African country of Guinea. Chinalco will pay Anglo-Australian mining giant Rio Tinto Ltd $1.35 billion for this share. Keep in mind that Chinalco already owns a 9.3% stake in Rio Tinto and has been prevented from acquiring a larger share mainly thanks to Australian fears that China is absorbing too much of the country's energy and minerals industries.
Shifting the world's resource balance
Chinese companies like CNPC, Sinopec, and Chinalco are hardly alone in seeking control of valuable foreign resource assets. Major Western firms as well as state-owned companies in India, Russia, Brazil, and other countries have also been shopping for such properties. Few, however, have been as determined or single-minded as Chinese firms in taking advantage of the relatively low prices that followed the global recession, and few have the sort of deep pockets available to such companies, thanks to the willingness of the China Development Bank and other government agencies to offer munificent financial backing.
When the United States and other Western nations finally recover from the great recession, therefore, they will discover that the global resource chessboard has been tilted strongly in China's favor. Energy and mineral producers that once directed their production - and often their political allegiance - to the US, Japan, and Western Europe now view China as a major customer and patron. In one eye-catching sign of this shift, Saudi Arabia announced recently that it had sold more oil to China last year than to the United States, previously its largest and most pampered customer. "We believe this is a long-term transition," said Khalid A al-Falih, president and chief executive of Saudi Aramco, the state-owned oil giant. "Demographic and economic trends are making it clear - the writing is on the wall. China is the growth market for petroleum."
For now, Chinese leaders are avoiding any hint that their recent foreign resource acquisitions entail political or military commitments that could produce friction with the United States or other Western powers. These are just commercial transactions, they insist. There is, however, no escaping the fact that growing Chinese resource ties with countries like Angola, Australia, Brazil, Iran, Kazakhstan, Saudi Arabia, Sudan, and Venezuela have geopolitical implications that are unlikely to be ignored in Washington, London, Paris, and Tokyo. Perhaps more than any other recent developments, China's global shopping spree reveals how the world's balance of power is shifting from West to East.
Michael Klare is a professor of peace and world security studies at Hampshire College in Amherst, Mass., and the author, most recently, of Rising Powers, Shrinking Planet. A documentary movie version of his previous book, Blood and Oil, is available from the Media Education Foundation.