2010 May 09 Sunday
China Buying Up Natural Resources

After reviewing a number of deals where government-backed Chinese oil and mining companies have bought into projects and companies for resource extraction around the world Michael T. Klare argues that the United States and other Western nations are going to be shocked over how much the Chinese are getting control of.

Chinese companies like CNPC, Sinopec, and Chinalco are hardly alone in seeking control of valuable foreign resource assets.  Major Western firms as well as state-owned companies in India, Russia, Brazil, and other countries have also been shopping for such properties.  Few, however, have been as determined or single-minded as Chinese firms in taking advantage of the relatively low prices that followed the global recession, and few have the sort of deep pockets available to such companies, thanks to the willingness of the China Development Bank and other government agencies to offer munificent financial backing. 

When the United States and other Western nations finally recover from the Great Recession, therefore, they will discover that the global resource chessboard has been tilted strongly in China’s favor.  Energy and mineral producers that once directed their production -- and often their political allegiance -- to the U.S., Japan, and Western Europe now view China as a major customer and patron.  In one eye-catching sign of this shift, Saudi Arabia announced recently that it had sold more oil to China last year than to the United States, previously its largest and most pampered customer.  “We believe this is a long-term transition,” said Khalid A. al-Falih, president and chief executive of Saudi Aramco, the state-owned oil giant.  “Demographic and economic trends are making it clear -- the writing is on the wall.  China is the growth market for petroleum.”

China's government is aggressively pushing to get control of the natural resources it needs. By contrast, the United States government's only policy moves toward dealing with Peak Oil are driven by Anthropogenic Global Warming (AGW) fears. I'm not saying that AGW isn't a real problem. But Peak Oil is going to cause an economic depression starting some time in the next 10 years and the US government's suppression of official acceptance of Peak Oil is not helping.

If you doubt there's a big shift in allocation of oil then check out Rembrandt Koppelaar's Oil Watch Monthly for April 2010 (PDF) and look at the graphs for oil consumption trends for China, India and various Western countries. Compare pages 8 and 9 with page 13.

Klare has developed his argument at greater length in his book (which I've just started reading): Rising Powers, Shrinking Planet: The New Geopolitics of Energy.

Share |      By Randall Parker at 2010 May 09 06:26 PM  China

Tsingtao said at May 9, 2010 10:38 PM:

The PRC runs Canada from Vancouver. Resources aplenty and easy access for the Han. As for the US? Do you really want to know? But on the other hand, savage negroes in Africa will get a lesson in how to behave.

A.Prole said at May 10, 2010 12:31 AM:

Well. it's a zero-sum game.
So long as China is growing at 10% per year, and the US and west is mired in seemingly endless depression, this is the inevitable result.
Straightforward trend-lines on graphs , lines of differing slopes diverge markedly.

NotProgressive said at May 10, 2010 7:36 PM:

China has an inverting population demographic due to the one child rule. They have to move up the economic food chain in a generation. They also use Chartalist/Sovereign banking principles, where money can be issued interest free straight from the treasury. Unlike in the West, much of China's population is not bent over serving interest usury just for the priveledge of using money. China's money supply does not have a large percentage that consists of Usury, the Yuan is simply a bill of exchange that represents labor.

If you have unemployment, and other inefficiencies in your economy due to insufficient money supply, then issuing money debt free from the treasury produces a virtuous wealth production cycle. The unemployed become productive and start paying taxes, and the economy expands. No inflation occurs because the money supply and wealth production rise simultaneously. China's Yuan is backed up by the productivity of its people and their ability to generate wealth. Other countries accept the Yuan because they believe that China's economy is well run. China also backs up their Yuan with large dollar reserves in their banks. This makes a bear raid on the Yuan virtually impossible. The Western bankers are likely grinding their teeth because they have no control over China and cannot drive down the value of the Yuan. China's hard peg to the dollar insures that the money exchangers cannot play their Casino games and manipulate China's currency. Those with long memories will remember that China stabilized the Tiger economies of Asia after a bear raid by Western Bankers. China was not infected as their currency was hard pegged and couldn't be manipulated.

China can print money and then turn around and use that new money to buy up cheap foreign strategic assets. Extra dollars can also be used to buy up dollar denominated foreign assetts. Chinese businesses that engage is export and hence hold excess dollars (due to trade imbalance#, are offered a chance to exchange those dollars for Yuans. The Chinese government takes those extra dollars and recycles them back to the source #the U.S.# by buying treasuries. The Chinese businessman got Yuans traded for his dollars, and the Chinese government locked up the extra dollars long term by buying U.S. treasuries.

China becomes the head and the West becomes the body.

We could easily follow the Chinese playbook, because it is the American playbook. China is doing what Benjamin Franklin and the Colonials did. A Sovereign nation can have their own currency issued by the Government, not private banks. The currency does not need to be backed up by Gold, but just the willingness of the people to use said currency. Hitler, who used Chartalist money, made Germany into a powerhouse, yet Germany had no gold after World War 1. Western private banks are currently backed up by the ability to tax the population #TARP). If a government can tax to back up private banks, then it can tax to back up a national bank. In the case of a Sovereign bank, the people can control the bank because the people own it. In the case of a private bank - good luck chuck. He who has the gold rules, and Western Governments have been hosted by the money men. Politicians can be easily bought out. Ironically, China...a nominally communist society uses Colonial American banking principles. America has since devolved to use usurious European private banking principles.

National banks can be dangerous in the hands of a dictator. But, in the case of the U.S. each state can have its own "state bank" and can have a mix of private banks as a counterbalance. Additionally, the State bank can be overseen by a regulatory agency representing the citizens of that state. It is no accident that North Dakota is the state in the best financial position, and they are the only state with a publicly owned "state" bank. It is no accident that China is in a good financial position for the same reasons.

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