China is building its ability to arm trade, a new report says

China diversifies its supply of essential natural resources – a movement that will bolster Beijing’s ability to arm trade against its geopolitical rivals, according to a recently published report by risk consulting firm Verisk Maplecroft.

“If China has a soft gut, it’s its heavy reliance on foreign natural resources,” the report released Thursday.

China is a major buyer of important raw materials, including crude oil and iron ore. But the country relies heavily on imports to meet its domestic demand for those commodities.

One way the country is diversifying its import sources is by buying stakes in foreign companies, Verisk Maplecroft said. Doing so will increase the share of Chinese resources in the country’s total imports, the report said.

As an example, the consultancy cited the number of Chinese base metals and gold companies in Oceania rose from zero in the year 2000 to 59 last year. It represented about 22.6% of the total foreign ownership in such companies, the report found.

Oceania is a region that includes Australia, Papua New Guinea, New Zealand, Fiji, and numerous island nations.

China is seeking to strengthen its control over global supply chains through foreign investment and partnerships with international majors. Beijing supports Chinese state-owned companies. [state-owned enterprises] “going global” and taking control of overseas resources since the late 1990s, ”the report said.

China imports critical commodities such as crude oil, natural gas, metallurgical coal and iron ore from a “highly concentrated” group of trading partners, Verisk Maplecroft said.

In diversifying its import sources, China favors suppliers of “stable autocratic regimes” over democracies that involve frequent changes in governments or possible policy shifts, it added.

“Our data shows that China is moving towards more autocratic regimes that represent more stability for its supply lines than democracies that are hostile to Beijing. But it is also using its vast market as a source of diplomatic influence,” the consultancy said. said.

“By providing diversified resources, China will be in a better position to arm trade with geopolitical rivals, while increasing economic dependence on new and existing partners,” he said.

But democratic countries dominate the production of some resources – one of which is iron ore.

China’s largest supplier of iron ore last year was Australia, an American ally recently hit by Beijing’s trade restrictions.

Australia shipped an average of 60.86 million tons of iron ore to China monthly in 2020, accounting for more than 60% of total Chinese imports of the commodity, Refinitiv data showed.

That is why China is strengthening trade links with other iron ore producers such as Brazil and Guinea, the Verisk Maplecroft report said.

Despite a tougher line against Beijing under President Bolsonaro, Brazil remains a priority in China’s diversification strategy, while Guinea is politically favorable to Beijing amid a democratic downturn, the report said.

Such geopolitical tensions could continue as China accelerates efforts to reduce its reliance on “unfriendly” resource suppliers, Verisk Maplecroft said.

“The ban on coal imports from Australia was a good example, but more are likely to follow, with likely significant repercussions for global commodity trade and the geopolitical landscape,” he said.

“Businesses and investors are directly in the crosshairs of Beijing’s diplomatic moves and will need to prepare accordingly.”