contagiousness carry: China?s global shopping spree

China?s global shopping spree

By Denise Calnan

Saturday, August 18, 2012

China is busy buying up the world?s resources. Globally-acclaimed economist Dambisa Moyo explains what the global spree means for the rest of us. Denise Calnan reports

THE starting pistol has blown. The race is on. It is a sprint for the world?s rapidly dwindling natural resources. This gold medal means everything.

Human survival necessities such as water are under stress as the world?s population expands at a rate of over 26m people a year. The global community is set to hit 10bn by 2050.

Now, however, the global race for these commodities features only one runner ? China.

With an impressive catalogue of overseas investments, deals and ripening relationships, the Far Eastern giant is planning 50 years ahead for its own supply of the finite commodities. It is leaving every other country stranded on the starting line. Some of them are even facing backwards.

Globally-acclaimed economist Dambisa Moyo says the main problem is not the rapidly rising population, but rather the increasing citizenry of society?s middle class.

"The world?s population is growing wealthier and richer," Dambisa says. "We will see 3bn middle-class citizens in the world by 2050. This is a population that demands better quality food, cars, more mobile phones... and everything is drawing on more depleting resources.

"The fact that there is going to be many more people in urban areas means there will be significant demand for things like arable land, for water, energy and minerals. There are already 25 wars raging today that have their roots in commodity scarcity. And research from the US predicts more wars around water in the decade to come. Resources are not infinite."

The Zambian author?s latest book, Winner Takes All: China?s Race for Resources and What It Means for the World, is causing quite a stir in the socioeconomic and political sphere. The New York Times bestseller analyses the modern commodity race and China?s successful investments in the coveted resources worldwide.

As a result of Dambisa?s insightful literature, Time magazine has honoured her as one of the ?100 Most Influential People In The World?.

Born in 1969 and boasting an eloquent education record, including an undergraduate degree and MBA in Finance from the American University in Washington DC, a Masters from Harvard and a doctorate in economics from Oxford University, Dambisa says she feels lucky to achieve what she has following a childhood in a poor, landlocked country.

Her parents are both well-educated and her mother is the chair of a respected Zambian bank. She tells The Telegraph magazine Stella that it was her parents who shaped her fundamental principles and sensibility. The magazine describes Dambisa Moyo as "friendly, polite and serious too."

"The reason I wrote Winner Takes All is because I have visited more than 50 countries and spoken to many policy-makers and politicians about this global race," Dambisa said.

"They all seem to know about the situation but it is really just China that has developed and devised a very systematic and deliberate plan to secure natural resources around the world.

"China?s engagement has the hallmarks of being very symbiotic," she says. "It is a win-win situation in a very clich?d way.

"If you look at the data, which I?ve done in this book, you?ll see the disconnect between the demand and the lack of supply? supply is scarce, it?s depleted and it?s finite ? clear indications for higher prices and potentially a situation where there?s going to be more conflict around the world.

"We need to be doing something very aggressive to solve this problem. We, as in, the global community."

Dambisa speaks as China sprints swiftly ahead of the world?s biggest economies, developing economic relationships with countries rich in commodities that will become scarce in up to 60 years time.

In 2008, the People?s Republic bought Mount Toromocho, a two billion ton source of copper, in Peru. China?s top aluminium producer, Chinalco, bought the mountain to mine its copper and produce wire for the booming Chinese market.

A year later, in a Fortune magazine article aptly entitled ?It?s China?s World, We Just Live In It?, it was reported China?s overseas investments doubled from just over ?20bn to nearly ?40.5bn in 2008. Writer Bill Powell said China was still lagging behind the US however, a country who had invested over ?256.5bn abroad the year beforehand.

"Yet in many ways, China has only begun," Powell wrote. "And it won?t stop anytime soon."

And he could not have been more correct. A report in 2011 stated that China?s overseas investments had exceeded ?161bn in the five years beforehand, relatively giant steps for the country in such a short time.

Derek Scissors, a researcher at the Heritage Foundation public policy organisation, blogged about the investment tracker report, saying energy and power drew the most funding and metals were the second most-invested in commodity in 2010.

China was indeed on its track to commodity gain and success.

"The book is not meant to frighten anyone," Dambisa says.

"It is just meant to highlight a very different and mechanical approach to the commodity head-winds we are all going to face in years to come.

"China are incredibly deliberate and engaging and they have adopted a friendly multilateral approach to investing in resource-rich developing countries.

"This is such a contrast to the resource escapades we?ve seen from other states, in particular the USA, who have used a much more unilateral approach, sometimes even resorting to military action."

Dambisa says her main worry is the lack of concern shown about such an important topic on a worldwide scale.

Dambisa writes that people in Africa and India are already rationing basic commodities like water. A total of 70% of the earth is water, but less than 1% of it is fresh, easily accessible water.

"People in the West don?t appreciate the crisis," she says. "In the emerging world they understand much more about the need for investment to be focused on these resources. We don?t see this happening in the West at the moment at all."

