A Chinese flag at the back of a boat flutters in the wind while cargo containers sit on the dock of Shenzhen Port in Shenzhen, China.
Daniel Berehulak | Getty Images News | Getty Images
China diversifies its supply of critical natural resources – a move according to the newly published report by risk consultant Verisk Maplecroft, Beijing will increase its ability to trade against its geopolitical competitors.
“If China has a soft underbelly, it’s its huge dependence on foreign natural resources,” reads the report released Thursday.
China is a major consumer of major products, including crude oil and iron ore. But the country relies heavily on imports to meet its domestic demand for those products.
Verisk Maplecroft, one of the ways the country is diversifying its import resources is by buying stakes in overseas companies. Doing so will increase the share of Chinese resources in total imports, the report said.
The consulting firm said as an example that the number of base metals and gold companies in Oceania in China is owned increased from zero in the year 2000 to 59 last year. The report shows about 22.6% of the total foreign ownership in such companies.
Oceania is a region that includes Australia, Papua New Guinea, New Zealand, Fiji and numerous island nations.
“China seeks to strengthen its control over global supply chains through overseas investments and partnerships with international majors. Beijing supports Chinese SOEs. [state-owned enterprises] to go ‘worldwide’ and establish control over resource bases overseas since the late 1990s, “the report reads.
Turn to ‘autocratic regimes’
China imports critical products such as crude oil, natural gas, metallurgical coal and iron ore from a ‘highly concentrated’ group of trading partners, Verisk Maplecroft said.
In diversifying its import sources, China prefers providers of ‘stable autocratic regimes’ over democracies that could involve frequent changes in governments or potential policy changes, he added.
By securing diversified resources, China will be in a better position to trade with geopolitical competitors, while increasing the economic dependence on new and existing partners.
“Our data shows that China is moving towards more autocratic regimes that represent greater stability for its supply lines than democracies that are or may become hostile to Beijing. But it is also using its massive market as a source of diplomatic leverage,” the consultant said. said.
“By acquiring diversified resources, China will be in a better position to arm trade with geopolitical competitors while at the same time increasing the economic dependence on new and existing partners,” he said.
But democracies dominate the production of some resources – one of which is iron ore.
China’s largest supplier of iron ore last year was Australia, a US ally recently hit by Beijing’s trade restrictions.
Australia shipped a monthly average of 60.86 million tonnes of iron ore to China in 2020, accounting for more than 60% of total Chinese imports of the commodity, Refinitiv data showed.
Therefore, China has strengthened trade ties with other iron ore producers such as Brazil and Guinea, according to the Verisk Maplecroft report.
“Despite a tighter line on Beijing under President Bolsonaro, Brazil remains a priority in China’s diversification strategy, while Guinea is politically well-disposed about Beijing amid democratic setbacks,” the report said.
Arms Trade
Companies and investors are in the direct sights of Beijing’s diplomatic movements and must prepare accordingly.
Such geopolitical tensions could continue as China accelerates its efforts to reduce its dependence on ‘unfriendly’ resource providers, Verisk Maplecroft said.
“The ban on coal imports from Australia has been an excellent example, but it is likely to follow, with significant impacts on trade in global commodities and the geopolitical landscape,” he said.
“Companies and investors are in direct view of Beijing’s diplomatic actions and must prepare accordingly.”