China's Strategy to Secure Natural Resources : Risks, Dangers, and Opportunities [1 ed.] 9780881325539, 9780881325126

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Polic y Analyses in International Economics

CHINA’S STRATEGY TO SECURE NATURAL RESOURCES: Risks, Dangers, and Opportunities Theodore H. Moran

PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS

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7/19/2010 10:03:22 AM

China’s Strategy to Secure Natural Resources: Risks, Dangers, and Opportunities

FPO

China’s Strategy to Secure Natural Resources: Risks, Dangers, and Opportunities Theodore H. Moran

PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS Washington, DC July 2010

Theodore H. Moran, nonresident senior fellow, has been associated with the Peterson Institute since 1998. He holds the Marcus Wallenberg Chair at the School of Foreign Service in Georgetown University. He is the founder of the Landegger Program in International Business Diplomacy at the university and serves as director there. In 2007 he was invited to join the Director of National Intelligence Advisory Panel on International Business Practices.

PETER G. PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS 1750 Massachusetts Avenue, NW Washington, DC 20036-1903 (202) 328-9000 FAX: (202) 659-3225 www.piie.com

He was senior adviser for economics on the Policy Planning Staff of the Department of State (1993–94). He returned to Georgetown University after the North American Free Trade Agreement and Uruguay Round negotiations. He is a consultant to the United Nations, governments in Asia and Latin America, and international business and financial communities. In 2000 he was appointed counselor to the Multilateral Investment Guarantee Agency of the World Bank Group. In 2002 he was chairman of the Committee on Monitoring International Labor Standards of the National Academy of Sciences.

Copyright © 2010 by the Peter G. Peterson Institute for International Economics. All rights reserved. No part of this book may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying, recording, or by information storage or retrieval system, without permission from the Institute.

His books include Three Threats: An Analytical Framework for the CFIUS Process (2009), Harnessing Foreign Direct Investment for Development: Policies for Developed and Developing Countries (Center for Global Development, 2006), Does Foreign Direct Investment Promote Development? (coedited with Magnus Blomstrom and Edward Graham, 2005), International Political Risk Management: Exploring New Frontiers (World Bank, 2005), Beyond Sweatshops: Foreign Direct Investment, Globalization, and Developing Countries (Brookings Institution, 2002), and Foreign Investment and Development (1998).

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Library of Congress Cataloging-inPublication Data Moran, Theodore H., 1943China’s strategy to secure natural resources : risks, dangers, and opportunities / Theodore H. Moran. p. cm. Includes bibliographical references and index. ISBN 978-0-88132-512-6 1. Investments, Chinese—Foreign countries. 2. Natural resources—China. 3. China--Foreign economic relations. I. Title. HG5782.M67 2010 333.70951—dc22 2010021792

The views expressed in this publication are those of the author. This publication is part of the overall program of the Institute, as endorsed by its Board of Directors, but does not necessarily reflect the views of individual members of the Board or the Advisory Committee.

Contents

Preface

vii

Acknowledgments

xi

1

Introduction

1

Strategic Patterns of Securing Access to Natural Resources

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Chinese Investments to Secure Natural Resource Supplies

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Types of Natural Resource Producers Procurement Patterns of a Large Buyer China’s Arrangements

China National Petroleum Company and the Greater Nile Petroleum Operating Company, Sudan, 1996 China National Petroleum Company and Sinopec with Petrodar Operating Company, Sudan, 2001 China National Offshore Oil Corporation (CNOOC) and North West Shelf Venture, Australia, 2002 Sinopec and CNOOC, Angola, 2004 CNOOC and Union Oil Company of California (Unocal), 2005 (Aborted) China National Petroleum Company and PetroKazakhstan, 2005–09 CNOOC and Akpo Oilfield, Nigeria, 2006 Chalco and Aurukun Bauxite Project, Queensland, Australia, 2007

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12 13 14 15 17 17 18

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Sinopec and Yadavaran Oilfield, Iran, 2007 Socomin Joint Venture, Democratic Republic of the Congo, 2008 Chinalco and Rio Tinto, 2008–09 (Aborted) China Development Bank Loan to Rosneft and Transneft, Russia, 2009 Sinopec and Petrobras, 2009 Sinopec’s Acquisition of Addax Petroleum, 2009 China National Petroleum Company’s Development of South Pars Gasfield, Iran, 2009 China National Petroleum Company’s Development of South Azadegan Gasfield, Iran, 2009 Appendix 3A: Background on Smaller Cases

19 20 21 23 24 25 26 27 35



China Surpasses California New Sources of Rare Earths Lithium Supply

Rare Earths: A Sophisticated New Resource Model for China?

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Policy Implications

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42 43 44

References

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Index

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Table

Table 2.1 Strategic patterns of China’s 16 largest natural-resource procurement cases

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Preface

This study adds an important new dimension to the Peterson Institute’s work on China. Is the Chinese government using its checkbook—and deploying Chinese companies in the extractive sector—to “lock up” and gain control over the world’s natural resources? If so, what are the effects on global markets for those resources, other importing countries and the world economy? Theodore H. Moran treats this as an empirical question. He examines the 16 largest Chinese natural resource procurement arrangements and assigns them to one of two categories. If the buyer-seller arrangement simply solidifies legal claim to a given structure of production, he labels the outcome “tying up” or gaining “preferential access” to supplies. Such an arrangement has zero-sum implications for other consumers. If the buyer-seller arrangement expands sources of output more rapidly than growth in world demand and opens up new sources, he labels the outcome multiplication and diversification of supplies. Here the zero-sum implication vanishes as other consumers have easier access to a larger and more competitive global resource base. His scorecard of China’s procurement arrangements shows a few instances (3 of the largest 16) in which Chinese natural resource companies take an equity stake to create a “special relationship” with a major producer. But the predominant pattern (13 of the largest 16) is to take equity stakes and/or write long-term procurement contracts with the competitive fringe. This outcome should not be surprising—Japan, for example, flirted with the idea of deploying capital and procurement contracts to establish “special relationships” with major resource producers in the 1970s and 1980s but then turned to helping make the global supplier base more diversified and more competitive. vii

