China is building its trade arms capacity, says new report

China is diversifying its supply of essential natural resources – a movement this will reinforce Beijing’s ability to turn the arms trade against its geopolitical rivals, according to a recently published report by risk consultancy Verisk Maplecroft.

“If China has a weakness, it is its high dependence on foreign natural resources,” says the report released on Thursday.

China is a major consumer of major commodities, including crude oil and iron ore. But the country depends heavily on imports to meet domestic demand for these commodities.

One way for the country to diversify its import sources is by buying stakes in foreign companies, Verisk Maplecroft said. This will increase the proportion of Chinese-owned resources in the country’s total imports, the report said.

As an example, the consultancy said the number of Chinese base metals and gold companies in Oceania increased from zero in 2000 to 59 last year. It represented about 22.6% of the total foreign participation in these companies, the report showed.

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

“China is seeking to strengthen its control over global supply chains through investments abroad and partnerships with major international companies. Beijing has supported Chinese state-owned companies. [state-owned enterprises] to ‘go global’ and establish control over resource bases abroad since the late 1990s, “said the report.

China imports essential commodities like crude oil, natural gas, metallurgical coal and iron ore from a “highly concentrated” group of trading partners, Verisk Maplecroft said.

In diversifying its import sources, China prefers suppliers of “stable autocratic regimes” to democracies that may involve frequent changes in governments or potential changes in policies, he added.

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

“By securing diversified sources, China will be in a better position to arm trade with geopolitical rivals, while at the same time increasing economic dependence on new and existing partners,” the document said.

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

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

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

That is why China has strengthened trade ties with other iron ore producers, such as Brazil and Guinea, according to the Verisk Maplecroft report.

“Despite a tougher line with Beijing under President Bolsonaro, Brazil remains a priority in China’s diversification strategy, while Guinea is politically well-disposed towards Beijing amid a democratic setback,” the report said.

These geopolitical tensions may persist as China accelerates its efforts to reduce its dependence on suppliers of “hostile” resources, said Verisk Maplecroft.

“Banning coal imports from Australia was an excellent example, but more are likely to emerge, with significant impacts on global commodity trade and the likely geopolitical landscape,” the document said.

“Businesses and investors are eyeing Beijing’s diplomatic movements and will need to prepare accordingly.”