TIBET OR ZAMBIA? PERU OR TIBET?

DILEMMAS OF CHINA’S STATE OWNED MINING GIANTS

#14 in a series on the FUTURE OF TIBET

In the worldwide scramble for resources, Chinese state owned corporations seek to guarantee supply on a planetary scale. From the perspec tive of the corporate boardroom, the real choice is between exploiting minerals in Tibet, or in Peru, or Zambia? How do China’s corporate giants make those choices?

Is China’s intensification of mineral extraction from Tibet part of a wider resource nationalism? Is China turning to its back yard, to lessen dependence on imports?

China has come a long way since the days of revolutionary pride in self-sufficiency. As little as 20 or 30 years ago, China would have insisted on the Tibet option, rather than risk buying up mineral deposits in Africa or Latin America. But self-sufficiency is no longer a powerful argument in a China that has prospered by integrating into the global economy, as the world’s factory.

It may even be that, as China learns how to buy, dig and ship Peru and Zambia to the world factory, it is also learning how to do the same in Tibet. Paradoxical as it may seem, from a global logistics perspective, Tibet is further from Shanghai than Peru.

There is much to suggest resource nationalism is on the rise. A renewed push to exploit Tibetan resources comes at a time when China’s demand for almost all commodities is inexhaustible, with China reaching to the farthest corners of the planet to source the raw materials it needs as the essential inputs of the world’s factory. In a world of overextended commodity chains, the sea lanes supplying China are at risk of disruption, especially in the Middle East and in SE Asia, bottlenecks vulnerable to piracy and war.

China, like Japan 40 years ago, is an industrial giant that must import almost all of its raw materials, with the sole exception of water, which is impossible to ship economically in the vast quantities inbuilt to industrial processes.

Resource nationalism is driven by resource insecurity. Postwar Japan’s reindustrialization meant not only massive imports of iron ore and coal, and almost all raw materials, but also powerful trading houses extending their reach globally, and a global fleet of cargo ships. But Japan seldom felt the need to extend the vertical integration even further up the supply chain, by actually buying outright the coal mines or mountains of iron. Japan even sourced its considerable demand for wood from the tropical forests of SE Asia and the Pacific, while preserving its own forests for their aesthetic value.

China is in a similar situation, but with differences. Unsure of the willingness of others to guarantee supply, it has sought to not only source its raw materials but also to own the deposits, build the railways and ports, and ship the semi-processed stuff of modernity to Chinese ports, processing plants and factories, usually on the Chinese coast. The ultimate security is a supply chain that is entirely Chinese, from mine to factory, at every step. Arguably, this is resource nationalism in a new guise. Instead of giving preference to Chinese minerals mined on Chinese land in China, China is extending its territory selectively and strategically, effectively making copper deposits in Peru and Zambia, iron ore mountains in West Australia, part of its territory, integrated into China’s commodity chain.

The big difference with Japan is China’s size, both as a major land mass with many mineral deposits yet to be exploited, and as a major labour force capable of generating such intense and prolonged demand as to raise global prices of almost all traded commodities. The search for economic deposits within China’s borders goes on, with much effort at turning initial geological exploratory teamwork into something provable and economically viable. But that takes time, and the beginning of the 21st century saw Chinese industrial demand outstrip not only domestic supply, but also strain global supply sufficiently to drive up prices for everyone. The surge in prices of almost all commodities that began in 2002 has persisted, despite global financial crises, and increases in production as new mines have come on stream and older mines have expanded. While prices have fluctuated, the overall pattern is of a sustained increase, so much so that investors in minerals stocks talk happily of a “supercycle” immune to the usually boom/crash cycle that has long characterized mining, a cycle that was accepted as inevitable, given the lag of years between growth in demand and growth in actual production, as mines take years to get into production. In hindsight, the 1980s and 1990s have come to be seen as decades of remarkably low prices for minerals and energy, which stifled investment in exploration, proving of deposits, and the infrastructure needed to get deposits onto world markets.

The sustained price rise profoundly affects which deposits get mined, around the world, and within China. Neoliberal economists argue that the world will never run out of resources, because, at a price, anything in demand will always be obtainable.  Many well-studied mineral deposits were declared uneconomic in the decades before the new century because the cost of extraction was too close to the price the market would pay. Now that gap has widened, making many overlooked deposits economic propositions. That is a basic economic reality, whether the deposits are in Peru, Zambia or Tibet. The 2012 downturn in Chinese demand for minerals may have affected the share prices of mining companies worldwide, since share owners usually look only for fast profits, but in the long run almost no-one thinks Chinese demand will drop.

On that basis, one would expect a major SOE push into Tibet, to exploit its minerals, especially at a time when Chinese industry is moving its factories westwards, closer to Tibet, away from the coast and its bulk handling port terminals.

If China was, as so many suppose, a monolithic giant with a master plan for everything, capable of orchestrating grand strategies, greater exploitation of Tibet, and other remote areas, would  be valuable ways of lessening dependency on the global commodity chain. China’s successive Five-Year Plans confirm this is indeed a major focus.

Yet there are many reasons to doubt whether China is reverting to the autarkic self-sufficiency which was one of the proudest boasts of the Maoist decades. The extreme resource nationalism of the revolutionary years came at a price. China’s determination to be self-reliant meant reliance on the state to find and test all mineral deposits, then develop them into working mines, connected to smelters and factories that could make finished manufactures. This turned out to be extraordinarily expensive, diverting investment capital to remote areas deemed essential as front lines of an inevitable future war –to be fought against the imperialist USA or revisionist USSR, or even both. The Third Front was far inland, at the foot of the Tibetan Plateau, as removed as possible from the American Navy and Soviet missiles as possible, as China’s deepest line of defence under a doctrine of “People’s War” which assumed the invading enemy would be drawn in deep, then surrounded and  destroyed.

The cost, in every way, was enormous, Environmentally and economically, Mao’s determination to stamp his will on the landscape and the masses meant bleeding China’s peasants for the funds needed for these massive steel mills, such as Panzihua, in Sichuan, in rugged terrain that protected the plants from missile attack. The entire military industrialization of western China was an enterprise of the state, and it entailed employing huge labour forces in every enterprise, from geological surveying through to steel manufacture. Each state enterprise was a world unto itself, its workers living in compounds close to the plant, the state providing not only salaries but also subsidized housing, health care and other benefits. This was the peak of the “iron rice bowl” state guaranteed job for life, with productivity not linked to reward.

Of necessity, China made a decisive break with the statist project and the iron rice bowl, in the 1980s. China’s “opening up” included sourcing raw materials abroad, part of a strategy to encourage the locationally favoured coastal special economic zones to get rich first, by trading with the world. That meant setting up labour intensive factories which increasingly relied on imported raw materials as inputs. At a policy level, China also bought into the prevailing ideology of the time, extolling the global division of labour and the resulting “benefits of trade.” China could now see its huge population not as a burden to be employed for life by the state, but as China’s global comparative advantage, which, in two decades, made China the world’s factory. Of necessity, that meant increasing reliance on overseas sources of raw materials, to which China’s inexhaustible supply of cheap labour could add value. Dependence on foreign raw materials was integral to China’s embrace of the global division of labour, and a strong counter to the resource nationalism of the past. How could China export fans, airconditioners, bicycles, fridges, washing machines, motorbikes and eventually cars to the world, if it was not willing to buy the iron ore from which they were made?

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