Moran notes that Chinese attempts to exercise control over sources of rare earth elements may constitute a significant exception, however. China has pursued an aggressive policy of acquiring equity stakes in new producers, in particular in Australia. Deng Xiaoping once noted that while the Middle East has oil, China has rare earth elements. The appropriate policy treatment toward Chinese offshore investments in rare earths becomes clear from the broader analysis presented here. Chinese investment in small independent producers to allow them to expand supply and make the industry more competitive should be welcomed; Chinese investment in major producers that allows the Chinese owners (and Chinese government) to control or constrain production should be discouraged. The analysis of the “lock up” hypothesis is deliberately narrow and precise, limited to assessing the impact of Chinese resource procurement on the structure of the global supply base. Moran concludes this study by raising other important but separate issues, including the impact of Chinese resource procurement on rogue states, on authoritarian leadership, on civil wars, on corrupt payments and the deterioration of governance standards, and on environmental damage. Such effects may make patterns of Chinese resource procurement objectionable, on grounds quite apart from the debate about possible “lock up,” “tie up,” and “control” of access on the part of China and Chinese companies. This publication complements and elaborates the Institute’s extensive previous studies on the Chinese economy and its role in the world economy, notably China’s Rise: Challenges and Opportunities (2008) and China: The Balance Sheet—What the World Needs to Know Now about the Emerging Superpower (2006). These topics will continue to represent a central focus of our research program. The Peter G. Peterson Institute for International Economics is a private, nonprofit institution for the study and discussion of international economic policy. Its purpose is to analyze important issues in that area and to develop and communicate practical new approaches for dealing with them. The Institute is completely nonpartisan. The Institute is funded by a highly diversified group of philanthropic foundations, private corporations, and interested individuals. About 35 percent of the Institute’s resources in our latest fiscal year was provided by contributors outside the United States. The Institute’s Board of Directors bears overall responsibilities for the Institute and gives general guidance and approval to its research program, including the identification of topics that are likely to become important over the medium run (one to three years) and that should be addressed by the Institute. The director, working closely with the staff and outside Advisory Committee, is responsible for the development of particular projects and makes the final decision to publish an individual study. viii

The Institute hopes that its studies and other activities will contribute to building a stronger foundation for international economic policy around the world. We invite readers of these publications to let us know how they think we can best accomplish this objective.

C. Fred Bergsten Director June 2010

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PETER G. PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS 1750 Massachusetts Avenue, NW, Washington, DC 20036-1903 (202) 328-9000 Fax: (202) 659-3225 C. Fred Bergsten, Director BOARD OF DIRECTORS * Peter G. Peterson, Chairman * George David, Vice Chairman * Reynold Levy, Chairman, Executive Committee Leszek Balcerowicz Ronnie C. Chan Chen Yuan * Andreas C. Dracopoulos * Jessica Einhorn Mohamed A. El-Erian Stanley Fischer Jacob A. Frenkel Maurice R. Greenberg Herbjorn Hansson Tony Hayward * Carla A. Hills Nobuyuki Idei Karen Katen W. M. Keck II Michael Klein * Caio Koch-Weser Lee Kuan Yew Andrew N. Liveris Sergio Marchionne Donald F. McHenry Mario Monti Paul O’Neill David O’Reilly Hutham Olayan * James W. Owens Samuel J. Palmisano Frank H. Pearl Victor Pinchuk * Joseph E. Robert, Jr. David Rockefeller Lynn Forester de Rothschild Renato Ruggiero * Richard E. Salomon Sheikh Hamad Al-Sayari Edward W. Scott, Jr. Frederick W. Smith Jean-Claude Trichet Laura D’Andrea Tyson Paul A. Volcker Jacob Wallenberg Edward E. Whitacre, Jr. Marina v.N. Whitman Ernesto Zedillo Ex officio * C. Fred Bergsten Nancy Birdsall Richard N. Cooper Barry Eichengreen Honorary Directors Alan Greenspan Frank E. Loy George P. Shultz

ADVISORY COMMITTEE Barry Eichengreen, Chairman Richard Baldwin, Vice Chairman Kristin Forbes, Vice Chairwoman Isher Judge Ahluwalia Robert E. Baldwin Steve Beckman Olivier Blanchard Barry P. Bosworth Menzie Chinn Susan M. Collins Wendy Dobson Jeffrey A. Frankel Daniel Gros Stephan Haggard Gordon H. Hanson Takatoshi Ito John Jackson Peter B. Kenen Anne O. Krueger Paul R. Krugman Justin Yifu Lin Jessica T. Mathews Rachel McCulloch Thierry de Montbrial Sylvia Ostry Jean Pisani-Ferry Eswar S. Prasad Raghuram Rajan Kenneth S. Rogoff Andrew K. Rose Fabrizio Saccomanni Jeffrey D. Sachs Nicholas H. Stern Joseph E. Stiglitz William White Alan Wm. Wolff Daniel Yergin Richard N. Cooper, Chairman Emeritus

* Member of the Executive Committee

Acknowledgments

I am grateful to Erica Downs, Bates Gill, Thilo Hanemann, Mikkal Herberg, Nicholas Lardy, Todd Moss, Louis T. Wells, Jr., and Daniel Rosen, as well as James Rickards and other members of the National Intelligence Council International Business Practices Advisory Board, for extremely helpful comments. I also wish to thank Katherine Donato and Kathleen Klingenberg for research and administrative support. The errors that remain are my own.

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Introduction

1

The rapid emergence of China as a major industrial power poses a complex challenge for the world’s natural resource markets. On the demand side, Chinese appetite for vast amounts of energy and minerals puts tremendous strain on the international supply system. On the supply side, Chinese efforts to procure raw materials can either exacerbate or help solve the problems of high demand. Backed by the Chinese government, Chinese companies have been acquiring equity stakes in natural resource companies, extending loans to mining and petroleum investors, and writing long-term procurement contracts for oil and minerals. These activities have aroused concern that China might be locking up natural resource supplies, gaining preferential access to available output, and expanding control over the world’s extractive industries. Do Chinese equity acquisitions, loans, and long-term procurement contracts help consolidate a tightly concentrated supply base by securing preferential access for Chinese buyers, or do they help multiply sources and diversify the supply base, making the provision of output more competitive for all buyers? Which outcome Chinese procurement arrangements generate dep­­ ends upon whether those arrangements basically solidify a concentrated global supplier system (and enhance Chinese ownership/control within that concentrated supplier system) or expand, diversify, and make more competitive the global supply system (and use Chinese ownership/control as a lever for such expansion, diversification, and enhanced competition). Business-school strategic management literature identifies four fundamental natural resource-procurement patterns for a large buyer. First, a buyer can take an equity stake with a major producer, on terms compa-

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rable with other co-owners, to create a special relationship with that producer. Second, a buyer can take an equity stake in an independent producer to procure an equity-share of production, again on terms comparable with other co-owners. Third, a buyer can make a loan to a pricemaking producer in return for a purchase agreement to service the loan. Fourth, a buyer can make a loan to a price-taking producer in return for a purchase agreement to service the loan. These four procurement patterns allow an operational definition of tying up or gaining preferential access to supplies. If the buyer-seller arrangement simply solidifies a legal claim to a given structure of production (the first and third patterns), tying up or gaining preferential access to supplies has zero-sum implications for other consumers. However, if the buyer-seller arrangement expands and diversifies sources of output more rapidly than growth in world demand (the second and fourth patterns), the zero-sum implications vanish, as other consumers can more easily access a larger and more competitive global resource base. In this policy analysis I investigate the impact of Chinese resource procurement on the structure of global energy and mineral supply.1 It must be noted that China’s actions also have implications for rogue states, authoritarian leadership, civil wars, corruption, deterioration of governance standards, and the environment. Such effects may make patterns of Chinese resource procurement objectionable, on grounds quite apart from the debate about possible “lock up,” “tie up,” and “control” of access on the part of China and Chinese companies. I raise these important issues in the concluding chapter on the broader policy implications. Evidence from the 16 largest Chinese natural resource procurement arrangements (table 2.1 in chapter 2 and descriptions in chapter 3) shows that Chinese efforts, like Japanese deployments of capital and purchase agreements in the late 1970s through the 1980s, predominantly help expand, diversify, and make the global energy-supply system more competitive. However, Chinese attempts to exercise control over mining of rare earth elements (REE)—metals used in a variety of technological applications, from lighter flints to high-temperature superconductivity— may constitute a significant exception (see chapter 4). In August 2009 China’s Ministry of Industry and Information Technology set an annual quota for REE exports at 35,000 tons, potentially banned exports of at least five types of REEs, and took steps to control mining and improve environmental practices. These actions may have been to secure control over international markets; at the same time, they are being deployed to compel more foreign investment and more value added in associated industries in inland China. Concerned about access to supplies, mining companies and buyers have shown interest in developing new sites in Vietnam, Kazakhstan, Sweden, and Canada, as well as restarting production in the United States, which has stalled recently due to environmental concerns. China meanwhile has pursued an aggressive policy of acquiring equity stakes in 2  China’s Strategy to Secure Natural Resources

