China’s unfinished agenda in Tibet

CAN A COMMAND ECONOMY BUY THE WORLD?

#12 in a series on the FUTURE OF TIBET

 

Would a truly market economy want to mine Tibet? If China has truly become a market economy there is little reason, on a strict cost/benefit rational calculus, to go to the enormous expense of integrating remote, mountainous Tibetan deposits into China’s commodity chain. In a market economy, all momentum would remain with the “go out” strategy, which is steadily providing China with global access to the minerals it needs. In a market economy, the role of the state might be to promote energy efficiency and reduction in resource intensity in world factory operations in China, and perhaps to facilitate global access to sourcing minerals planet-wide. Beyond these customary state functions, there would be little else to do.

But China is a state capitalist market economy, with a highly interventionist state that has multiple agendas, not just profit. China’s state capitalism prioritises political objectives as well as profit, such as:

  • securing China’s borders,
  • populating unreliable regions with politically reliable immigrants,
  • building exemplary industrialised  modernity in Tibet as final proof that China’s claims to Tibet are legitimate, and irreversible.

The party-state has unfinished business in Tibet. If anything Tibet is more resistant to Chinese power now than ever, more determined than ever not to accept the script of mining and tourism as the industries which will bring in sufficient wealth and migrants to make Tibet at last securely Chinese.

The central planning apparatus, backed by a capacity to allocate capital to nation-building projects in remote areas, has faded from Tibet much more slowly than in China’s  lowland provinces. Central subsidies from Beijing now provide more than 90 per cent of the budget spending of the government of Tibet Autonomous Region. Less than 10 per cent of the budget is raised as revenue within TAR. In Qinghai less than 15 per cent of revenue comes from within Qinghai. These high rates of dependence give Beijing enormous control, especially when central finance is directed at headline grabbing, large infrastructure projects that link remote regions to the national economy, often by emplacing infrastructure essential to profitable mining.

Mining Tibet is now at the front line of China’s renewed hope of integrating Tibet, assimilating it into the unitary Chinese nation through the wealth creation of mining, which will attract Chinese-speaking immigrants to settle in Tibet, able through connections and higher literacy to find employment not available to Tibetans.

Ever since the conquest of Tibet in the 1950s, China has searched for strategies to digest Tibet. The strategy perfected in the Qing dynasty, but with a lineage going back many centuries further, of a combination of garrisons and peasant settlements, did not work in Tibet. The soldiers came and dug in, attempting self-sufficiency on expropriated land. But the settlers did not come, because there are no crops growable in the Tibetan climate that are suited to classic small-scale intensive, high density peasant agriculture. The symbiosis of settlements protected by soldiers, and  soldiers creating a market for settler farming, never took off. This alone made the Tibetan Plateau unique in China’s long history of colonisation, the first time the historic method had failed.

 

CROP FAILURE AND THE NEW STEEL PATH

Amid increasing evidence that China’s presence in Tibet was unwanted, central leaders have looked for a “pillar industry” that could turn Tibet into a profit centre, generating wealth, attracting employment niche opportunities, and reducing dependence on endless subsidies. Successive Five-Year Plans announced the pillar industries that would soon achieve the goal, but progress was slow.

The extension of a single rail track, beyond the Gormo petrochemical terminus, all the way to Lhasa, proved a turning point. After the rail line, with its pressurised, heated trains insulated from Tibetan cold and thin air, began operating in 2006, mass tourism began to warrant its designation as a pillar industry. The same rail line, extended westwards from Lhasa by 2015 to Shigatse, enables bulk freight haulage of Tibetan minerals for the first time, notably the copper and gold concentrates of the Shetongmon (Xietongmen in Chinese) deposit. The railway is crucial, since the deposit is too small to warrant construction of a smelter, and the deposit is now owned by its Gansu-based smelter, Jinchuan Nickel, 2000 kms away by rail.

This is quintessential state capitalism. The state picks up the tab for the rail line, likewise the cost of constructing sufficient hydropower for Shigatse town and the mine, with its ore crushers and copper concentrator. Then it becomes profitable for a state owned company such as Jinchuan to operate a mine and distant smelter taking Tibetan concentrate as its feedstock. This also guarantees that the value added by smelting actual metal, in separate gold, silver and copper ingot, is done in the only part of western China that has been part of China for centuries: Gansu.

Is any of this the working of a market economy? No. Does that mean China, at least in Tibet, still operates on a centrally-planned, centrally-financed colonial model? Maybe, but the model is changing.

The rise of state owned mining corporations whose investment decisions are driven by calculations of a profitable rate of return, to the corporation and personally to its executives, has not led to a rush into Tibet. This seems to be for two reasons.

First, there are few major mineral deposits in Tibet conveniently close to publicly financed transport corridors, urban facilities and reliable power supplies, so the mining corporations drag their heels until the state has all necessary infrastructure in place. Second, China’s “go out” strategy, led by mining and oil companies, is still in its early stages, yet already the mining companies are in a position to choose between Tibet or Congo or Peru etc. Even at this early stage, when Chinese energy and mineral extractors still have to pay premium prices, for deposits judged too risky or remote for others to buy into, the choice almost always is for Congo, Zambia, Peru, Cameroon, Sudan  etc in preference to Tibet.

A major attraction of the overseas alternative is that it is overseas (despite the carbon cost of hauling the minerals to China). This extends the “backyard” subsidiary that captures profit to a global “backyard” of tax havens, in which the agents of the state, acting in the name of the state’s “go out” economic diplomacy, capture the wealth accumulated for themselves. Tibet has no such attractions. To operate a mine in Tibet is highly legible and visible to the party-state, must operate in an unpleasantly charged hyper-politicised atmosphere under greater scrutiny, because there is more at stake than profit.

The time has not yet come for the profitable exploitation of Tibetan minerals on a large scale, but every indication is that the day is close. One by one, the obstacles that made mining unattractive have been erased, usually by massive state spending, as well as a new mining rights regime to magnetise investors.

Nor has the time quite come when China buys the world, as eminent business economist Peter Nolan reminds us.  (Is China Buying the World? Polity Press, 2012) Nolan provides detailed evidence that China’s stake in Africa, the developing world generally and in the developed economies remains quite modest, while the rich countries have big stakes in China. But Nolan’s focus is on a snapshot of the moment in which the book was written. That moment is in the midst of European financial turmoil, and years of global financial crisis which were a sharp reminder to Chinese miners and other investors that global capitalism is prone to bouts of destroying wealth, as well as creating it. China’s sovereign wealth funds burned their fingers and are more cautious.

But in the longer term, although Nolan does little to answer his forward looking question, whether China will buy the world, the prospects for China’s going out are bright. In the not so long term, the recessions and depressions of Europe and the US provide many opportunities to buy into or take over companies whose share prices are as depressed as the fearful  European investors focused only on short term profit. And in the slightly longer term, ongoing weakness in richer counties may motivate them to quietly desist from the economic nationalism which refused China’s earlier attempts at buying American oil companies or British-Australian mining corporations. The present moment may be just a pause in China’s “going out.”

Does this provide at least a little more time before Tibet is integrated into the Chinese resource extraction and global manufacturing economy? The next post in this series will try to answer this question.

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