China's rise means other countries may never develop. The battle for the planet's resources.
By GRAEME MAXTON
Singapore, February 2012
Chinese labourer with the Chinese company Sinohydro on walkie-talkie at Bata, Equatorial Guinea. Parachute labour does not boost local jobs- Photo: Getty Images
Until a few decades ago there were only a few big players in the world energy game. On one side were the big consumers, the US, Europe and Japan. On the other were the big oil and gas suppliers – Saudi Arabia, Iran, Iraq and Russia and, in the nuclear power business, the big uranium miners in Australia, Canada and Kazakhstan.
In the last 20 years though that picture has changed. North America, Europe and Japan's share of world energy demand has fallen while the proportion taken by developing countries, notably China, has increased rapidly.
The supply side of the game has changed too. Oil production has fallen in many countries while supplies from Nigeria, Angola, Sudan, Libya, Canada and Venezuela have become much more important.
These trends are expected to continue.
At the same time, if demand continues to rise at the current rate, the world’s oil reserves will become exhausted within a few decades. With economic success so dependent on energy, any country without secure access to oil, gas and uranium risks having less power, in both senses of the word.
We are approaching the end game of the conventional energy business. Given the high stakes, it looks unlikely the world’s governments will come to a gentlemanly agreement to divide up the world’s remaining reserves
We are approaching the end game of the conventional energy business. And given the high stakes, it looks unlikely that the world’s governments will come to a gentlemanly agreement to divide up the world’s remaining reserves according to need. Because energy is vital to every nation’s economic and social development, we risk a feeding frenzy over the remaining energy carcass in the years to come. This frenzy has widespread implications, many of which are not immediately obvious. It is likely, for example, to mean that many countries in Africa will lose their chance to industrialise – for good. Human rights, democracy and justice will also suffer badly.
China has two main sources of oil and natural gas. It can access pipelines from Russia and central Asia, or it can ship fuel from the Middle East, Southeast Asia, Africa or South America.
Strategically, the more vulnerable route is across the seas. In the event of war – perhaps a war over resources – the passage of its ships from Africa and the Middle East can be blocked very easily.
To protect its fleet and the supply of critical resources from this risk, China developed contingency plans more than a decade ago. These involve the establishment of a series of ports along the supply route from Africa and the Middle East. Stretching from Lamu in Kenya and Port Sudan to Hong Kong, the US Department of Defense calls these ports China’s “String of Pearls.”
Establishing these ports has not been easy and illustrates the lengths to which China will go to secure its fuel and other resources. Like America and Europe before, China has already shown that it can be ruthless. Neither human rights nor democratic institutions need be respected if that is what it takes.
China is investing in ports in Gwadar in Pakistan, at Chittagong in Bangladesh and in Sittwe on Myanmar’s coast. An oil terminal is also being constructed in Myanmar with a 480-mile pipeline, which will connect to China’s Yunnan province. Construction of a natural gas pipeline from Myanmar to southern China will begin this year.
The island of Sri Lanka, off the bottom tip of India, has become a key hub.
To establish a port there, China needed stability. But for more than two decades Sri Lanka had experienced civil war, with Tamil Tiger separatists keen to establish an independent state in the north. To overcome this stalemate, the Chinese are believed to have provided funds to the Sri Lankan government to bring an end to the war. In just a few weeks in 2009, the Colombo government defeated the insurgents, ending 26 years of conflict. Thousands of people died, many of them innocent civilians.
Within months, China announced plans to establish a huge port at Hambantota, which may also become a military base while Beijing soon became Sri Lanka’s biggest source of foreign funding. As well as the port, China announced plans to build a power plant and an arts centre in the capital. The main airport and the country’s railways will get investment too.
The rapid change in the destiny of Sri Lanka has come at a cost however – not just for the Tigers but also for the island’s 20 million inhabitants and the rest of the world.
Within months, China announced plans to establish a huge port at Hambantota, which may also become a military base while Beijing soon became Sri Lanka’s biggest source of foreign funding
Justice has been undermined, with Beijing accused of thwarting calls for an independent UN investigation into the Sri Lankan army’s tactics during its final battles against the Tigers.
Democracy has been undermined too. The Sri Lankan president, Mahinda Rajapaksa, and his family have taken almost complete control of the government, while the constitution has been changed so that he can rule for life.
A country that was once under the guiding hand of the International Monetary Fund is now able to get along without any further international financial support.
These changes were not an objective of Chinese investment – but they were a consequence. What happened politically in Sri Lanka was of little interest to Beijing. All China wanted was stability and a port. Yet Sri Lanka has become beholden to China. It has also become much less democratic and less just.