new REE producers, particularly in Australia. Deng Xiaoping once noted that while the Middle East has oil, China has REEs.2 How should national authorities react to the prospect of Chinese investment in offshore REE companies? The foreign acquisition analytics in the rare earth sector fit well within the broader framework laid out in this policy analysis. Chinese investment in a small, independent producer that can do nothing except help expand supply and make the industry more competitive should be encouraged. But Chinese investment in a major producer, which perhaps puts the Chinese owners and government in a position to control or constrain production, should be viewed with circumspection. More generally, the United States and other allies are rightly appalled at China’s vigorous support for oil production in Sudan and Iran or for oil transportation, natural gas, and mineral production in Myanmar. They are right to be concerned about the consequences of China’s natural resource procurement for regional conflict, support for terrorist groups, human rights violations, environmental degradation, and oppression, especially since providing equity capital and loans in return for natural resources is part of China’s larger strategy toward Central Asia, the Middle East, Africa, Latin America, and the South Pacific, as it seeks ever more natural resources to fuel its economic growth.

Notes 1. For broader perspectives, see Broadman (2007); Gill, Huang, and Morrison (2007); and Hanson 2008. 2. Keith Bradsher, “China Tightens Grip on Rare Minerals,” New York Times, September 1, 2009.

INTRODUCTION  3

Strategic Patterns of Securing Access to Natural Resources

2

From a practical point of view, the issue of tying up natural resource sup­­ plies or gaining preferential access to them cannot be addressed without examining the market structure of the natural resource industry involved. In the abstract, at one extreme is a highly imperfectly competitive market structure with only a few suppliers, of which perhaps a handful are predominantly large. Switching sources of supply is complex and costly, entry and exit involve large fixed costs, operating at less than full capacity confers great competitive disadvantage, and both supply and demand are inelastic, responding very sluggishly to changes in price. Under such conditions, markets can be segmented and buyers denied access to output or forced to suffer price-gouging behavior to secure what they need. At the other extreme is a thoroughly competitive market structure with a large number of relatively small producers. Switching costs from one producer to another are low, supplies are fungible, entry and exit are easy, operating at less than full capacity does not confer a great competitive disadvantage, and both supply and demand are elastic, as small movements in price can produce rapid expansion or contraction of supply and demand. Under such conditions, the possibility of tying up natural resource supplies or gaining preferential access to them becomes infeasible. But how would tying up supplies be defined and operationalized? When should other consumers—or the world at large—consider an equity stake, loans, or long-term purchase contracts worrisome, and when not? The choice of taking an equity stake in a producer, loaning funds to one, or writing long-term purchase contracts is important to the debate about tying up supplies to the extent that these measures affect the competitive structure of an industry. 5

Types of Natural Resource Producers Business-school strategic management literature identifies two contrasting ideal types of natural resource producers (countries or companies). One type involves a handful of major producers—price-making coun­ tries or companies with large enough market shares to affect industry prices through their own output decisions. For such producers, obtaining adequate financing is seldom a problem. They are sensitive, however, to maintaining overall equilibrium within the oligopoly of other major producers, avoiding any expansion of capacity that could upset the market shares of principal rivals, generate price wars, or reduce aggregate revenue from their existing market share if supply outstrips demand. In addition, majors typically have an inventory of possible projects ready to bring online, when they choose, and only partially related to supplydemand conditions in global markets. In the oil industry, the Seven Sisters1 were traditionally considered to be majors, alongside the larger govern­ ment producers in the Organization of the Petroleum Exporting Countries (low-population OPEC). In copper, Anaconda and Kennecott historically fit this definition, though they have been superseded by Rio Tinto and BHP Billiton. In nickel, Inco long played the role of a major. The other type of ideal resource provider is the competitive fringe, consisting of price-taker countries or companies, with market shares that are too small for any individual production decisions to affect industry prices. A player in the competitive fringe is motivated to expand its market share as rapidly as possible. Any project that meets its threshold rate of return, adjusted for risk, is eligible to be brought into production, though obtaining adequate financing is often a constraint. In the jargon of the oil industry, producers in the competitive fringe are traditionally referred to as independents. In reality, the distinction between majors and the competitive fringe is often a judgment call, involving a calculation of how significant a given project is in helping to expand and diversify the global supplier base in the industry.

Procurement Patterns of a Large Buyer The strategic management literature specifies seven fundamental patterns in natural resource procurement by a large buyer, four of which are rele­ vant to this analysis.2 n Buyers (and/or their home government) can take an equity stake to create a special relationship with a major producer to procure a share of production on terms comparable to other co-owners. n Buyers (and/or their home government) can take an equity stake to create a special relationship with the competitive fringe—an inde­ 6  China’s Strategy to Secure Natural Resources

pendent producer—again to procure a share of production on terms comparable to other co-owners. n Buyers (and/or their home government) can make a loan to a pricemaking producer (major producer) in return for a purchase agreement to service the loan. n Buyers (and/or their home government) can make a loan to a pricetaking producer (competitive fringe) in return for a purchase agree­ ment to service the loan. The four patterns differ primarily in the extent to which they help consolidate an existing structure of production for a given resource base (the first and third patterns), as opposed to multiplying and diversifying supply sources while adding new output at the margin faster than the growth in world demand (the second and fourth patterns).

China’s Arrangements Table 2.1 lists the 16 largest Chinese natural resource procurement arrange­ ments from 1996 to 2009. In a few instances Chinese natural resource companies take an equity stake to create a special relationship with a major producer, which would, according to the business literature, tie off some of the output from the natural resources industry, denying others access to it (patterns one and three). But China’s predominant pattern is to take equity stakes or write long-term procurement contracts with the competi­ tive fringe. According to the business literature, this should improve the competitiveness of the market for all who are involved (patterns two and four). I describe each of the 16 arrangements in chapter 3. A brief review of five smaller Chinese procurement arrangements (in appendix 3A) does not suggest that there is a significant selection bias in looking at these 16 largest projects. The strategic management framework is useful in pointing out that, apart from the scenarios of China consolidating the structures of major players or multiplying sources of supply, China also might build an array of controlling positions in a large number of suppliers along the competi­ tive fringe. This concern appears pertinent regarding China’s strategy toward rare earth elements (see chapter 4). Chinese manipulation of output, even among highly competitive mineral producers, can affect markets through the industry’s inelasticity of supply. When the issue of geographical diversification is included in the equation, the question of which arrangement may change the struc­ ture of the supplier base is particularly difficult. Even as majors tend to be more averse to risk, they may also have more experience and greater access to financing to move into a new region. The more dynamic situa­ tion, however, may be independents entering new geographical regions. Strategic Patterns of Securing Access to Natural Resources  7

Table 2.1

Strategic patterns of China’s 16 largest natural-resource procurement cases Pattern 1: Special relationship with major producer

Buyers and/or their home governments take an equity stake in a “major” producer to procure an equity share of production on terms comparable to other co-owners.