Dambisa Moyo?s African culture and upbringing is a natural stimulant for her interest in China?s deal-making on her home continent.

"The Zambian economy is much more open to many more suitors now, now that there is investment coming from many different places," she told the New York Times. "When I was growing up it was very reliant on Western Aid. Now new economies like China, Russia, Brazil are coming into Africa, and Zambia in particular."

Dambisa?s book describes China?s numerous investments in Africa, investments that have increased from ?90m in 2003 to over ?9.5bn at present.

She details China?s alternative investment strategy in the ?Dark Continent?, something the US and the West never successfully achieved without their traditional aid approach.

"The strategy is different," she says diplomatically. "The US and Western countries focused on aid as an approach towards engagement in Africa. China and the south trade, so to speak, have invested in trade instead. They focused on different sectors such as retail, telecommunications and, most importantly of course, natural resources. From China?s point of view it is mainly investment from large Chinese companies, but the system of state capitalism in China means there is a lot of government involvement in these webs of companies.

"The beauty of this model is China is giving these countries exactly what they want. These countries are interested in mortgaging their natural resources in order to get more trade and to get more access to investment in their countries. This is what China is doing."

Africa is a continent with almost 1bn people and less than 2% of the world trade. It is the continent with the most untilled arable land left on the planet. China, on the other hand, has 1.3bn people and big investment opportunities. Dambisa believes the symbiosis that exists is evident.

Dambisa Moyo seems to be a woman who focuses on the facts and figures and believes the tone of articles documenting Chinese investment, particularly around Africa, can be very negative.

"It is an evolving relationship, it is wrong to classify it as universally good or bad. There is the idea that the African population are being abused, nearing colonialism and prisoners of China?s investment. This is the wrong attitude to have."

The Pew Research Centre, based in Washington DC, asked the African people what their attitudes towards the Chinese were.

"A total of 97% of African people said they liked the Chinese," Dambisa explains. "They?re investing in our countries. They?re improving the African people?s livelihoods. Most of them said they prefer them to the Americans.

"This is the perspective we should consider before we write these castigating articles about China and what they?re doing in Africa and what they?re doing around the world."

But are these large Chinese investments in Africa improving the people?s education or increasing the supply of social goods for the African communities?

"There is an element of that involved," she says, "In my book I speak a lot about the engagement between the Chinese and Africans, which is very strong. The Chinese government invited all the presidents of the African countries to go to China in 2006 before the big investments began. A large part of the process is providing social investment and goods like education and healthcare to the Africans."

Dambisa believes this characteristic of Chinese investment stems from their communist ideals of equality in society but stresses that this trait is incidental.

"This [process] is not their core approach. African countries and companies need to understand that the Chinese are not there out of good will, democracy or any religious reasons. They are really in Africa because we?ve got a high rate of economic growth and a vast amount of natural resources.

"Africans need to remember it?s the governments of African countries that have the responsibility of providing public goods, not the Chinese. We are ultimately talking about the Chinese investing in depleting resources, they are likely to leave when they run out. We need to prepare for this eventuality."

Another criticism of the Chinese investment trend is the price they are paying for the commodities. Some believe they are setting the bill too high for other countries to follow.

"This is a criticism," Dambisa agrees. "People trained in financial markets with Western style financial modelling do of course think the Chinese are overpaying. There is the idea that the Chinese are willing to pay multiples more than the value of the asset. This is not because they don?t know what the reasonable price of an asset is, they do, but rather that they have a broader utility function with the asset. They have to deliver economic improvement and continue to put a dent in poverty and they will do, at all costs. The Chinese political imperative at home is very highly linked to them being able to deliver these promises."

At the moment, Australia stands as the largest recipient of Chinese foreign direct investment.

It seems it has realised the international willingness to sign highly-priced cheques for overseas commodities and controversially raised their mining tax this year. The BBC reported the Australian Senate pushing a 30% tax on iron ore and mining companies through into law.

The tax is a direct result of the strong demand from China and India for raw materials and is set to raise ?9bn over the next three years. This demand has lead to a resource boom in Australia and the tax guarantees them extra cash that they can distribute throughout their own economy.

Dambisa mentions that there is a perennial risk of these deals failing but she does not agree the Chinese economy will experience a financial collapse anytime soon like the western economies have recently.

"The worst estimate I?ve seen is that China slows its growth to 7.75%. They will do anything to make sure their economy does not stall. They will be very aggressive to avoid an economic slowdown."

Ms Moyo is also keen to stress that Africa is not the only country China has developed a passion for investing in. Similar to Australia, China has also invested significantly in South America and Eastern Europe in the last few years.

"You also see a lot of Chinese investment in the US and Canada," Dambisa adds.

"These investments are happening across the board. There are many cases of them worldwide, especially in emerging markets. Young populations in countries need trade and investment."

