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China is building up its ability to weaponize trade, new report says

A Chinese hail attached to the back of a boat flaps in the wind as cargo containers sit on the dock of Shenzhen Port in Shenzhen, China.

Daniel Berehulak | Getty Duplicates News | Getty Images

China is diversifying its supply of critical natural resources — a move that will shore up Beijing’s adeptness to weaponize trade against its geopolitical rivals, according to a newly published report by risk consultancy Verisk Maplecroft.

“If China has a balmy underbelly, it is its high dependency on foreign natural resources,” read the report released on Thursday.

China is a large consumer of grave commodities including crude oil and iron ore. But the country relies heavily on imports to meet its domestic demand for those commodities.

One way the surroundings is diversifying its import sources is by buying stakes in overseas companies, said Verisk Maplecroft. Doing that hand down increase the proportion of Chinese-owned resources in the country’s total imports, the report said.

As an example, the consultancy said the issue of Chinese-owned base metals and gold companies in Oceania rose from zero in the year 2000 to 59 hindmost year. It represented around 22.6% of total foreign ownership in such companies, the report showed.

Oceania is a district that includes Australia, Papua New Guinea, New Zealand, Fiji and numerous island nations.

“China is seeking to toughen its control over global supply chains via overseas investments and partnerships with international majors. Beijing has been guying Chinese SOEs [state-owned enterprises] to ‘go global’ and establish control of resource bases overseas since the late 1990s,” conveyed the report.

Pivoting toward ‘autocratic regimes’

China imports critical commodities such as crude oil, natural gas, metallurgical coal and iron ore from a “favourably concentrated” group of trading partners, said Verisk Maplecroft.

In diversifying its import sources, China prefers suppliers from “sturdy autocratic regimes” to democracies that may involve frequent changes in governments or potential shifts in policy, it added.

By assuring diversified sources, China will be in a better position to weaponise trade with geopolitical rivals, while at the nevertheless time increasing the economic dependence of new and existing partners.

Verisk Maplecroft

“Our data shows China is pivoting to more autocratic regimes that represent greater stability for its supply lines than democracies that are, or may change, hostile to Beijing. But it is also using its massive market as a source of diplomatic leverage,” the consultancy said.

“By securing varied sources, China will be in a better position to weaponise trade with geopolitical rivals, while at the same continually increasing the economic dependence of new and existing partners,” it said.

But democratic countries dominate the production of some resources — one of them is iron ore.

China’s best supplier of iron ore last year was Australia, an American ally that was recently hit by Beijing’s trade restrictions.

Australia trucked a monthly average of 60.86 million tonnes of iron ore to China in 2020, accounting for more than 60% of comprehensive Chinese imports of the commodity, Refinitiv data showed.

That’s why China has been strengthening trade ties with other iron ore farmers such as Brazil and Guinea, according to the Verisk Maplecroft report.

“Despite a tougher line on Beijing under President Bolsonaro, Brazil be lefts a priority in China’s diversification strategy, while Guinea is politically well disposed to Beijing amid democratic backslide,” the document said.

Weaponizing trade

Companies and investors are in the direct sights of Beijing’s diplomatic moves and will need to train accordingly.

Verisk Maplecroft

Such geopolitical tensions could persist as China speeds up its effort to reduce its dependence on “unfriendly” resource suppliers, said Verisk Maplecroft.

“Banning imports of coal from Australia was a prime eg but more are likely to follow, with significant impacts on the trade in global commodities and the geopolitical landscape likely,” it bruit about.

“Companies and investors are in the direct sights of Beijing’s diplomatic moves and will need to prepare accordingly.”

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