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China's Global Nightmare

Brazil is of course happy to let foreign companies invest in its vast but difficult to access offshore oil reserves. China is interested in that oil — perhaps too interested. The FT recently reported this story:

China’s second largest state-controlled oil major Sinopec has signed a $5.2bn deal to buy 30 per cent of the Brazilian assets of Galp Energia, which include operations in the pre-salt fields, so-called because they lie under two kilometres of the stuff.
The deal is Sinopec’s second acquisition in the area after its $7.1bn investment in the Brazilian assets of Repsol YPF last year. Sinopec has also signed a $10bn oil-for-loan deal with Brazil. Elsewhere, Sinopec’s peer, Sinochem, has a $3.1bn stake in an offshore oil field in Brazil run by Norway’s Statoil…

But it is a partnership that will be fraught with difficulties with Brazil already growing suspicious of its increasingly close relationship with Beijing. China is now Brazil’s largest trading partner and last year was its biggest investor.

If Chinese state-owned companies are involved at every level of the pre-salt programme, Brazil may start to wonder whether it is ceding too much influence to a foreign government over what is considered a highly strategic asset.

So strategic, in fact, that former president Luiz Lula da Silva changed the law to give Petrobras the status of sole operator of the area. In one of his other last acts as leader, Lula da Silva also changed the land law to prohibit foreigners from acquiring large tracts of farmland, a measure seen as aimed at China.

The real importance of this story does not, however, have much to do with Brazil’s jittery nerves about Chinese investment.  It is to remind us about a key Chinese vulnerability that is often overlooked by pundits: China’s growing dependence on natural resources located far from its frontiers.

Beijing’s chosen national strategy — to achieve great power status by becoming the industrial workshop of the world — locks it into a complex and difficult set of dependencies and relationships with countries and markets all over the world. Access to those resources traps China in complicated geopolitical tradeoffs that can blow up in unexpected ways — as when China had to scramble to protect its citizens in Libya.  Chinese companies become the object of public anger if they are seen to be economically exploitative, unwelcoming to local labor, or environmentally destructive.  And, of course, in the event of a confrontation with the United States, China’s entire supply chain and overseas investments are helpless hostages.

Strategically, the only way out of this trap would be to build a blue water navy and air force that could threaten US command of the seas.  But a build up of that kind would not only trigger a massive US response; other countries like Japan, India and Australia would join together to ensure that China did not overturn a maritime status quo that is well trusted by other world powers.

We live in an interesting world.

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  • Luke Lea

    @- “Strategically, the only way out of this trap would be to build a blue water navy and air force that could threaten US command of the seas”

    Well, yes, that would be one way. Another would be for China’s ruling elite to focus its expansionary energies northwards into Siberia and Russo-Asia generally. What are the total oil, gas, and other mineral resources of that vast region, both currently and potentially? I don’t know but I bet they are large.

    The decade we are just entering is looking more and more to me like the 1930’s, but with China playing the role of Germany and Russia, again, likely to bear the brunt of the consequences.

    Perhaps we should make a virtue of necessity and admit that this is the least-bad alternative; in which case America’s (and the West’s) best military strategy, which we already seem to be pursuing, is to strengthen our Asian allies to the south and east of China — where sea power is paramount, and thus force China to expand in the direction of least resistance.

    I realize the “moral” justifications for such a strategy are hard to make. There are times when you just have to bow to the realities of historical development, in this case the political and economic instability being generated in China by the ordeal of development and its likely military consequences (based on past historical experience).

    Does this mean we should just hang Russia out to dry? No, it does not. But it does mean we should be reluctant to commit ourselves wholeheartedly to the defense of her borders in east Asia, which she holds with about the same moral right as Britain’s claims to India or Turkey’s to Southwest Asia and the Levant.

    In other words we should prepare to defend Russia as a European society, not as an Asiatic empire. Make a virtue out of necessity.

  • VA Teacher

    Interesting how history repeats itself.

    China is in a similar situation as Germany in the late 19th century and Japan in the 1920s. Germany tried to challenge British domination of the seas in WWI and paid a heavy price. Japan tried to build the land empire in Asia in WWII and paid a heavy price.