1. Sinopec and CNOOC, Angola, 2004 2. CNOOC and Akpo Oilfield, Nigeria, 2006

Pattern 2: Special relationship with competitive fringe Buyers and/or their home governments take an equity stake in an “independent” producer so as to procure an equity share of production on terms comparable to other co-owners.

3. CNPC and GNPOC, Sudan, 1996 4. CNPC and Sinopec with Petrodar Operating Company, Sudan, 2001 5. CNOOC and North West Shelf Venture, Australia, 2002 6. CNOOC and Unocal, 2005 (aborted) 7. CNPC and PetroKazakhstan, 2005–09 8. Chalco and Aurukun Bauxite Project, Queensland, Australia, 2007 9. Sinopec and Yadavaran Oilfield, Iran, 2007 10. Socomin Joint Venture, Democratic Republic of the Congo, 2008 11. Chinalco and Rio Tinto, 2008–09 (aborted) 12. Sinopec’s acquisition of Addax Petroleum, 2009 13. CNPC’s Development of South Pars Gasfield, Iran, 2009 14. CNPC’s Development of South Azadegan Gasfield, Iran, 2009

Pattern 3: Loan capital to major producer to be repaid in output Buyers and/or their home governments make a loan to a “price maker” producer in return for a purchase agreement to service the loan.

15. China Development Bank loan to Rosneft and Transneft, Russia, 2009

Pattern 4: Loan capital to competitive fringe to be repaid in output Buyers and/or their home governments make a loan to a “price taker” producer in return for a purchase agreement to service the loan.

16. Sinopec and Petrobras, 2009

Key: Chalco/Chinalco = Aluminum Corporation of China CNOOC = China National Offshore Oil Corporation CNPC = China National Petroleum Corporation GNPOC = Greater Nile Petroleum Operating Company LNG = liquefied natural gas Sinopec = China Petroleum and Chemical Corporation Unocal = Union Oil Company of California

8  China’s Strategy to Secure Natural Resources

The story of two independents, Occidental and Conoco, in Libya is particularly instructive (see Wilkins 1974, Adelman 1972, and Vernon 1971). In the mid-1960s, King Idris I3 invited retired executives from the Seven Sisters to advise him on how to stimulate their former employers to exploit the country’s petroleum potential more vigorously. The former executives carefully explained that the majors had excess capacity in the Persian Gulf already and did not want to upset market shares by moving more crude oil into Europe at discount prices. They urged the king to work with independents, letting the smaller companies acquire Libyan acreage that Mobil had left undeveloped. After rapidly proving up the underground reserves, Occidental and Conoco led Libya to a peak output of 3.2 million barrels per day within a few years—by the end of 1970, Colonel Muammar Gadhafi’s first year in power—before international sanctions began to hinder further expansion. Brazil may eclipse this output in coming years if expectations about the offshore Santos Basin play out as some anticipate. If the buyer-seller arrangement simply solidifies a legal claim to a given structure of production (the first and third procurement patterns in the business-school literature), tying up or gaining preferential access to supplies has zero-sum implications for other consumers. However, if the buyer-seller arrangement expands and diversifies sources of output more rapidly than world demand grows (the second and fourth patterns), the zero-sum implication vanishes, as other consumers have easier access to a larger and more competitive global resource base. In the early resource struggles of the 1970s, the Japanese government entertained the idea of creating its own major national champion resource companies, engaging in the first and third procurement patterns to secure special relationships with major resource companies and producer governments. From the late 1970s through the 1980s, however, Japanese policies shifted toward the second and fourth patterns, and Japanese procurement became a major force in enhancing the competitive structures of global extractive indus­ tries and diversifying the geography of production (Wells 1993). Aggre­ gate Chinese demand, like aggregate Japanese demand, may constitute a net burden on the global supplies, since Chinese and Japanese external investments do not produce enough to offset all their imports. But the placement of Chinese and Japanese investments helps multiply sources and makes the supply structure more competitive (Wells 1993).

Notes 1. In the mid-20th century, the Seven Sisters were the Anglo-Persian Oil Company, Gulf, Standard Oil of California, Standard Oil of New Jersey, Standard Oil of New York, Royal Dutch Shell, and Texaco. Over time, the Anglo-Persian Oil Company became BP; Standard Oil of New Jersey and Standard Oil of New York became ExxonMobil; and Gulf, Standard Oil of California, and Texaco became Chevron.

Strategic Patterns of Securing Access to Natural Resources  9

2. Of the remaining three patterns, two center on writing long-term procurement contracts to serve as collateral for nonrecourse project finance to fund the undertaking, with no equity stake for the buyer. With the possible exception of liquefied natural gas (LNG) projects, such structures do not appear among large Chinese undertakings in the extractive sector. China has contracted to take LNG from Chevron’s Gorgon LNG project and Woodside’s Browse LNG project without equity; these offtake contracts might be used to secure development financing. (I am grateful to Mikkal Herberg for pointing these out.) The seventh pattern is no structure, whereby the buyer is content to meet his needs on the spot market or with very short-term contracts. Small Chinese buyers may engage in such practices, but not the prin­ cipal Chinese companies backed by the government. In the petroleum sector, China’s White Paper on Energy announces that Chinese policies “will, step by step, change the current situ­ ation of relying too heavily on spot trading of crude oil, encourage the signing of long-term supply contracts, and promote the diversification of trading channels” (China State Council Information Office 2007). 3. His full name was Sidi Muhammad Idris al-Mahdi al-Sanusi.

10  China’s Strategy to Secure Natural Resources

Chinese Investments to Secure Natural Resource Supplies

3

Is it possible to discern a strategic focus in Chinese companies’ natural resource procurement efforts? In this chapter I examine the 16 largest Chinese arrangements in chronological order, using the procurement patterns introduced in chapter 2 as a framework. Again, though this book focuses on the effects of Chinese procurement on the natural resource industry, other issues—political, social, and environmental—come into play. In addition to the 16 cases, I describe five smaller cases in an appendix to this chapter.

