Chinas quest for Resources

Chinas quest for resources worries South Africa writes "Business Report SA"
The hunger for Oil and minerals as a driving force for another game on the "Grand Chessboard"
(For some background information on Chinas potential for further growth==> NZZ-Feature in German)

China aims to cut out the resources middlemen


By Tom Robbins

Cape Town - Local mining companies need to be aware that the Chinese are increasingly acquiring control of African resources at source in a bid to sidestep high commodity prices, according to a specialist on China.

"They negotiate the prices of assets with local politicians and then lock them into 20-year deals," Martyn Davies, the director of the Centre for Chinese Studies at the University of Stellenbosch, said last week.

He said the strategy was to cut out the middleman, such as the London Metal Exchange, in a bid to secure the resources required for Chinese industrialisation.

Moreover, the Chinese would set up their own parallel commodities market as they viewed existing markets as "a London and New York old boys' club".

Davies, who was speaking at an Institute for Futures Research conference, predicted that this Chinese market would eventually be bigger than existing institutions.

He said the Chinese had already set up their own diamond exchange to rival the bourse in Antwerp.

But Davies said there were many geopolitical complexities to the Chinese government's strategy regarding demand for African resources.

The US invasion of Iraq had accelerated Chinese business interests in Africa as they had lost oil assets in that country. The US had strategically "locked down" the Middle East ,with the Chinese now having access only to Iranian oil.

On top of this Davies said, the Russians had purposefully excluded the Chinese as oil customers, preferring the Japanese.

He said that as a result, the Chinese had chosen Sudan as a strategic energy partner, describing the 3 000 Chinese peacekeepers in that country as "energy asset protectors".

This explained the Sudanese government's reluctance to allow UN peacekeepers into Sudan, as they were perceived as US influenced.

But apart from demand for resources, the Chinese saw the 700 million sub-Saharan Africans as an important market for Chinese manufactured goods.

Davies said that despite the fact that Africans were poor, the Chinese had experience in their own country of producing goods for the bottom end of the market.

On top of this, he said Chinese "international" companies were interested in operating in Africa as part of a quest to learn how to become true "multinationals" before expanding across the globe.

Despite the risks, they were attracted to Africa because of the lack of competition in many African markets, he added.

Published on the web by Business Report on November 26, 2006.