The Chinese model does not just focus on cash-based investments. The state has also used one of the trademark economic characteristics of a communist country and adapted a bartering system with some of the world?s largest economies.

Described by a Canadian website as a ?kind of modern alchemy?, China and Canada recently began a ?laptops for pork? deal. China sends Canada laptops. Canada returns the favour by sending China good quality pork. Simple. And yet another example of the Asian giant?s trade confidence and ingenuity.

Dambisa does not think the Chinese are getting enough credit for the economic accomplishment they are succeeding in.

"China is attempting the death-defying feat, which no one has attempted in the history of the world, which is to move a billion people out of poverty," she says.

"When I speak to Chinese policy-makers the thing that annoys them the most about Western policy-makers is that they?re not given any credit for anything. There?s always bad news. I?m sympathetic to the Chinese; no one has stood up and said, "Gosh, what you guys have done ? I?m impressed."

But what of their human rights record? "You know what?", Dambisa says, "I would say issues around human rights ? either you?re going to take a hard stance, or you?re not. You can?t borrow money from China the way the US has done and then turn around and say ?But you?ve got a human-rights problem?. You can?t be half pregnant. Of course there?s work to be done.

"The world in general will get much more out of China if it treats them as an ally and says, ?Look, these are things that are not going to fly? rather than try to humiliate them, which is what I think the penchant has been."

On the other hand, Dambisa does not believe there is evil in every country in the race. She believes in the innate good of people and if people have the right information, they will do the right thing.

"I think whether it?s aid to Africa, the global economy or commodities, these crises have had their origins in people not having information about the implications of their actions.

"I had the good fortune to spend hours with my parents around the dinner table having debates on politics and economics. Politics in the West is a luxurious pastime. People tend to have the conversation ?What do you think of this candidate?? at a cocktail party. But if you?re living in Africa or South America or Eastern Europe, it seems to me that it?s so intertwined with your ability to exist."

A lot of Dambisa?s financial experience stems from her work at Goldman Sachs and the World Bank. Her previous two works, Dead Aid: Why Aid is Not Working and How There is A Better Way for Africa and How The West Was Lost: Fifty Years of Economic Folly and The Stark Choices Ahead, created as much a stir between leaders and policy-makers worldwide as her third has.

She is proud of, and appreciates, her African heritage, feels disappointed with the stereotype the continent has and has hope for the nation?s future.

"People have said I?m not really African. Yes, I am. Those people are wrong and it?s not my business to correct them if they can?t be bothered to go to Africa and look around and see that there really are African doctors and lawyers. Of course there are wars and disease, but in a population of a billion you could argue it?s relatively isolated cases.

"It?s not the case that the whole continent is in civil war and people are dying of HIV/Aids. There are more poor people in China than in Africa. More poor people in India than in Africa. My simplistic one line is that it boils down to money. The fact that the Chinese and Indians have delivered economic growth ? I think that has shifted the view of them from being the horse to being the rider. Perhaps that?s where Africa has some room to grow."

Dambisa Moyo?s mission is to pass on knowledge that she feels could be useful in moving humanity forward. She feels she then would have achieved more than what she could ever have wished for.

Between her determination, intelligence and straightforward nature, Dambisa and Winner Takes All: China?s Race for Resources and What It Means for the World has indeed successfully completed the first part of her mission. Now it is up to a different kind of person to see if they can take a spoon of Chinese economic inspiration and move humanity forward, benefiting all.

CHINA TO BECOME WORLD?S LARGEST ECONOMY BY 2025

* China is to surpass the US and become the world?s largest economy by 2025.

* The world?s population in 1950 was 2.5 billion people. In 2011 it was 7 billion people. It is expected to reach 10 billion people by 2050.

* 2,000 new cars join Beijing?s city streets everyday.

* Global demand for water in 40 years time could exhaust the world?s supply

* At current levels of supply and demand the world?s 847 billion tons of coal reserves is just enough to last us over one century.

* Forecasts estimate the world?s middle class in 2030 will be 2bn. This is the same as the populations of Africa, North America and Europe combined.

* Each day one billion people go hungry. One billion people are clinically obese.

THE CHINA SYNDROME: RED DRAGON?S PROS AND CONS

STRENGTHS:

1Governmental leadership: China?s ability to promote capable individuals and development-orientated ideology is a clear strength.

2Public investment: China is number one when it comes to good roads, airports, telecommunications, public health. These provide facilities and space for enterprises and individuals.

3Two-pronged financial system: The combination of a well-run direct credit system that channels money from banks to policy-determined public use and a competitive system means China can effectively concentrate so many resources in public investments.

WEAKNESSES:

1Lack of discipline: The central government?s difficulty in controlling local government behaviour is a serious weaknesses.

2Corruption: The difficulty in controlling the local government administration feeds directly into China?s problem of corruption at local level governance.

3Weak management of economics: Instead of using seasonally adjusted data such as trade, inflation and output, the country still relies on year-to-year measures that delay recognition of major short-term shifts.