In 2007, a Chinese company bought Mount Toromocho in Peru. That’s right. A mountain, in another country.
It’s more than half the height of Mount Everest, but aesthetic beauty wasn’t a factor. Beneath the mountain’s surface sits two billion tons of copper, one of the largest reserves in the world. Through a state-owned company, the Chinese government secured access to yet another natural resource overseas.
Over the last 20 years, the country has employed a kind of economic imperialism, buying minerals, farms, and water rights in far-flung places around the globe.
Now the country is developing the technical know-how of high-end production, which will allow the Chinese to complete another part of the manufacturing process domestically. With the resources and knowledge required for advanced production, China can slowly reduce its interdependence with the rest of the world.
China is big. The country represents 20% of the world’s population and 13% of its economy. When it comes to consuming commodities, the country is even bigger. China accounts for 60% of the world’s concrete, 48% of copper and coal, 30% of rice, and 54% of aluminum. Some of that is used for domestic consumption and building, while part of it goes into creating goods for export.
Given such a huge appetite, it makes sense that Chinese imports shot through the roof since 2000, increasing from less than $500 billion to almost $2 trillion in 2014.
But then something happened.
Chinese imports fell off a cliff, diving to $1.68 trillion in 2015, and have fallen further since then. Part of the trend reflects lower energy prices, while falling demand for Chinese exports is part of it, too.
But there’s no doubt that Chinese companies now buy more resources from other Chinese firms, even when the raw inputs themselves sit halfway around the world. By taking control of mines, farms, and deposits in South America and Africa, the Chinese have ensured willing sellers to meet their increasing demand.
What once appeared as trade when a Chinese company would buy natural resources on the open market, now shows up as investment when the same company buys the entire deposit.
At the same time, Chinese companies are quickly building expertise in high-end manufacturing. Companies historically would buy Japanese or South Korean steel and ship it to China to be used in production, because locally produced steel held too many imperfections. That’s no longer the case.
With each passing year domestic Chinese companies are capable of producing higher-quality chemicals, like silicone-based coatings, and are undercutting international competitors. The annual value of China’s high-tech and new-tech imports peaked in 2013 and have fallen in successive years.
None of this means that China will be economically independent from the rest of the world in the months or years ahead.
The country remains the largest exporter on the planet by far, shipping $2.3 trillion worth of goods and services overseas, easily outpacing the next closest exporter, the United States, at $1.6 trillion. China’s business model requires the rest of us to buy the stuff they make, and they need the foreign currency to buy food, energy, and other necessities. But the trend is obvious, and can lead to problems as the global economy slows down.
If economic cooperation drops – and a globalization retreat is something Harry has talked about in recent weeks – then economic sanctions and other trade-related repercussions have less influence. The Chinese could become more aggressive in their quest to control the South China Sea. Or worse, they react badly when they have an issue with one of their foreign holdings.
Eventually, somewhere on the planet, a government will decide that the sale of a natural resource to the Chinese by a previous administration was a bad idea. This will lead to nationalization or appropriation of the resource, like Peru taking back Mount Toromocho (which I do not expect; it’s just an example).
With greater independence from the rest of the world, the Chinese might be more inclined to use force when compelling the foreign government to uphold its end of the bargain. Depending on the country involved and the treaties signed, this could very well lead to a conflict that we all want to avoid.
The point is not to hold up Chinese development or the country’s pursuit of resources, but simply to acknowledge that, just as there is a cost to deep integration, there is also a potential cost to disengagement… particularly when the other party has the world’s second-largest economy, and is the most populous country on the planet.