China National Petroleum Company and the Greater Nile Petroleum Operating Company, Sudan, 1996 Sudan’s decades-long conflict has obviously complicated its natural resource industry. After active involvement in Sudan from 1974 to 1985 and sporadic involvement in the years after, in June 1992, American energy company Chevron announced its plans to sell all its assets in the country to a Sudanese company, Concorp International.1 Up until the sale, Chevron had invested some $800 million in its Sudanese interests to develop the 1.4 billion barrels of oil it estimated its concessions possessed. Despite its investment in the country, Chevron decided to make the sale in the face of falling world oil prices, an increasingly unstable situation in Sudan, and pressure from the Sudanese government.2 From August to September 1992 Concorp acquired Chevron’s concessions, ground facilities, and machinery in Sudan for a token $25 million. In October 1992, Concorp sold the production base (blocks 1, 2, and 4 of the Melut Basin) to 11

a Canadian company, Arakis Energy Group, and its partner, State Petroleum Corporation. In 1993, Arakis bought out State Petroleum’s interest in the concession (Rone 2003). In the following years, Arakis struggled to raise the funds to finance exploration and development of its oilfields. Further, the concession was far from the Red Sea and needed a pipeline to be profitable. In December 1996, Arakis sold off 75 percent of its stake in blocks 1, 2, and 4 to form a consortium, the Greater Nile Petroleum Operating Company (GNPOC), with the China National Petroleum Company (CNPC), 40 percent; Malaysian Petronas, 30 percent; and Sudanese Sudapet, 5 percent—all state-owned oil companies. State-owned CNPC is the largest oil and gas producer and supplier in China. It specializes in oilfield development and engineering and has a presence in 29 countries. On June 18, 1997 GNPOC was officially incorporated to develop blocks 1, 2, and 4, with Arakis as the operator.3 GNPOC’s formation brought $700 million to the project, but Arakis still had trouble securing funding for the project. GNPOC did not begin building its 950-mile Port Sudan pipeline until May 1998.4 On June 24, 1998 the Canadian firm Talisman Energy made a takeover offer for Arakis, and by early October the transaction had been completed for $200 million.5 Talisman also committed $760 million over two years to the project, sufficient to fund further oilfield development and the completion of the pipeline to Port Sudan on the Red Sea in April 1999. Oil production began on the 12 million–acre concession in 1999 at 150,000 barrels per day.6 By 2007 production was at 300,000 barrels per day, 60,000 of which were for domestic consumption. The Port Sudan pipeline has the capacity to carry 12.5 million tons of oil each year. In 2003 ONGC Videsh Ltd., a wholly owned subsidiary of India’s Oil and Natural Gas Corporation (ONGC), acquired Talisman’s stake. CNPC’s stake in GNPOC is frequently reported to be China’s largest overseas investment, but no figures are available. Investment may very well come from retained earnings; Petronas of Malaysia is said to finance 70 percent of its capital expenditure from cash flow.7 With Sudan being an outlier oil producer under sanctions, CNPC’s export activities fall under the second pattern of procurement.

China National Petroleum Company and Sinopec with Petrodar Operating Company, Sudan, 2001 The Petrodar Operating Company was incorporated on the British Virgin Islands on October 31, 2001 and is composed of CNPC (41 percent), Petronas of Malaysia (40 percent), Sudapet of Sudan (8 percent), China Petroleum and Chemical Corporation (Sinopec) (6 percent), and Al Thani Corporation of the United Arab Emirates (5 percent). Al Thani has since 12  China’s Strategy to Secure Natural Resources

sold its 5 percent stake to the privately owned Tri-Ocean Exploration and Production. Petrodar is engaged in the exploration, development, and production of oil for blocks 3 and 7 in the Melut Basin in southeast Sudan. These blocks cover 29,000 square miles and have more than 1 billion barrels of confirmed oil reserves. In 2008 daily production capacity was at 200,000 barrels of oil, with annual production at 10 million tons. Oil is transported from the fields in a Petrodar-owned, 810-mile pipeline that came online in late 2005. The pipeline connects the fields to Port Sudan on the Red Sea and has a carrying capacity of 500,000 barrels per day. The system also includes production facilities and a 300,000-barrelper-day processing facility. Despite conflicting reports on the total quantity of oil produced in the country, blocks 3 and 7 are believed to account for about half the oil produced in Sudan in 2006.8 Sudan’s oil exports to China account for about 7 percent of China’s total oil imports.9 In addition to CNPC, this project involves China’s second-largest producer of crude oil and natural gas, Sinopec, which is also the country’s largest oil refiner, ranking third in the world in refining capacity. Though Sinopec is listed on the Hong Kong and Shanghai stock exchanges, the Chinese government wholly owns its parent company, Sinopec Group.10 While it is not clear what the original investment price was, most subsequent investment appears to have come from the accumulation of retained earnings, similar to the case of GNPOC. This endeavor also qualifies as pattern-two procurement.

China National Offshore Oil Corporation (CNOOC) and North West Shelf Venture, Australia, 2002 The state-owned China National Offshore Oil Corporation (CNOOC), China’s largest offshore oil and gas producer, is incorporated in Hong Kong and traded on the New York and Hong Kong stock exchanges. On October 21, 2002 CNOOC announced that it had entered into a definitive agreement with the North West Shelf Venture consortium in Australia.11 Under the terms eventually reached, CNOOC acquired a 5.3 percent interest in the Venture for $348 million, and the Venture agreed to supply China with more than 3.3 million tons of liquefied natural gas (LNG) for 25 years.12 Based on the agreement, a China LNG Joint Venture was formed within the North West Shelf project to supply LNG to China, with CNOOC holding a 25 percent stake. The North West Shelf Venture’s six original participants, BHP Billiton, BP, Chevron, Japan Australia LNG (MIMI), Shell, and Australian publicly traded oil company Woodside Energy (North West Shelf’s operator) each took a 12.5 percent interest.13 The oil Chinese Investments to Secure Natural Resource Supplies  13

majors (BP, Chevron, and Shell) who together had held 49.5 percent of the enterprise were reduced, collectively, to no more than a 37.5 percent stake. Additionally, CNOOC formed a joint venture with BP and seven other Chinese companies to create the LNG buyer in Shenzhen, Guangdong province.14 This venture, Guangdong LNG (later Guangdong Dapeng LNG Company), built China’s first LNG terminal and high-pressure gas pipelines for an estimated $900 million.15 In May 2006, it received its first LNG delivery from the North West Shelf project.16 About one-third of the gas goes to Hong Kong; the rest is distributed across the Guangzhou province.17 Discovered in 1980, the North West Shelf project is one of the world’s largest LNG producers and represents about 65 percent of Australian production. As mentioned above, CNOOC is part of the North West Shelf Venture through the China LNG Joint Venture but does not hold an interest in its infrastructure. Guangdong LNG was begun in 1998 as a pilot program in southern China to relieve energy shortages. After announcing its short list of potential energy suppliers in early 2002, it chose the North West Shelf project to be its sole supplier of LNG.18 This Chinese arrangement qualifies as pattern-two procurement.

