China uses wealth in a new kind of colonialism
I WRITE this review having just finished a meeting in Dublin with the Chinese agency in charge of 200 trillion renminbi (€25 trillion) in assets worldwide. The scale of such a number is consistent with the scale highlighted by Moyo in Winner Take All.
The book is laid out in two main sections, one which highlights China’s Rush for Resources and the second presenting what this means for the world. As a recent visitor to Shanghai and Beijing, one is not prepared for the scale of construction, infrastructure and increased wealth of a country which until recently secluded itself and was in the main rural.
Moyo introduces her book describing how China has purchased Mount Toromocho in Peru for $3bn thus giving China access to one of the largest known copper deposits in the world. Moyo argues that average prices for commodities will rise due to scarcity of arable land, minerals, water and oil and that higher prices will lead to worsening living standards in the world. The Chinese are absolutely focused on winning the race for resources and their moves are the most aggressive. As a result, China will be a price setter in the world.
She contends that this insatiable requirement for resources could create new wealth for despotic governments and introduce subjugation of local citizenry. The three leading investors in Africa are Chinese and are state enterprises. China’s trade with Africa has risen from $10bn in 2000 to $90bn in 2010. The country has $3 trillion in foreign currency reserves and it is on a shopping spree. Moro points out that 26% of all foreign held US bonds are held by China.
China’s demand is a function of population and an increasing middle class. By 2050 there will be 10 billion people in the world. The West will have moderate growth during this period. Moyo points out that since 2000, China has created seven Indias, three Italys and two Frances in economic terms.
As somebody who tried with difficulty to get from one side of Beijing to another by taxi, the fact that 20% growth rate in car sales have been recorded since 2004 is not surprising.
We are an urbanising world with 60 million people leaving the countryside world each month. By 2020, China will have 225 new cities of greater than 1 million in population. Moyo’s presentation of these facts are staggering but they introduce real challenges.
Water is a critical issue for China as a lot of its freshwater source is contaminated — Beijing is spending €4bn in establishing a water desalination plant. In addition, China will need to quadruple its water supply by 2020.
Moyo looks at the Energy appetite of China by stating that it has an insatiable demand for hydrocarbons (particularly oil and coal) and renewables. China has the largest renewable capacity in the world and it is developing significant demand-side technologies to control energy usage — new building standards in their cities say it all.
Copper consumption in China has risen from 23% in 2006 of world resources to 41% today — no wonder they are buying mountains in Peru. Of all the minerals considered by Moyo, copper provides China with the greatest supply side difficulty.
She claims that China is overpaying for commodity assets — way above market prices or fair prices. China’s coal demand has inflated natural gas prices globally and this has had a consequent impact on energy prices here. China’s coal imports account for 3% of its demand but 20% of all seaborne coal worldwide. In contrast, China’s demand for baby food, dairy and quality protein will mean that Irish farmers and food processors have a better future.
China will create more private than public deals internationally.
Moyo takes the view that the Chinese will see value where others will not and as a result are more inclined to invest at lower costs of capital which would make no sense to a traditional western approach. China is viewed internationally as a lender of last resort as it is typically the last to turn up to buy bonds. They may be the first to turn up to buy new Irish bonds.
She proposes that it is unlikely that the international community will take action against China and its approach as the international community has not taken action against the cartel that is OPEC.
It is not a rarity to find government intervention in markets across the globe — Moyo cites US and European agricultural intervention as key examples. There is no doubt that such interventions create subsidy — it is ironic then that Irish agrifood is experiencing an uplift due more to pure export market causes.
She also cites significant intervention in markets by governments in national assets such as mining and oil in the Congo and Venezuela. We have seen further interventions by Argentina by the forced nationalisation of YPF Repsol recently.
Many states have started to accuse China of the colonial domination of Africa but as an African the author argues that the Chinese way has shown nothing of the European colonialism such as religious conversion, military force or the handpicking of the local leadership.
Ironically, China is just there because it is commercial — a moot point for a communist country. China is in Africa for the oil, gold, the copper and the land. The view of China in Africa is more positive than that of the US according to an independent report across African nations — a fact that in itself probably motivated colonisation claims by some states.
The author believes that China will continue to use soft power to engage governments with Chinese foreign direct investment for the foreseeable future but if China gets isolated from its demand requirements; commodities, then that approach might change.
The waste of food in the western world is staggering, according to Moyo. US$75bn of wasted food is produced in the US each year representing $600 wasted per household when there are 1 billion people starving in the world.
All of this happens in an environment where it is very difficult due to US subsidies for foreign food to access the US market. Oxfam claims that significant economic damage is being done to east African countries through persistent EU subsidies. The World Trade Organisation facilitates trade agreements but does not have the power to enforce. This is one of the reasons why China has seen the strategic opportunity in African countries for food exports.
Moyo has grave doubts as to the solution that fracking provides for gas supplies worldwide. There is a difference between technically and economically recoverable resources but in any discussions I have had with energy people in the US they are committed to making shale gas a “freedom fuel”.
China, with its large resources of shale may also take the same view as the US regardless of EU or Irish sentiment towards the practice and the resource.
China’s relationship with Kazakhstan is borne on uranium supplies for nuclear power. While this will help in carbon terms it will not address the real issues being presented from coal burning growth and raw sewage discharge.
A major outstanding threat will be the potential that China will need to throw cash at its citizens so as to avoid internal conflict. This could limit the amount of cash available for external application which in itself might mitigate the Chinese ambition for commodity capture and external investment.
Moyo concludes by suggesting that the differing approaches of the US and China to commodities and resources must not continue — military versus economic. China looks at military options as a last resort but the option is always there. Successive global environmental congresses illustrate how our global leaders are not able to agree on fundamental programmes for climate change because of self interest in the main.
She concludes by stating that “at present we are ill prepared to contend with the eventuality (of commodity shortages) yet the challenges we face go beyond our living standards to the survival of the planet as we know it. This fight is about life or death”.
In summary, Moyo’s argument is a captivating read based on many facts and independent reports but one which also reflects an externalised view considering that Dambisa Moyo has her origins in Lusaka, Zambia. If you want to know why certain things will happen then read this book today.
* John Mullins is chief executive of Bord Gáis
CONNECT WITH US TODAY
Be the first to know the latest news and updates
