By All Means Necessary

By All Means Necessary

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HOW CHINA'S RESOURCE QUEST IS CHANGING THE WORLD

BY
ELIZABETH C. ECONOMY
AND
MICHAEL LEVI

A Council on Foreign Relations Book

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© Elizabeth C. Economy and Michael Levi 2014

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Library of Congress Cataloging-in-Publication Data
Economy, Elizabeth, 1962–
By all means necessary: how China's resource quest is changing the world / by Elizabeth C. Economy and
Michael Levi.
pages cm
Summary: “In the past thirty years, China has transformed from an impoverished country where peasants comprised the largest portion of the populace, to an economic power with an expanding middle class and more megacities than anywhere else on earth. Like every other major power in modern history, China is looking outward to find the massive quantities of resources needed to maintain its economic expansion; it is now engaged in a far flung quest around the world for fuel, ores, water, and land for farming. Chinese traders and investors buy commodities, with consequences for economies, people, and the environment around the world. Meanwhile the Chinese military aspires to secures sea lanes, and Chinese diplomats struggle to protect the country's interests abroad. In By All Means Necessary, Elizabeth Economy and Michael Levi explore the unrivaled expansion of the Chinese economy and what has been required to sustain this meteoric growth. Clear, authoritative, and provocative, By All Means Necessary is a sweeping account of where China's pursuit of raw materials may take the country in the coming years and what the consequences will be—not just for China, but for the whole world”— Provided by publisher.
ISBN 978–0–19–992178–2 (hardback) 1. Natural resources—Government policy—China.
2. China—Foreign economic relations. 3. China—Economic conditions—2000– 4. China—
Economic policy. 5. National security—China. I. Levi, Michael A. II. Title.
HC427.5.E36 2014
333.70951—dc23
2013029331

1 3 5 7 9 8 6 4 2
Printed in the United States of America
on acid-free paper

Preface

Acknowledgments

1. Introduction

2. From Tribute to Treaty Port to Global Trade

3. China Emerges

4. China Goes Out

5. China Arrives

6. Growing Good Governance

7. Beyond the Developing World

8. Security and Politics in China's Backyard

9. Security and Politics Abroad

10. Resource Strategy in a Changing World

Notes

Maps

Glossary of Chinese Entities

Index

THIS IS A WIDE-RANGING
book, necessitated by its subject matter: China's resource quest extends from energy to minerals to land to water and is pursued to varying degrees through trade, investment, political maneuvering, and military means. Hence the title
By All Means Necessary
. Despite the broad nature of this book, though, it is not all encompassing. We do not dive into every one of the minerals China pursues or the countries with which it engages; instead we focus on representative examples. In addition, we do not investigate domestic Chinese resource consumption or production unless it directly affects resource availability beyond China's borders. This ultimately leads us, in particular, to exclude a host of domestic Chinese activities that have important global environmental consequences, most notably the burning of coal and its impact on climate change. In contrast, efforts to secure water within Chinese borders (which can affect the flow and availability of water in downstream countries) often fit our definition of a “resource quest” and hence are included.

In researching and writing this book, we relied on intensive use of the existing scholarly and business literature (along with our own analysis of both) and of statistical data. We also conducted research on the ground in many of the countries affected by China's resource quest, including Canada, China, Kenya, Mozambique, Zambia, Kuwait, Qatar, the United Arab Emirates, and Brazil, and we interviewed officials, scholars, and businesspeople from other countries such as Mongolia, Vietnam, and Peru. A book like this is only possible with such a mix of primary and secondary resources, and we are indebted to all those from whose knowledge this book has benefited.

WE BENEFITED FROM THE
help of many people. We thank Council on Foreign Relations President Richard Haass and Director of Studies James Lindsay for their steady support and for providing us with the time and freedom to research and write this book. We were privileged as well to have colleagues who provided an enjoyable and stimulating place to work. We were also fortunate over the past several years to have the assistance of a very talented set of research associates—Jaeah Lee, Alexandra Mahler-Haug, Jared Mondschein, William Piekos, and Charles Warren—as well as interns, including Amy Burns, Edward Delman, Dagny Dukach, Jeffrey Golladay, Mark Jia, and Sarah McGrath. Without their assistance, this book would not have been possible. We benefited greatly from the advice of Deborah Brautigam, Erica Downs, and Robert Kapp, all of whom took time from their own scholarly research to review particular chapters. Two anonymous reviewers, as well as Richard Haass and James Lindsay, also made excellent suggestions that helped improve the soundness and clarity of our arguments. We are thankful to David McBride for his patience and wisdom in shepherding us through the publication process. We are deeply grateful to the Henry Luce Foundation, Starr Foundation, and Alfred P. Sloan Foundation for providing the financial wherewithal to undertake the research for this book, and to the Starr Foundation and David M. Rubinstein for their generosity to the Council on Foreign Relations
in support of the endowed chairs held by Elizabeth Economy and Michael Levi, respectively. Our greatest appreciation goes to our families and significant others for all their support during the long days and nights of research and writing. Liz thanks her husband David Wah and children Alexander, Nicholas, and Eleni; Michael thanks Megan Bradley.

ON JANUARY 2, 2008
, an Omaha-based commodities trader instructed a colleague in New York to bid $100 for a barrel of Oklahoma oil. “This is the big one, ” he declared. It was: the transaction pushed the price of crude to the $100 mark for the first time.
¹
Prices for resources ranging from natural gas to copper to wheat, traded in London, Chicago, New York, and beyond, had already set records in the preceding months and years.

The apparent source of the surge was halfway around the world. Double-digit Chinese economic growth was driving unprecedented demand for resources. As Chinese people moved into the middle class, they consumed more, rapidly outstripping China's own ability to produce the resources needed to fuel its economy. The trend was turbocharged in the mid-2000s as China built up cities, industry, power plants, roads, and railways, boosting demand for everything from steel to coal.

Alarm bells sounded throughout much of the world, as fears grew that Chinese demand was leading to resource scarcity and ever-higher commodity prices. With what often appeared to be the full weight of the Chinese government behind them, Chinese firms seemed to be scouring the world for resources, striking deals at terms no other competitor could equal. Resource-rich economies were the beneficiaries of China's wide-ranging trade, aid, and investment deals, but worries about consequences for the environment and labor, and about corruption, plagued Chinese investments. Meanwhile, warnings of rising Chinese influence spread well beyond commerce: scholars, pundits, and politicians raised the prospect of resource wars, and
defense planners began to worry that China would seek to control the seas through which the resource trade flowed.

Natural resources have always been a flashpoint between emerging and established powers. Big countries can generate most of the essential elements of national power and prosperity from within their own borders. But even great powers are stuck with the natural resources they have. To be certain, for a time, they can turn to technology and exploration to boost domestic production as demand for resources outstrips their homegrown supply. Eventually, though, emerging powers inexorably turn outward in search of the natural resources they need, with widespread consequences.