When Xi Jinping made his first trip abroad as China’s President last year, he chose Africa as his destination. His pledge to aid the continent’s development with “no political strings attached” was seen by many in the West as another sign of China’s willingness to look past corruption, rights abuses and environmental degradation in its quest to secure natural resources.
Others saw not the win-win relationship Mr. Xi described on his trip but a form of neo-colonialism. “China takes from us primary goods and sells us manufactured ones,” Nigerian Central Bank governor Lamido Sanusi wrote in the Financial Times. “China is a major contributor to the deindustrialization of Africa and thus African underdevelopment.”
Last week, Mr. Sanusi was ousted by Nigerian President Goodluck Jonathan after alleging that billions of dollars in oil revenue owed to the government were missing. His dismissal fuelled allegations of corruption at the state-run Nigerian National Petroleum Corp.
Mr. Sanusi’s exit has also contributed to unease that China, whose investments in Nigeria are growing, is buying the allegiance of shady regimes by promising unconditional political and financial support in exchange for raw resources.
Separating the truth from the hype surrounding Chinese mercantilism and market power is the mandate Elizabeth Economy and Michael Levi of the Council on Foreign Relations set out to fulfill in their new book, By All Means Necessary: How China’s Resource Quest is Changing the World. Surprisingly, they portray Chinese leaders and companies as quite adaptable to local values and business practices. This is both good and bad.
In countries where corporate governance and environmental standards are high, such as Canada, Chinese companies will comply. They are eager to learn, and investments in developed countries are helping them become better corporate citizens. But in countries where corruption is high and environmental and labour standards low, don’t expect Chinese involvement to raise the bar.
Western oil and mining companies have not exactly acted as boy scouts in Africa, either. But they are accountable – for instance, through the Extractive Industries Transparency Initiative – in ways Chinese state-owned companies are not. “Without effective environmental regulations, transparency and enforcement at home,” Ms. Economy and Mr. Levi write, “Chinese companies are unlikely to bring strong environmental practices when they invest abroad.”
This doesn’t augur well as the prospect of North American energy self-sufficiency leads African and Middle-Eastern oil producers to turn more toward China. Corrupt and undemocratic regimes will be under less pressure to change.
Ms. Economy and Mr. Levi also doubt China can meet its stated goal to shift its growth model away from state-led investment any time soon. With a goal of urbanizing 300 million more people by 2030, infrastructure development will continue to dominate. And Chinese demand for the raw materials to build factories and run them will continue to drive commodities markets.
In the six years prior to the 2008 financial crisis, the Commodity Research Bureau Index, which tracks the prices of 19 resources, almost quadrupled. Chinese oil and coal consumption has been doubling every 12 years. In the decade to 2010, China’s copper demand more than tripled and steel production quintupled, sending the country scurrying to lock up coal, oil, copper and iron ore supplies abroad.
Global competition to secure natural resources could indeed intensify. But the authors caution against blaming China alone for future price spikes. Much depends on how suppliers respond. For instance, Chinese demand that pushes global oil prices higher enables state-owned producers to meet revenue targets without boosting supplies.
Instead of succumbing to the hype, the authors advise, the West should engage more with China. To improve Chinese governance, it should welcome Chinese investment. To contain Chinese naval ambitions, the U.S. military should co-operate more with the People’s Liberation Army.
“China is slowly acquiring the ability to change the structure of global markets,” Ms. Economy and Mr. Levi conclude, “though only if it pushes in a direction others also support.”