This story is not an isolated one.
China’s influence has been growing steadily in many of the world’s trouble spots. By providing aid and ignoring political or economic repression, Chinese interests in Zimbabwe, Somalia, Sudan and Niger have given renewed legitimacy to questionable regimes.
In Zimbabwe, President Robert Mugabe’s opposition rival, Morgan Tsvangirai, believes his country has mortgaged itself to China. Chinese loans and construction companies have helped rebuild Angola’s dams, bridges and railway lines. Funding and help have been given to build schools, roads, hospitals and a fiber optic network too. Other big Chinese investments have been made in Chad, Gabon and Equatorial Guinea.
The result: Angola is now China’s second biggest source of crude oil, while Africa as a whole is responsible for nearly a third.
In Niger, the battle was over uranium.
Niger awarded its first uranium contract to China in 2009. China offered a better price than the country's established customer, France, as well as infrastructure investment. It also promised to provide an oil refinery and showered “signature” bonuses on those it negotiated with in reward. The country’s capital, Niamey, got a new zoo.
As in Sri Lanka, though, China’s investment had political repercussions. Within months of the deal being signed, a military junta seized power. Much of the money China had given in bonuses was used to acquire arms to suppress rival tribes. The price France paid for its uranium rose by 50 percent.
As in Sri Lanka and Zimbabwe, it is doubtful that many of Niger’s people will see much of the country’s new wealth. Rather, they will have even less say in their country’s development.
Of course, the methods adopted by the Chinese to win resource access are the same as those used by others. America, Europe and Japan are equally guilty of offering poor countries comprehensive and exploitative trade deals combined with aid in return for resources or land.
Beijing does not worry about where the money goes or what is done with it. All China wants is access to resources as well as business opportunities – the chance for its construction companies to build new roads, hospitals and bridges
In many ways, the Chinese are actually more straightforward. China does not send in its secret service to engineer “regime change” as some Western countries might. It does not set out to destroy democratic institutions or undermine human rights.
Yet China's entry to this game has also made the game different.
During the colonial years, there were enough resources for everyone. Today, there are looming shortages. Second, the Chinese are much less constrained by opinion. Those in power are not answerable to any executive. There is no opposition calling for restraint. There are no Chinese non-government organizations (NGOs) or media groups lobbying for a more enlightened approach.
Chinese public opinion is silent.
Beijing does not worry about where the money goes or what is done with it. All China wants is access to resources as well as business opportunities – the chance for its construction companies to build new roads, hospitals and bridges. It seeks raw materials and a chance to profit.
The worry is that China’s investment heralds the start of a new race to the bottom in these countries, morally, economically and environmentally.
Even so, an optimist might suggest that China’s approach is better. By making investments in infrastructure, there is a chance that countries like Angola, Congo and Sudan will industrialise.
Yet industrialisation needs more than new roads, bridges and some hospitals. Education needs more than schools.
In many countries where China is investing, a prerequisite for industrialisation would be an end to tribal conflict. Industrialisation also needs a developed agricultural sector, a national education policy, manufacturing capabilities and technology. Industrialization does not need democracy, as China itself has shown, but it needs political will. It needs more than an economy based on the extraction of resources for export, funded by another government.
Moreover, industrialisation needs jobs and these do not come from China’s infrastructure investments. From India, where China is building power stations, to the port of Sri Lanka and the oil refinery in Niger, China brings its own workforce for every job.
With the stakes so high, there is a rising risk that instead of these countries being given the chance to finally develop, the human rights abuses, political cronyism and environmental degradation will get worse. Africa, and many other parts of the world risk becoming resources’ battlefields with their peoples the biggest losers.
They may get some roads, railways and hospitals that they did not have before. And the occasional zoo. But within a few decades, these countries will have lost everything they will need to fuel their own development. When they need oil or gas or uranium to generate their own growth it will be gone. Instead of becoming democratic societies, their peoples will remain under the control of autocratic regimes. They will be bled dry by China and the West.
This article is taken partly from Graeme Maxton's new book, The End of Progress, How Modern Economics has Failed Us (published by Wiley at the end of 2011), dealing with the aftermath of the financial crisis, overpopulation, resource depletion and the emergence of China as a global power. The book was nominated for the Financial Times Best Business Book of the Year Award 2011. Graeme Maxton is an economist and author, and a Fellow of the Club of Rome. Maxton was contributor to The Economist for many years and now writes for a wide range of international newspapers and magazines in Europe, the US and Asia. He is a frequent host on CNBC’s Squawk Box and Capital Connection and a regular guest on BBC and CNN news programmes. He is based in Vienna and Singapore. www.graememaxton.com
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