Sinopec and CNOOC, Angola, 2004 On April 9, 2004 India’s ONGC announced its plan to buy Royal Dutch Shell’s 50 percent stake in Angola’s block 18 oilfield for $623 million. Block 18 was expected to come online in 2007 with peak production at 200,000 barrels of oil per day.19 The deal was subject to first refusal by BP, the field’s operator and owner of the other 50 percent stake, and Angolan state-owned Sonangol, the field’s concessionaire. Sonangol is Angola’s sole concessionaire and involved in the exploration, development, and production of crude oil products in Angola.20 By August BP had approved the deal, but Sonangol had yet to do so, and rumors surfaced of a Chinese company also interested in bidding on Shell’s 50 percent stake.21 By October Sinopec had made a counteroffer that Sonangol eventually accepted in December 2004. Most observers attributed the change to China’s aid offer of $2 billion compared with India’s offer of $200 million to help develop Angola’s railways.22 In late 2005 Sonangol announced that it would launch another licensing round, including rights to 3,100 square miles of relinquished portions of blocks 17 and 18, as well as other proven oilfields.23 Sinopec partnered with Sonangol to make a $2.4 billion offer for these blocks; their joint venture, Sonangol Sinopec International, ultimately acquired a 40 percent stake in block 18, a 27.5 percent stake in block 17, and a 20 percent stake in block 15. The three blocks combined have proven reserves of 3.2 billion barrels.24 14  China’s Strategy to Secure Natural Resources

On July 17, 2009 Sinopec and CNOOC entered into a definitive agreement with Houston-based integrated oil company Marathon Oil Corporation, an integrated international energy company with principal operations in the United States, Angola, Canada, Equatorial Guinea, Gabon, Indonesia, Libya, Norway, and the United Kingdom. It is the fourth-largest American integrated oil company and the fifth-largest American refiner. Under the terms of the Marathon deal, Sinopec and CNOOC formed a 50-50 venture and bought two-thirds of Marathon’s 30 percent interest in block 32 for $1.3 billion.25 Block 32 is a deep-water exploration block located more than 90 miles off the coast of Angola.26 Marathon holds on to its remaining 10 percent interest in the block.27 Total holds a 30 percent stake and operates the project. Sonangol, American ExxonMobil, and Portuguese Galp Energia hold stakes of 20, 15, and 5 percent, respectively. The block is expected to begin oil production in 2012.28 While Sinopec and CNOOC participation may result in marginal new discoveries and production, these arrangements appear to fit clearly into the first procurement pattern: China’s purchase of a stake in an established portion of the industry.

CNOOC and Union Oil Company of California (Unocal), 2005 (Aborted) On June 23, 2005 CNOOC announced an $18.5 billion all-cash acquisition bid for American oil and gas company Unocal.29 This bid followed Chevron’s April 2005 announcement of its own bid to purchase Unocal and represented a $1.5 billion premium over Chevron’s offer.30 Unocal output was running at approximately 160,000 barrels of oil per day and 1,500 million cubic feet of natural gas. Thirty-three percent of its oil and natural gas production was within the United States, 67 percent outside. CNOOC’s bid to acquire Unocal sparked much political consternation in the United States. Many worried that CNOOC’s acquisition of Unocal would give it access to technology that could have a military application in the future. Others disliked that the Chinese government owned 70 percent of CNOOC and saw the company’s massive bid as being effectively bankrolled by China in an attempt to tie up US energy assets31 and offer Chinese consumers—including China’s armed forces—a cheap source of energy as the newly acquired company diverted Unocal’s American-based energy supplies exclusively to meet Chinese needs (Unocal’s non-US production originated in Asia and was sold to Asian buyers).32 In early July 2005 the US House of Representatives overwhelmingly voted for a nonbinding resolution that the acquisition “would threaten to impair the national security of the United States.”33 CNOOC tried to improve the deal and appease those with national Chinese Investments to Secure Natural Resource Supplies  15

security concerns. Countering the claim that this was an attempt by China to tie up US assets, CNOOC’s chairman and chief executive officer said, “It is important to know that 70 percent of Unocal’s current reserves are located in Asia, and that is one of the reasons why this transaction makes sound business sense for our company.” CNOOC repeatedly emphasized that it intended to keep Unocal’s US-produced oil on the American market and that Unocal’s oil and gas production represented less than 1 percent of American oil and gas consumption. CNOOC also committed several times to maintaining Unocal’s workforce, which Chevron already had announced it would not do. Further, they offered to divest any of Unocal’s US-based nonexploration and production assets that US regulators requested.34 Finally, in July the company agreed to put $2.5 billion in an escrow account that Unocal could access in the event that something went wrong with the deal.35 Despite these efforts, in late July 2005 Unocal’s board recommended Chevron’s bid to its shareholders.36 Even though CNOOC’s offer was superior, the board expressed that the extended review process and uncertain outcome associated with CNOOC’s bid made Chevron’s deal more attractive.37 On August 2 CNOOC withdrew its bid, saying the political opposition was “regrettable and unjustified…in light of CNOOC’s purely commercial objectives” and willingness to address American security concerns.38 Worries about Chinese diversion of Unocal output simply did not match the facts about Unocal production. Almost all Unocal’s US-based oil and natural gas production was located in the Gulf of Mexico. US oil and gas pipelines across western states flow west-to-east, rendering them unavailable for shipping gulf oil to the US west coast for export to China. Oil from the Gulf of Mexico destined for China would have to be shipped by tanker through the Panama Canal, making it a high-cost source for the Asian market. Natural gas would have to be liquefied. Unocal’s seismic and engineering skills, plus Chinese capital, might have given CNOOC an opportunity to expand production in Asia or elsewhere. But tying up US output and capturing it for Chinese consumers, armed forces or otherwise, would have been a complicated, expensive, and rather implausible strategy.39 CNOOC ultimately withdrew its offer under the scrutiny around the deal, but had it gone through, CNOOC’s strategy—backed by the Chinese government—would have fit under the second procurement pattern: acquiring and energizing an independent producer. Unocal, the world’s ninth-largest oil company at the time, was considered particularly valuable for its oil and natural gas reserves, more than two-thirds of which were in Asia.40 If it had merged with CNOOC, it would have increased CNOOC’s reserves by 80 percent and more than doubled its oil and gas production. The merger was also expected to improve CNOOC’s oil and gas balance to 53 percent oil and 47 percent natural gas.41 It boosted Chevron’s reserves by 15 percent. 16  China’s Strategy to Secure Natural Resources

China National Petroleum Company and PetroKazakhstan, 2005–09 PetroKazakhstan is an integrated oil company involved in the exploration, production, and refining of oil and gas products. It is registered in Canada, but all its assets are in Kazakhstan. At the time of CNPC’s acquisition, PetroKazakhstan was producing 141,000 barrels per day of crude oil and 80,000 barrels per day of refined products.42 It was, however, suffering from poor management, outdated oil-drilling technology, and confrontations with the Kazakh government over issues of anticompetitive behavior and failing to follow environmental and labor laws. On August 22, 2005 the CNPC announced a $4.18 billion all-cash offer to buy a 100 percent stake in PetroKazakhstan. At $55 a share, the offer represented a 21 percent premium over PetroKazakhstan’s closing share price on August 19, the last day of trading before the announcement.43 The bid surpassed the CNPC’s rival in the acquisition, India’s ONGC. In the weeks after the CNPC-PetroKazakhstan deal was announced, Kazakh lawmakers expressed concerns about lack of control over their nation’s natural resources.44 PetroKazakhstan’s shareholders approved the deal on October 19, followed by the Kazakh government on October 26.45 Upon acquisition, the CNPC transferred 33 percent share of PetroKazakhstan back to the Kazakh national oil and gas company, KazMunayGas, for $1.4 billion.46 At the time, this was China’s largest overseas acquisition ever and its first acquisition of a foreign energy company.47 A key ingredient in the deal was the completion of an already begun, $700 million, 613-mile pipeline with capacity of 200,000 barrels per year to carry oil east from landlocked Kazakhstan to China, with the possibility of doubling the capacity by 2011. By 2006 Kazakhstan began to rival Sudan as China’s largest source of imported equity oil (Rosen and Houser 2007). Since taking over the company, the CNPC has also resolved many of the aforementioned issues PetroKazakhstan had with the Kazakh government and has maintained a favorable working relationship with it.48 The PetroKazakhstan project qualifies as a second-pattern arrangement.