    China can try to reprise either of those paths and hope for greater success, or it can try to work with the U.S. as a partner in global stability. There is no reason the U.S. and China MUST come into armed conflict, but we are going to have to work out a way to work together without threatening each other’s vital existential interests at the same time that we are both dealing with some gut-wrenching internal problems.

    So much for the end of history…


    Great article.
    However, if Obama continues to rush America into bankruptcy, we will no longer be able to maintain the world’s largest navy.
    Meanwhile, China’s shipbuilding capacity grows and grows.

    In 15 years, China’s navy may be larger than America’s.

  • greybeard3

    “Strategically, the only way out of this trap would be to build a blue water navy and air force that could threaten US command of the seas.”

    I’m not so sure. Part of me suspects that the PRC’s expansion of its air and naval capabilities are mainly meant to awe and intimidate the rest of Asia, much in the manner of the neighborhood thug who keeps pitbulls in his front yard. When it comes to dealing with the US and the rest of the West, I think economic warfare is how they’ll go.

    They already hold a formidable whip hand with their massive ownership of US treasury debt, and they’re busily working to gain Europe’s allegiance (or is it acquiescence?) with intimations that the PRC’s willing to help “save” the Eurozone. If things get hot enough, the PRC could wage direct economic warfare via the world’s interconnected capital markets.

    I’ve recently said to friends that the 21st-century version of Admiral Yamamoto is wearing a Savile Row suit and sitting at the head of a Shanghai boardroom table; and that the modern counterpart to Minoru Genda is supervising a Chinese lab full of hackers running tests on trapdoor-laden high frequency trading algorithms.

  • gracepmc

    Most of history and sane FP analysts and historians argue against this. But years ago I argued, and maintain, that if necessary Russia and China can accommodate one another against mutual “foes”.

  • gaijin

    Would Sun Tzu build a blue water navy to challenge his opponent where he is strong?

    China will pursue asymmetric methods like electronic and economic warfare.

    Their own demographics will halt all this ascendancy talk sooner than anything we do. They are aging too rapidly and have too many “bare branches”.

  • Steve S.

    How, exactly, does the track upon which China finds itself differ from that of every other country that ever embarked upon an industrialization program?

  • Mike Anderson

    If it’s China doing this, are we allowed to call it colonialism?

  • Rob

    So, by this logic, North Korea should be a stable and peaceful country? China’s policy to interact with the world is far better than almost any other policy they might have pursued. A complex web of dependencies should be a deterrent to armed conflict, not a spur to it.

  • rkka

    “In other words we should prepare to defend Russia as a European society, not as an Asiatic empire. Make a virtue out of necessity.”

    And the Russian government are well aware that they will get zero support from the US where they need it.

    Which is why they will happily build oil and gas pipelines to China. China pays. The US just swindles.

  • schmuck281

    We live in an interesting world.

    That’s a little too close to that ancient Chinese curse to take any comfort in.

  • Mike Mahoney

    Why does this author demonize aggressive free trade? China’s territorial ambitions seem to extend no further than to some ancient claims with the possible modern exception of extending her territorial sea rights to 200 miles. I realize those ambitions are problematic in their own category of global politics. But they don’t touch upon China’s trade with the rest of the world.
    China may have peculiar methods of closing the deal but then again, so do Americans. They are somewhat cultural in each case.
    China is certainly a tough competitor and negotiator. They have earned it.
    I think you, the author, is raising a straw man bogeyman.

  • rkka

    “The decade we are just entering is looking more and more to me like the 1930′s, but with China playing the role of Germany and Russia, again, likely to bear the brunt of the consequences.”

    And you’re correct that, just like last time, the West won’t do anything effective to help them until they’re forced.

    This is why Russia is building oil and natural gas pipelines south to China and selling the stuff to them.

  • wm

    I’m with “greybeard”… China already *has* a blue water navy, with eleven carriers and one hundred surface combatants… because they hold our debt.

    Another historical analogy may be that of the United States and the British Empire at the turn of the 20th Century. The British were the gatekeepers to the global market and were the global power-projectors; we Americans the industrial powerhouse, and also a major creditor nation, at least in terms of the balance of payments.

    Seems to me that this state of affair’s impact on conflict planning should be the minor analytic emphasis… the major analysis must be on looking at the peace-time complementarity of interest the US and China currently share.

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