China’s Resource Quest: A Conversation with Economy and Levi

Elizabeth C. Economy, C.V. Starr senior fellow and director for Asia Studies at the Council on Foreign Relations (CFR), and Michael A. Levi, David M. Rubenstein senior fellow for Energy and the Environment and Director of the Program on Energy Security and Climate Change at CFR, coauthored a book on the unrivaled expansion of the Chinese economy and the global effects of its meteoric growth, By All Means Necessary: How China’s Resource Quest is Changing the World (Oxford University Press, 2014).

1. Does China have a clearly identifiable, achievable resource strategy?

Michael Levi: The Chinese government has a series of resource-related strategies. It has long had a goal of increasing Chinese firms’ overseas investments in critical resources, and Beijing has put in place a series of tools to help them be more effective in doing that. China has a goal of increasing the efficiency with which it uses resources and it has a set of strategies, or tools, for trying to accomplish that. In individual diplomatic engagements, China often factors its resource needs into its diplomacy. And when its military thinks about its various priorities it thinks about protection of and risks to the secure flow of resources from overseas back into China. But that leaves two big questions. One: is all of this coherently brought together? I’m skeptical. Two: how often do China’s capabilities match its intentions? That varies enormously.

Elizabeth Economy: Overarching is simply China’s drive to secure resources to continue to fuel its economic growth. That is its overarching objective. It recognizes that it needs to go out, pretty much across the board, to access resources from outside its own borders. And all of the strategies that Mike mentioned are designed to achieve the goal of China ensuring that it has adequate resources to continue its economic growth.

2. To the extent that there is a grand strategy, you point out that there is issue linkage—particularly with regards to Sudan, Iran, and elsewhere—clearly when they formulate policies toward these countries or situations, this comes into play.

Levi: This certainly comes into play as China formulates policies towards resource-rich and resource-producing countries. I don’t think we saw a lot of evidence that it consistently comes in a far bigger or more central way than it does for a country like the United States when it develops policy toward critical resource-producing countries and regions. That’s an important piece of context to have. There is another important point in regards to the question of whether China has a strategy. There is sometimes a tendency to think that if China has a strategy then it is threatening, but if this is not a strategically planned effort then it is not threatening. That’s often a misleading way to think about things. Sometimes Chinese strategy is ineffective. But more importantly, China is enormous and the Chinese economy is enormous. Even without an effective strategy there are big consequences; and understanding what China is doing is essential.

3. Why, if at all, should U.S. policymakers be concerned about China’s acquisition of natural resources, provided it’s not just the limited rare earth resources? This all comes out on the marketplace anyway, so who cares?

Economy: First, it doesn’t all come out into the marketplace. It depends on the commodity that you’re looking at. But certainly there are a number of reasons the United States needs to be aware of what China is doing. There are a lot of impacts whether we’re looking at the global economy or global governance or security issues. For example, global governance—look at what China does at home. That’s largely what China is going to do abroad. United States’ firms are trying to compete but are under the limitations of the Foreign Corrupt Practices Act. Chinese firms don’t have the same strictures. Similarly, there are occasions when Chinese firms and officials are willing to do backdoor deals to secure resources that, again, create an arena of unfair competition for American companies. One could argue that the capacity of Chinese firms not to undertake environmental impact assessments also is unfair to U.S. firms. So I think the United States needs to be concerned about how China does business when it goes out to secure resources.

Levi: I think we also have to be careful about the words we use. China acquires resources in two different ways. It acquires resources by having its companies invest in and own equity in resources abroad. It also acquires resources by buying them and trading for them. You can generate bigger headlines out of an investment and a big footprint on the ground—which is what we tend to focus on—but, in reality, the bigger global consequences from China’s resource quest are from the more mundane kind of acquisition—the acquisition that happens through market transactions. This gets back to the question of, does strategy matter? Market transactions may not be driven by some nefarious overarching strategy, but they have enormous global consequences, not only for economies but for international security. They’ve driven the price of so many resources up that trade of those resources has become a much more high-stakes game and has drawn in great concern from militaries and people making foreign policy.

I think it’s also important to be careful with the word “secure.” We often use the word secure as a synonym with “invest.” When China goes and makes a deal with a country to invest in a resource, have they secured it? It depends on the circumstance. I can imagine that a Chinese company that has invested in food production and land somewhere in Africa may think it has secured a product, but if food prices go through the roof and domestic populations want that food, those countries are going to put limits on exports and China will not have gotten all that much security for its investment.

4. Does sea lane security affect China’s resource quest?

Economy: I think this is an area that China’s resources quest plays into, but it doesn’t necessarily drive all of China’s newfound assertiveness. Dating back to the 1980s, before China had a formal “go out” strategy for resources, the country talked about long-term naval strategy to move from the first island chain out to the second island chain. It already had in mind its nine-dash dotted line and the sense that it wanted to be a regional military power, if not, a global military power. I think that we want to de-link the two to a certain extent. Certainly, as China’s outward search for resources has grown and expanded over the past decade and a half, it has fed into this issue of sea lane security. It’s become an enormous part of it. But I also think it’s important to recognize that the idea of an expanding Chinese naval presence also preceded this resource quest.

Levi: I think that’s absolutely right. In U.S. circles when we talk about sea lane security and resources we typically think about the Middle East first. When it comes to China, it’s important to focus on what China can actually do in order to see where the potential changes might occur. China will have the option of devoting energies to security in the seas closer to home much sooner than it will have the capacity to patrol the Strait of Hormuz. So that’s where we have the potential to see greater changes.

5. What is the biggest misperception that you hear, even from informed audiences, about your book and how would you correct that?

Economy: For me, the greatest misperception is that China is the “cookie monster” of the resource world, that somehow it is going out and gobbling up resources all over the world. In fact, we found that China is the fourth-largest investor in Africa, the third-largest investor in South East Asia, third-largest investor in Latin America, and the third-largest investor in land overseas. In many respects, its ability to coordinate an effective and diplomatic resource strategy is much less than what we typically believe—Chinese companies and firms are far more independent actors than we think, sometimes electing not to participate in what Beijing wants to do in terms of a big overarching package of investment, trade and aid, and sometimes going out by themselves and causing all sorts of problems for Beijing. It’s a much less coordinated and cohesive resource strategy, and, in some ways, less successful strategy than I think I, maybe we, anticipated.

Levi: A myth is that Chinese leaders get what they want. We have a habit, that isn’t restricted to this particular discussion, of hearing scary-sounding goals or pronouncements and assuming that is how reality will turn out, which leads us to often overreact or react in the wrong ways. What Chinese leaders want is not necessarily what they get, in part because of what Liz said. They often have less capacity to command outcomes than they might hope or that someone who reads the “China for a Day” chapter in Tom Friedman’s book, Hot Flat and Crowded, might conclude. Also, as big as China is, the global economy and the global security system are all also pretty big things and pretty resilient systems. Fifteen years ago Chinese leaders were skeptical of markets and thought they might move to a way of securing oil that didn’t rely as much on markets. However, the market has been a pretty remarkable and resilient institution itself. You can see examples like this over and over. The countries, market players, and institutions around the world, exert extraordinarily powerful forces on China even as China is influencing the rest of the world. As a result you see China changing in some ways as much through its own resource quest as it is changing the world itself.