CNOOC and Akpo Oilfield, Nigeria, 2006 Nigeria is the largest oil producer in Africa and the eighth-largest in the world. It produces 2.4 million barrels of oil per day, the profits of which make up 80 percent of the Nigerian government’s revenues. On January 8, 2006 CNOOC signed a definitive agreement on the Akpo oilfield with the privately owned Nigerian company South Atlantic Petroleum (Sapetro). At the signing of the agreement, CNOOC’s chairman and chief executive officer said, “This transaction is perfectly aligned with CNOOC’s long-term strategy of achieving growth through the exploraChinese Investments to Secure Natural Resource Supplies  17

tion and development of offshore fields and achieving geographic diversification of the company’s portfolio.”49 The Akpo oilfield is operated by Total, Europe’s third-largest oil company. Discovered in 2000, it is 125 miles off the coast of Nigeria and has the capacity to produce 185,000 barrels of oil per day. Total expected to reach a plateau production level of 175,000 barrels of oil per day and 530 million standard cubic feet of gas per day by summer 2009.50 The field’s total reserves are estimated at 260 million barrels of condensate and more than one trillion cubic feet of gas.51 CNOOC agreed to purchase a 45 percent interest in the Akpo offshore oilfield (OML 130) for $2.27 billion and announced plans to invest an additional $2 billion to develop it.52 In April 2006 the deal was finalized, representing CNOOC’s largest acquisition ever.53 CNOOC also agreed to pay an additional $424 million “for financial, operating and capital expenses.”54 In return, it has received 79,000 of the field’s 225,000 barrel-per-day output beginning in 2009.55 Besides CNOOC’s 45 percent stake, Total, the Nigerian state-run Sapetro, and Brazil’s Petrobras all have interests in the Akpo oilfield. Analysts predict that prohibitively high transportation costs will prevent China from importing its share of the oil produced for domestic consumption; it is expected to export the oil to Europe and the United States.56 This acquisition is one of several instances where China and India were competing for rights to the same project. India’s ONGC had also bid on the 45 percent stake in the Akpo project but had been blocked by the Indian government, citing issues of valuation and risk.57 This Chinese acquisition probably fits best into the first pattern of procurement: purchase of access to oil under the control of a major company in a major country. .

Chalco and Aurukun Bauxite Project, Queensland, Australia, 2007 In 2004 the Queensland, Australia government moved to end its contract with the Canadian major Alcan, which had owned the rights to the bauxite reserves at Aurukun, Queensland for over a decade but had failed to commence development, tying up the project. In September 2006, to secure the rights to the Aurukun bauxite project, the Chinese stateowned aluminum company Aluminum Corporation of China (Chalco) defeated ten other international bidders to be granted “preferred developer status.”58 Chalco is the largest aluminum producer in China and the second largest in the world. It is listed on both the New York and Hong Kong stock exchanges, though its controlling shareholder is the Chinese state-owned Chinalco.

18  China’s Strategy to Secure Natural Resources

Chalco signed a project development agreement with the Queensland government in March 2007, and the following May it signed a land leasing agreement with the Australian aborigines in the Aurukun region.59 After overcoming this final hurdle, in September 2007, the Queensland government’s mineral department granted Chalco a permit for the $3 billion Aurukun bauxite exploration project, covering over 150 square miles. The project includes a bauxite mine at Aurukun as well as an aluminum refinery and port facilities at Abbot Point near Bowen. Chalco began its $40 million feasibility study in the fourth quarter of 2007. Pending results expected in 2010, Chalco intends to develop the bauxite mining project and build a $2.2 billion aluminum refinery at Abbot Point.60 The Aurukun project is expected to produce over 6 million tons of bauxite per year, while its associated refinery’s aluminum production capacity is expected to exceed 2 million tons per year. The project is also expected to help combat the economic and social difficulties of Australia’s aborigines in the region, as it will employ over 4,000 workers during production and maintain a permanent workforce of about 600.61 This project, the largest foreign investment ever in Queensland,62 qualifies as a second-pattern procurement project.

Sinopec and Yadavaran Oilfield, Iran, 2007 Iran has the second-largest crude oil reserves in the world, after Saudi Arabia, as well as the second-largest natural gas reserves, after Russia. It is China’s third-largest supplier of oil, behind Saudi Arabia and Angola. The majority of the Iranian government’s $51 billion in revenue comes from its natural resources. In December 2007 Sinopec signed an agreement with the National Iranian Oil Company (NIOC) to invest $2 billion in the Yadavaran oilfield, a consolidation of the Koushk field discovered in 2000 and the Hosseinieh field discovered in 2002. Sinopec is to be the project operator, with a 51 percent ownership stake, while NIOC holds the remaining ownership interest. This Sinopec-Iran agreement followed plans set forth in a 2004 memorandum of understanding between the two countries, under which Sinopec would be the lead operator and developer of the then mostly undeveloped Yadavaran oilfield; China also agreed to buy 10 million metric tons of LNG annually for 25 years from Iran, beginning in 2009.63 Based on the 2007 agreement, Sinopec will develop the Yadavaran oil field in two stages. During the first stage, lasting four years, production will be at 85,000 barrels of oil per day. In the second stage, lasting three years, 100,000 barrels of oil per day will be added. The Yadavaran oilfield is estimated to have 3.2 billion barrels of recoverable oil and 2.7 trillion

Chinese Investments to Secure Natural Resource Supplies  19

cubic feet of recoverable natural gas. The expected ultimate production of 300,000 barrels of oil per day is about the amount China was importing from Iran at the time the agreement was signed.64 This deal came amid US-led pressure against commercial deals in Iran in an effort to isolate the country for its nuclear activities. Iran’s oil minister claims, however, that this was not the cause for the delays in the agreement, which took several years to reach.65 Disagreements over how much oil to produce, China’s rate of return, and technical issues all were reported at various points in the negotiation process.66 Ultimately, Beijing and Tehran agreed upon a Chinese rate of return of 14.98 percent.67 Under ordinary circumstances this Sinopec-Iran agreement might be considered a first procurement pattern project, taking place in an established member of the Organization of Petroleum Exporting Countries (OPEC), even though the project involves additional production. However, given the international sanctions imposed on Iran and the inability of most Western oil companies to invest in the country, this extra production in an embargoed state seems to fall more naturally into the second pattern of procurement, helping to underwrite additional supplies from a producer struggling to export as much as it can, as capacity in existing fields declines.68

