A worker wearing a mask works on a production line producing steel rims for bicycle wheels in Hangzhou, Zhejiang province. (March 2, 2020)
To support its massive economic volume, mainland China is highly dependent on foreign imports of natural resources, and bridging this gap by diversifying its supply chain has become a strategic priority for the Communist authorities beyond the push for self-reliance.
A new report by risk consulting firm Verisk Maplecroft notes that the Communist Party is “highly concentrated” in imports of key resources such as Crude Oil, coal, natural gas and iron ore, and that many of the major oil and gas producers, such as Saudi Arabia and Russia, are countries that lack democratic freedoms.
In addition to maintaining friendly relations with the Communist Party, political stability and regime type are the two main non-commercial factors that the Communist government always considers when diversifying its supply,” the report reads. Beijing prefers suppliers from stable authoritarian regimes to democracies where there are frequent changes of government and potential policy changes.”
The CCP has also recently been increasing its oil imports from Iran and Venezuela, despite the fact that both countries are under U.S. sanctions.
Meanwhile, another way the Communist Party is diversifying its import sources is by supporting state-owned enterprises to “go global” and buy stakes in overseas companies to increase the share of Chinese-owned resources in mainland China’s total imports.
The report cites the number of Chinese-owned base metals and Gold companies in Oceania as an example, which increased from zero in 2000 to 59 last year, accounting for about 22.6 percent of foreign ownership of such companies.
However, the Chinese Communist Party has hit a roadblock in diversifying its iron ore imports because the major iron ore producers are democracies. According to energy information agency Wood Mackenzie, more than 60 percent of China’s iron ore imports come from Australia.
That doesn’t mean the Chinese government doesn’t have plans to actively seek alternative suppliers. That’s why, according to the report, the Communist Party has been trying to strengthen its trade ties with Brazil. Brazil is China’s second-largest supplier of iron ore.
The report writes, “Despite Brazil’s tougher line toward Beijing under President Bossonaro, Brazil remains the focus of the CCP’s diversification strategy.”
In addition, the CCP is increasing imports of scrap steel as a raw material as a way to reduce its dependence on Australian iron ore.
Weaponizing trade
The report argues that supply chain stability has helped the CCP weaponize trade, leveraging its trade advantage in imports and exports to suppress rivals and gain greater geopolitical influence.
The report uses the example of the CCP’s restrictions on coal imports from Australia’s interests. Australia’s call for an investigation into the origins of New Crown after it broke out angered the CCP, and Canberra’s major exports to mainland China were then restricted.
This is not an isolated case. Back in 2010, the CCP and Japan escalated their dispute over territorial sovereignty and the CCP began restricting exports of 17 rare earth materials to Japan. Since then the CCP has increasingly used tariffs, bans and other means to hammer its trading partners.
James Laurenceson, director of the Australia-China Relations Institute at the University of Technology in Sydney, Australia, told VOA that more geopolitical tensions are likely to emerge as the Communist Party accelerates its move away from resource dependence on democratic countries.
Laurenceson said, “We will likely see the CCP accelerate its quest to diversify its supply chain and strengthen its coercive (economic) leverage over a longer period of Time.”
The report also notes that the CCP is attempting to strengthen its economic ties with Russia to counterbalance Western influence.
The report reads, “Despite a history of mutual distrust, the economic and political interests of Russia and the CCP have converged over the past decade. The deterioration of relations with the West has prompted the two countries to cooperate more closely in a number of areas.”
The Communist Party’s diversification strategy will also increase trade and investment in a number of countries, most of which are recipients of the Belt and Road Initiative, which in turn will strengthen their economic dependence on mainland China, creating new economic leverage.
According to the report, “These partnerships will reshape multilateralism and create a more communist-centric economic order.”
Recent Comments