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Authors' Response: The Continuing Evolution of China's Resource Quest

Elizabeth C. Economy and Michael Levi

We wrote By All Means Necessary: How China's Resource Quest Is Changing the World to illuminate one of the most discussed but least understood dimensions of China's rise, and we are grateful for the four kind and thoughtful review essays. Indeed, the months since the book was published have only made the importance of the subject clearer. The China National Offshore Oil Corporation (CNOOC) has begun drilling for oil near the Paracel Islands, sparking a heated confrontation with Vietnam that the United States and regional powers are struggling to respond to. [1] The China National Petroleum Corporation (CNPC) has signed a 30-year gas supply deal with the Russian company Gazprom, reflecting a mix of confidence on China's part in its ability to manage imports, a strong desire to increase the use of natural gas, and, critically, a continuing motivation to diversify its sources of supply. [2] Meanwhile, countries around the world are shifting their policies partly in response to Chinese investment. Chinese investment in Myanmar, for example, continues to fall precipitously—in just three short years, China is estimated to have moved from first to tenth place in overall FDI in Myanmar—reinforcing the importance of host-country politics in shaping opportunities for Chinese business. [3] As analysts and policymakers struggle to understand and respond to these and other developments, we are heartened that the reviewers see By All Means Necessary as a valuable guide.

Nonetheless, they have some concerns. Llewelyn Hughes writes that we “do not convey a strong sense of how effective [state control over Chinese firms] is and what the implications are for China's external behavior.” Elizabeth Wishnick similarly comments that “the focus of By All Means Necessary is primarily on China's commercial relationships, and it would have been interesting for the book to explore the foreign policy implications of these relationships further.” These issues are a central thread running through chapters four through six, though many of our findings are dispersed. We summarize some of those findings here.

By All Means Necessary does not provide a single “strong” bottom line, but that is because there is none—the answers to these questions, as Wojtek Wolfe observes in his essay, vary with circumstances. We show, for example, that state control is weaker over private firms than over state-owned ones; that state influence varies depending on market structure; that the government is only inconsistently able to direct even state-owned firms toward its political ends; and that these limitations are not unique to Chinese firms operating abroad, but rather reflect relationships between the state and firms that play out at home too. To the extent that the Chinese government can harness individual firms toward its political ends, this is primarily by influencing them through general conditions, such as the availability of financing for overseas projects or leadership incentives related to party promotion, rather than through specific directives. The most immediate consequence for Chinese external behavior is simple: China cannot use its firms to fulfill its foreign policy goals nearly as effectively as many assume. Indeed, as we show in By All Means Necessary, the Chinese experience fits with what Hughes describes as a more general one, with “poor governance outcomes at home and abroad” often the result. For example, we document China's repeated but failed efforts to raise the standards of its extractives firms operating abroad, and note that firms operating abroad but outside Chinese state control can create foreign policy headaches for Beijing.

Hughes also writes that “a second important issue given insufficient attention relates to Chinese firms' entry into markets unrelated to fossil fuel–based resources.” In particular, he is concerned with our neglect of Chinese firms' activities in “green” technologies, which he claims are related to “growing [Chinese] demand for natural resources.” We agree with Hughes that there is some relationship here—in particular, without strong Chinese demand for resources contributing to high resource prices, green technologies would be less commercially attractive, and hence success in them would be less appealing to the Chinese state. But many other sectors (construction stands out) could be drawn in under a similar relationship, and this would have led to an unwieldy book. One might argue that green technologies are special, in that Chinese firms pursue them as part of a strategy to increase supply security. As we showed in a previous study, though, support from the Chinese government for firms' low-carbon technology efforts is driven primarily (though not entirely) by a desire to establish commercial competitiveness rather than by an intent to change the patterns of Chinese resource use. [4]

A third concern in Hughes's review is that we exclude climate change from our analysis except at the margin. We avoided analyzing the direct impact of Chinese resource use on climate change to keep the book focused on international implications of China's external resource-related activities. But Hughes is correct that, within those limits, we could have usefully gone further. We asked, for example, how the pursuit of resources affects China's diplomacy toward Iran and Sudan in the UN Security Council. One could also profitably ask how it affects the country's diplomacy in international climate negotiations, and how the relationship between the state and firms enters into that process. We did not address the ways that climate mitigation might shape Chinese resource demand, but that is because that connection is weak. [5] Environmental concerns are certainly influencing Chinese government decisions on how vulnerable to be to resource imports; in particular, worries about air pollution are arguably making China more willing to depend on imported natural gas. But while these decisions affect Chinese carbon dioxide emissions, they are not driven by climate-related concerns.

Wishnick is also concerned that, since “the scale of China's resource demand is unprecedented…the comparison [we] establish with Japan's quest for resources in the 1960s and 1970s (see pp. 3–5) seems misplaced.” It would certainly be wrong to argue, based only on the Japanese experience, that the impact of China's resource quest will be largely benign. What the historical perspective offers instead (as Trevor Houser notes in his essay) is a warning against superficial reasoning and against assuming that the international economy will be static in the face of a major new entrant. It can also help us identify biases that arise when U.S. analysts (among others) study the relationship between the state and firms in countries with different political economies. Our intention in offering the precedent was simply to open readers' minds, not to prove anything.

China's resource quest continues to evolve, shaped in some cases by Chinese actors' own changing priorities and in others by the opportunities and constraints posed by the international community. We appreciate the acknowledgement by all four reviewers of our effort to capture the dynamism, nuance, and elements of uncertainty inherent in this story. Ultimately, as Wishnick notes, China's development path involves many unknowns. We hope that as China's economic and political transition evolves, By All Means Necessary will continue to provide a valuable roadmap for understanding the choices that China will confront, as well as how the rest of the world might best adapt its own strategies and policies in navigating an ever-changing resource landscape. 

Endnotes

[1] Jane Perlez, “In Push to Assert Rights, China Plans to Send 2nd Oil Rig to Waters Near Vietnam,” New York Times, June 19, 2014.

[2] Lucy Hornby, Jamil Anderlini, and Guy Chazan, “China and Russia Sign $400 bn Gas Deal,” Financial Times, May 21, 2014.

[3] Motokazu Matsui, “Myanmar Sheds Dependence on Chinese Investment,” Nikkei Asian Review, March 27, 2014.

[4] Michael A. Levi, Elizabeth C. Economy, Shannon K. O’Neil, and Adam Segal, “Energy Innovation: Driving Technology Competition and Cooperation Among the U.S., China, India, and Brazil,” Council on Foreign Relations, November 2010.

[5] Ksenia Chmutina, Jie Zhu, and Saffa Riffat, “An Analysis of Climate Change Policy-Making and Implementation in China,” International Journal of Climate Change Strategies and Management 4, no. 2 (2012): 138–51.