China's Growing Quest for Energy and Raw Materials
The modernization of China has led to a surge in its demand for energy and raw materials. In concert with its rapidly growing foreign investment and trade, China's search for these resources has ranged across the entire globe. Four panelists each contributed their expertise on China's involvement in a particular region: Deborah Brautigam, Professor of International Development at American University, on China's involvement in Africa; Francisco Gonzalez, Professor of Latin American Studies at John Hopkins University, on China in Latin America; Patrick Fazzone, partner at law firm Butzel Long Tighe Patton, on China in Australia; and Derek Scissors, economics research fellow at the Heritage Foundation, on China's general investment portfolio.
Dr. Brautigam noted the similarity between the approaches of China and the West to foreign investment, as both have sought to secure their loans with reliable streams of resources. They feature similar pros and cons, such as direct channeling of funds to development and thus reduction of waste, and the sole source bidding of contracts by national companies and thus potential lack of competition. Nevertheless, the Chinese model is markedly different, with focus on mutual benefit rather than foreign aid, a minimal interference in internal politics, and different ideas about development generally based on China's own experience as a recipient of loans. Through these methods, Chinese companies have achieved great success, and currently hold USD 14-16 billion in resource-backed loans in Africa (excluding those to the Sudan).
Dr. Gonzalez highlighted the rapid evolution of China's role in Latin America in recent years. Though wary of antagonizing the US, China has maintained a broad strategy in the region, engaging in a range of economic and political exchanges, as well as in cultural exchanges through Confucius Centers and exchange students. China has also learned from its past failures, for example shifting from independent foreign ventures to joint ventures with local companies, an approach which has been better received. In just the past two or three years, China's success has greatly increased its importance in the area, a point evident in the increased caution displayed by the leaders of Latin American countries to avoid antagonizing Beijing despite conflicts over certain trade practices.
Dr. Fazzone brought his perspective as legal counsel to China's involvement in Australia. In order to invest, foreign companies must generally first receive approval from the Australian Foreign Investment Regulatory Board (FIRB). While some investment attempts, such as Chinalco's USD 19.5 billion's stake in mining company Rio Tinto, have met with failure due to business reasons, few fail due to regulatory entanglements with the Australian government. This is because if the initial attempt is not approved, the Chinese are allowed to change the structure of their investment to accommodate problems.
Dr. Scissors began by noting the opaque nature of the Chinese government's data on foreign investment. The data often fails to reveal the ultimate destinations of investment, and instead only proximate destinations such as Hong Kong. More transparent data is offered by Dr. Scissors's organization, the Heritage Foundation. Subsequently, Dr. Scissors analyzed the composition of China's foreign investment. Total Chinese foreign investment is roughly USD 2.5 trillion. The majority of this is in bond markets, with USD 1.46 trillion in the US bond market. A far smaller portion is in non-bond investments, where the Chinese display idiosyncratic behavior, choosing to prioritize securing long-term access to vital resources (energy, metals) over monetary return. The Heritage foundation tracked USD 175 million in non-bond investment transactions between 2005 and 2009. Primary areas of Chinese investment are in Australia, the US, Canada, Iran, Kazakhastan, and potentially Iraq.
Speakers
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Kissinger Institute on China and the United States
The Kissinger Institute works to ensure that China policy serves American long-term interests and is founded in understanding of historical and cultural factors in bilateral relations and in accurate assessment of the aspirations of China’s government and people. Read more
Africa Program
The Africa Program works to address the most critical issues facing Africa and US-Africa relations, build mutually beneficial US-Africa relations, and enhance knowledge and understanding about Africa in the United States. The Program achieves its mission through in-depth research and analyses, public discussion, working groups, and briefings that bring together policymakers, practitioners, and subject matter experts to analyze and offer practical options for tackling key challenges in Africa and in US-Africa relations. Read more