According to a new report, China is consolidating its ability to arm trade

China diversifies its supply of critical natural resources – a movement this will strengthen Beijing’s ability to arm trade against its geopolitical rivals, according to a report recently released by risk consultancy Verisk Maplecroft.

“If China has a soft belly, it is its high dependence on foreign natural resources,” the report released on Thursday read.

China is a major consumer of major commodities, including crude oil and iron ore. But the country depends heavily on imports to meet its domestic demand for these commodities.

One of the ways the country is diversifying its import sources is by buying stakes in overseas companies, Verisk Maplecroft said. Doing so will increase the proportion of Chinese-owned resources in the country’s total imports, according to the report.

As an example, the consultant said the number of Chinese-owned gold and Chinese companies in Oceania went from zero in 2000 to 59 last year. It accounted for about 22.6% of the total foreign ownership of these companies, according to the report.

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

“China wants to strengthen its control over global supply chains through foreign investment and partnerships with international companies. Beijing has supported Chinese companies [state-owned enterprises] “becoming global” and establishing control of overseas resource bases 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.

By diversifying its import sources, China prefers suppliers of “stable autocratic regimes” to democracies that can lead to frequent changes in governments or possible changes in policy, he added.

“Our data show that China is pivoting toward more autocratic regimes that represent greater stability for its supply lines than democracies that are, or may become, hostile to Beijing. But it also uses its massive market as a source of diplomatic leverage, “the consultant noted. dit.

“By securing diversified sources, 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.

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

Australia shipped a monthly average of 60.86 million tonnes of iron ore to China in 2020, accounting for more than 60% of China’s global imports of goods, according to Refinitiv data.

That is why China has been strengthening trade ties with other iron ore producers such as Brazil and Guinea, according to the Verisk Maplecroft report.

“Despite a tougher line against Beijing under President Bolsonaro’s term, Brazil remains a priority in China’s diversification strategy, while Guinea is politically well-disposed in Beijing amid the democratic setback,” the report said. .

These geopolitical tensions could persist as China accelerates its efforts to reduce its reliance on “unfriendly” resource providers, Verisk Maplecroft said.

“The ban on coal imports from Australia was an excellent example, but others are likely to follow, with likely significant impacts on global commodity trade and the geopolitical landscape,” he said.

“Businesses and investors are in the direct spotlight of Beijing’s diplomatic movements and will have to prepare accordingly.”