China Resource Boom: Comparison to Oz and S. America?

Tuesday, 5 November, 2013

Chatham House have released a paper looking at the Chinese resource boom in comparison to Australia and South America in terms of managing the extractives industry.

http://www.chathamhouse.org/sites/default/files/public/Meetings/Meeting%20Transcripts/221013China.pdf

The report is based on a presentation by Dr Adrian H. Hearn, Australian Research Council; Coordinator of International Relations, China) Studies Centre, University of Sydney (“future fellow?” answers on a post card to info@csr21.org).

The premise is that common approaches could be shared by China, Australia and Latin America in terms of infrastructure development, taxation etc. We have reported on lots of useful stats and figures below but the bit of the report that really interests CSR21.org is on land for food. One of China’s key problems is that it doesn’t have enough arable land or water. Page four outlines how attempts to secure land for China are sometimes stymied and the PRC leadership has a big gap in the nations future stomach it needs to fill:

“China has nine per cent of the world’s arable land and 40 per cent of the world’s farmers; as it urbanizes, pressure to feed the population is intensifying. At the same time, international exporters looking to diversify their economies have identified agriculture as a promising sector –especially in light of growing interest from Chinese investors.”

Some argue that the land market has unique implications for food security, especially considering the fact that many of the Chinese firms involved in agriculture are state-owned enterprises (SOEs). Liberal democratic governments have maintained the position that agricultural produce should go to competing markets, not to a single customer at a concessionary price. Dr Hearn said that more research needs to be done to discern the differences between SOE and private investment, since as yet there is no hard evidence to show undue influence from the Chinese government on the supply and pricing of commodities. On the question of whether China has learned from its experiences to date, Dr Hearn mentioned how Chinese companies have begun to use better public diplomacy, including building schools, sponsoring sports teams, and getting involved in environmental protection schemes in the areas where they work.”

Are there really any truly private PRC companies? Do the “private” companies have the ability to act independently from the Chinese state, even if they wanted to, considering the vast amounts of aid put into countries in Latin America, Africa, and the Stan’s? It’s interesting to see though the increase of community schemes and regional, on the ground alignment now being entered into by Chinese Companies. Experience in countries such as Zambia and Tanzania has obviously demonstrated that just stumping up a few highways and ports does not give a mining operation the right to operate with impunity within the region (or not being thrown down a mine shaft.)

The report also included some Interesting statistics on the regions and resources:

“Raw commodities are now 60 per cent of Argentina’s exports, 47 per cent of

Brazil’s, 75 per cent of Chile’s and 40 per cent of Latin America’s exports as a whole. Trade between China and Latin America has grown from $10 billion to $255 billion between 2000 and 2012. Mining and agriculture account for 90 per cent of this trade. Australia has 70 per cent of the world’s iron ore. China overtook Japan as Australia’s largest trading partner in 2009, and Australia is the largest recipient of Chinese foreign investment.”

Praise for Chilean infrastructure approach:

“Copper Stabilization Fund (CSF), similar to a sovereign wealth fund, has allowed investment in infrastructure, tax cuts for small businesses and counter-cyclical stimulus. Chile is often criticized for its reliance on copper, but the Organization for Economic Cooperation and Development has praised the CSF as a model for other resource exporters. Brazil levies a 25 per cent participation tax on mining companies, and has experimented with state taxes. The latter are used to build and protect local manufacturing, by giving exemptions to companies that invest in local capacity. “

Not so much for Australia (that future fellowship at Sydney may be some time in the future if he keeps this up)

“In Australia, several tactics have been tried, but there is no overall policy. In2010, a government proposal for a 40 per cent tax on mining profits was criticized by mining companies of being discriminatory; the controversy played

a role in Prime Minister Kevin Rudd’s removal from office that year. In 2012, a 22.5 per cent tax on profits was passed, but this has failed to bring in the expected revenue – partly due to lower iron ore prices, but also because of a number of loopholes. A carbon tax was passed in 2012 but political changes may lead to this being eliminated.”

(Image courtesy of Feelart at freedigitalphotos.net)