Symbiosis: How the World Is Becoming Dependent on China's Money

As a growing and environmentally challenged China seeks natural resources abroad, it's falling into cycles of mutual dependence with rich and poor countries alike.

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Workers clean the Bank of China logo at its office building. (AP).

Although China occupies a vast and varied landmass, its development and economic ambitions in many ways exceed its own resources. Desertification creeps east and south from the northern reaches of the nation. Fresh water is likely to be in short supply in the not-too-distant future. Historically food self-sufficient, China became a net grain importer for the first time in 2010. The accelerating protein demands of a rising middle class are likely to exacerbate further the problems of feeding a population of 1.3 billion and rising. The housing and consumer-goods demands of that same rising middle class also mean a rising demand for the raw metals and minerals that go into houses and refrigerators, large-screen TVs, and automobiles.

To meet these challenges, China's leaders have embarked on a hugely ambitious program, domestically and internationally: desalinization plants, pipelines, vastly expanding fleets of ocean-going transports. Like a 19th-century colonial power, China has ranged the world over to secure the resources needed to meet its ambitions. Unlike many of those earlier colonial powers, though, its strategy has been less to plunder the natural wealth of the countries it deals with than to strike long-range aid and trade agreements.

Many of China's resource plays seem perfectly reasonable. Buying a foreign mountain seems lavish in the extreme -- until you stop to realize that the particular mountain in question, Peru's Mount Toromocho, contains one of the world's largest deposits of copper, a vital component of everything from wiring to plumbing and a mineral not abundant in China itself. Other resource plays do just the opposite: challenge reason. Why, when China has a hundred-year reserve of coal of its own, would it be so actively importing coal? Reasonable or not, China's resource plays reverberate greatly in the world at large. Part of that is the sheer size involved: quantities and money. The larger part, though, is the future uncertainty sown by so many of these swaps, trades, and outright purchases. What is the master plan? What effect will China's mass gathering-in have on resource prices and their availability in the short- and long-term future? These are vexing billion-dollar questions, perhaps trillion-dollar ones. But there is, in fact, an exquisite if poorly understood mechanism for measuring these issues: the global commodities market.

Over the past several decades China has executed a remarkably clever role reversal, in the process transforming itself from borrower to global lender extraordinaire. The most interesting aspect of this drive, however, is not just that China was successful in pursuing its goals, but also how successfully it continues to pursue its resource acquisition campaign. Simply stated, China has developed into the global price setter par excellence for numerous commodities through its specific relationships with resource-rich countries.

The biological definition of symbiosis describes a close and often long-term interaction between different biological species in relationships that can range from mutually beneficial to parasitic. The psychiatric definition is similar: a relationship between two people in which each is dependent on and receives reinforcement from the other, whether that dependency is beneficial or detrimental. China's global commodity strategy has all the hallmarks of a symbiotic relationship: each party is dependent on the other, almost to the point of survival. China provides the cash that other countries need in exchange for the access to resources that China so desperately requires. In so doing, the symbiotic equilibrium born of commodities sets up a long-term relationship that can thrive -- at least until the diminishing resources are depleted.

This kind of economic symbiosis is hardly rare. One well-known example is the so-called Chimerica relationship, by which China has lent vast amounts of money to the U.S. government in return for virtually unshackled access to America's consumer market. As in any positive symbiotic relationship, each country gets what it wants. Washington continues to receive its vital cash loans, and China retains access to the U.S. consumer market.

China's commodity acquisition campaign is designed to lock in countries all over the world in a similar symbiosis. Just as China was incentivized to take Japan's money in the mid-1970s to fuel its own economic success through infrastructure investment, so resource-rich nations now need China's financial investments, just as China needs to maintain the flow of those countries' natural resources. Such dependency is strongly reinforced by the threat of financial catastrophe; Breaking out of the cycle requires a country's willingness to severely damage its own economy. In the Chimerica relationship, the United States could default on its debt to China, but that would drive up its cost of borrowing substantially. America could also impose tariffs on cheap Chinese goods, an option that opens the door for similar trade barriers on American products (to the detriment of the US economy). Likewise, resource-rich economies caught up in commodity trading could restrict China's access to their assets through, say, nationalization of resources, but that course of action, even if other buyers could be found, would mean the hosts would turn their back on what is basically a guaranteed Chinese cash flow to fund projects they desperately need.

Whether the asset being traded is access to the world's largest consumer market or African nickel mines, the outcome and the essence of the trade is the same -- long-term dependency in which governments get locked in indefinitely, or at least until one of the parties involved stops getting what it wants. Escape is futile, and everyone is left in hock to China. China, of course, would equally be left locked in with whatever nation controlled the asset it was pursuing if these were single-source resources, but asset sources tend to be plural, whereas China's wealth and range are, for the time being, singular.

0465028284.1.zoom.jpg This is not to say that countries don't try to avoid being sucked into cycles of dependency. By now this sort of trade dependency is well known, and many resource-rich nations have been grappling with the balance between guaranteeing their sovereignty and allowing the necessary investment capital to flow into their country. Among others, the Brazilian government has been struggling with this very delicate issue, specifically with regard to granting foreign countries land access. In Brazil's case, it is likely that some nationalist legal protections will come into effect before too long.

Although these new regulations governing land access and tenure may take a while to percolate through the web of special interests and competing agendas, the rules will almost certainly include more aggressive caps on foreign ownership and access to land, some limits on the uses of the land -- say, between mining, cattle ranching, industry, or farming and food production -- and restrictions on the allowable tenure of foreign land access and control. The increasingly strong Brazilian industrial sector has also shown rising resistance to Chinese imports as local producers have ceded market share to Chinese products. As China continues to pull out its wallet and buy up resources, thus enriching its symbiotic partners, such acts of resistance can be expected to become increasingly commonplace.

If China purchased enough of different commodities and accumulated high enough (or even majority) market shares, then it could strongly influence the prices of resources. But cornering a commodity market is not the only way China could gain significant control over a specific resource. The price of goods and services is set by the party -- buyer or seller -- that holds the most power in the relationship. China's growing role and relevance in global commodity markets means it will ultimately drive how resource prices are derived. To a large extent, this is already the case.

Excerpted from Dambisa Moyo's Winner Take All: China's Race for Resources and What It Means for the World (Basic Books)."