China’s dependence on foreign natural resources to meet internal demand has pushed Beijing to lock up natural resource supplies, gaining preferential access to available output, but also shifting the current geopolitical map, a new study suggests.
President Xi Jinping’s regime is pivoting towards more autocratic regimes that represent greater stability for its supply lines than democracies that are, or may become, hostile to China, the latest research from risk consultancy Verisk Maplecroft shows.
The task has been easy for Beijing when it comes to oil and gas. Many of the largest hydrocarbon producers, such as Saudi Arabia and Russia, are autocracies or illiberal democracies.
China’s attempt to replicate the model for other commodities, such as iron ore, has been hindered by the fact that most producers of the steelmaking material are democracies. “Beijing has little choice but to cooperate with them, regardless of their regime type,” Verisk Maplecroft says.
It doesn’t mean Beijing doesn’t have a plan for commodities with no immediate alternative supplier. The government is actively seeking substitution strategies, such as increasing imports of scrap steel to use as a feedstock, as a way to reduce reliance on imported Australian iron ore.
China’s current imports of key resources come from a small group of trade partners, including Australia, Russia, Brazil, Mongolia and the United States.
The country is trying to diversify its natural resource suppliers. By doing so, it reduces a key vulnerability and strengthens its geopolitical levers, Verisk Maplecroft says.
According to the consultancy, Beijing sees three areas in particular that shift the balance in its favour.
The first is the use of trade as a coercive weapon, through measures such as imports and exports restrictions. Only last month, news of China mulling to limit exports of rare earths that are crucial for the manufacture of weapons, electric vehicles (EVs) and offshore wind turbines grabbed global headlines.
It already used that monopoly power once, cutting off Japan’s supply after a 2010 clash near islands both nations claim to own. Japan has since reduced the share of its rare earth imports that come from China by more than a third to reduce its exposure.
Beijing also imposed in 2009 restrictions on rare earths exports but had to scrap the decade-long quotas in 2015, after losing a case with the World Trade Organization. The complaint, led by the US, was backed by several nations, including Brazil, Canada, Japan, Argentina, Russia and Australia, as well as all members of the European Union.
Another issue playing in China’s favour is a strengthening of economic ties with Russia. Despite a history of mutual distrust, Russia and China’s economic and political interests have converged over the past decade, Verisk Maplecroft notes.
“Deteriorating relationships with the West have driven the two countries to cooperate closer in multiple areas, in particular energy,” the report reads. “Increasing energy imports from Russia will further both Beijing’s import diversification strategy and Moscow’s ’Pivot to Asia’ ”.
The third element is that China-backed multilateral initiatives will favour Belt and Road partners.
“Financing terms, such as interest rate discounts and lower ESG requirements, are more attractive to countries that are prioritizing a quick economic recovery over a ‘green recovery’ from covid-19,” the analysts say. “These partnerships will reshape multilateralism with an economic order that is more China-centric.”