Getting at the Heart of China’s Resource Quest

It all begins with courtship. The Chinese president arrives in the resource-rich country to woo the local leader with a large entourage of government and state-owned enterprise officials, bearing gifts of trade, aid, and investment. Love—or at least great friendship—is in the air, and a match is made. As Carly Simon says, “Nobody Does It better.”

Or do they? As my colleague Michael Levi and I explore in our new book By All Means Necessary, Beijing can lay out the plan of action, but the follow-through is often less than spectacular. Since 2007, realized Chinese investment in Brazil, for example, is roughly 30 percent of what has been announced.

Often times as well, the brain signals one thing and the body does another. Just last month, China’s National Development and Reform Commission (NDRC)—which lays out the basic plan for these vast resource deals—announced that Chinese steel makers needed to continue to take new stakes in iron ore deposits abroad. The NDRC wants the iron ore for “speaking rights” at the global trading table and “strategic security.” Yet some of the steel makers—faced with significant overcapacity—are balking, stating that they have no intention of seeking more iron ore investments.

Meanwhile, even as Beijing seeks to force state-owned enterprises to do its bidding, vast numbers of independently thinking Chinese are heading out to distant lands to mine resources without any direction from the Chinese government. They are out to make money and in the process, inadvertently often make trouble. For example, in July 2013, the government of Ghana rounded up over 4,500 independent and illegal Chinese gold miners and told Beijing to take them home. While these miners weren’t part of any resource deal Beijing had struck with Accra, the Ghanaians believed that it was Beijing’s responsibility to account for them. (Chinese officials, meantime, argued that it was Ghana’s responsibility to enforce its own laws and to prevent the miners from taking stakes in the gold-rich areas to begin with.) Just a lover’s spat, no doubt.

And lest one think that China, with its vast investment might, always comes out on top in these resource deals, in 2013, a senior Chinese mining official announced that nearly 80 percent of Chinese overseas mining investments had “largely failed.”

These rather surprising outcomes of China’s investment strategy speak to one of the six myths that Michael Levi and I debunk in our book, namely that Beijing is a far more sophisticated and able matchmaker than anyone else—capable of developing long-term, highly integrated relationships among all parts of the Chinese economy and that of the resource-rich country. In fact, our research suggests that in many cases, once the initial courtship is over, the bloom is quickly off the rose. Of course, everyone deserves a second chance, and Beijing, as well as its companies, is learning how to do things differently—but that gets to a different myth.