Socomin Joint Venture, Democratic Republic of the Congo, 2008 In September 2007 China announced its intention to invest massively in the infrastructure of the Democratic Republic of the Congo in return for copper and cobalt concessions. In April 2008 two Chinese state-owned enterprises, China Railway Engineering Company (CREC) and Sinohydro, formed a joint venture with Gecamines, the Congolese state-owned mining company. The joint venture, named Socomin, is to develop copper, cobalt, and nickel mines, beginning with a copper mine in Kolwezi in the province of Katanga. Based on the terms of the Socomin deal, China’s state-owned enterprises will own more than two-thirds of the joint venture. On the Congolese side, the agreement stipulates that Socomin will provide at least 10 million tons of copper to China.69 Further, the Congolese government is required to ensure the safety of the Chinese investments. In the event of conflict, the agreement requires a hearing before the International Chamber of Commerce rather than the Congolese courts.70 The Kolwezi mine was previously owned by the Belgian Forrest Group, the profits of which are to repay the first $3 billion tranche of a $9 billion loan from China’s Exim Bank to supposedly build 2,400 miles of roads and 2,000 miles of railway (much of it to rationalize the country’s mining transportation system). The loan is expected to be repaid with 20  China’s Strategy to Secure Natural Resources

profits from the Congo’s lucrative copper and cobalt mines.71 In May 2008, the Congo’s national assembly approved the deal. Despite having 10 percent of the world’s copper reserves and a third of its cobalt, the Democratic Republic of the Congo has struggled with war, political strife, and poor living conditions for many years. Many condemn the deal because it gives more than half the wealth generated in the country’s lucrative mines to China. Others point to the fact that the $9 billion loan is more than three times the Congo’s 2007 budget and claim that the investment will finally move the country to a positive growth track. Congolese President Joseph Kabila said, “For the first time in our history, the Congolese will really feel what all that copper, cobalt and nickel is good for.”72 Prior to this arrangement, as much as 35 percent of Congo’s mining output in some sectors may have been diverted at various stages to private parties.73 In response to this, the China Exim loans go directly to CREC and Sinohydro, rather than through the Congolese bureaucracy. CREC and Sinohydro, in turn, have committed to subcontract 10 to 12 percent of the work to Congolese companies; in addition only one in five workers can be Chinese. China’s loan will also be used to invest in the Congo’s infrastructure generally—besides the aforementioned rehabilitation of roads and railways, it also involves 32 hospitals, 145 health centers, two universities, two airports, and two hydroelectric dams. Estimates vary immensely regarding the profit China can expect to earn from the transaction, but if the disbursements go as planned, it will be China’s largest investment in Africa ever.74 Whether the deal merits its hopeful characterization as a Marshall Plan for the Congo—or the more pejorative Second Colonization of the Congo—the arrangement is a more effective means to use the country’s resource base as collateral to expand production, rationalize transportation, and make export more efficient through resource-backed financing.75 It falls into the second pattern of procurement.

Chinalco and Rio Tinto, 2008–09 (Aborted) The Chinese state-owned Aluminum Corporation of China (Chinalco) is China’s largest diversified mining company, with major projects in Peru, Australia, and Saudi Arabia and developing projects in Russia, Vietnam, Mongolia, Guinea, Myanmar, Indonesia, and India. The UK-Australian mining company Rio Tinto Group, listed on both the London and Australian stock exchanges, is one of the top five international producers (by volume) of aluminum, iron ore, copper, gold, diamonds, and other industrial materials; in iron ore, Rio Tinto is the second largest supplier to world export markets. Its major projects are in Australia and North America, though it also has businesses in South America, Asia, Europe, and southern Africa. Chinese Investments to Secure Natural Resource Supplies  21

In February 2008, Chinalco, together with US aluminum producer Alcoa, acquired 12 percent stake in Rio Tinto for $15.5 billion.76 A year later, on February 12, 2009 Chinalco and Rio Tinto announced that Chinalco would make a $19.5 billion investment in Rio Tinto. It involved a $12.3 billion investment in joint ventures and development opportunities in aluminum, copper, and iron ore, as well as a $7.2 billion purchase of subordinated convertible bonds.77 If the bonds were fully converted, Chinalco’s stake in Rio Tinto would rise from 12 to 18 percent. The deal also gave Chinalco the right to nominate two new nonexecutive Board members to add to the 15 Board members of Rio Tinto.78 (Independent nonexecutive Board members comprise a majority of the Rio Tinto Board.) Chinalco’s financial backing came in large part from the Chinese Exim Bank and Bank of China.79 Besides providing much needed cash to shore up Rio Tinto’s weak balance sheet resulting from the purchase of Alcan in 2007 (with $8.9 billion in debt coming due in October 2009 and more in 2010), the deal was expected to give Rio Tinto increased exposure to the growing market in China and greater access to funding.80 If completed, this transaction would have represented the largest investment deal in both Australian and Chinese corporate histories.81 In the months following the February 2009 announcement, the transaction received approval from the Australian Competition and Consumer Commission, the German Competition Authority, and the Committee on Foreign Investment in the United States.82 Opposition, however, came on other fronts. Political pressures mounted as investors and other key stakeholders became concerned that China would gain too much power from such a large investment in Rio Tinto.83 Shareholder opposition grew as Rio’s own stock price began to rise, making the convertible bonds relatively unfavorable.84 At first glance, these transactions would appear to fit into pattern one procurement, with Chinalco trying to consolidate a special relationship with a “major” in the natural resource sector (in particular iron ore and aluminum). But this Chinese maneuver has to be seen, according to Peter Drysdale and Christopher Findlay (2009), in light of BHP Billiton’s hostile bid in 2008 to take over Rio Tinto. Chinese steelmakers estimated that a merged BHP Billiton–Rio Tinto corporation would enjoy a market share of world iron ore output as large as that of all OPEC members together in the global oil market. At a meeting of government officials, steelmakers, big coal mining companies, and the China Development Bank in Beijing, Xiao Yaqing, then president of Chinalco, proposed that his company presented itself as a “white knight” in Rio Tinto’s strategy at that moment of trying to avoid the unwanted takeover.85 Chinalco’s explicit objective was “to stymie” any BHP Billiton–Rio Tinto super-merger. Rather than pattern one industry consolidation, the Chinalco–Rio Tinto deal would have probably

22  China’s Strategy to Secure Natural Resources

been assigned to pattern two of trying to keep a large player functioning in a more competitive manner.86 With Rio Tinto shareholder disapproval rising and Rio Tinto share prices improving, the two companies announced on June 5, 2009 that the plan had been aborted and that Rio Tinto would pay the break fee of $195 million to Chinalco.87 Still in need of cash to pay off its debt, Rio Tinto announced plans for a $15.2 billion rights issue to raise funds.88 Additionally, it announced a 50-50 production joint venture with former (hostile) suitor BHP Billiton, covering “the entirety of both companies’ current and future Western Australian iron ore assets.”89 The result was a more consolidated Australian-headquartered mining industry, with a smaller Chinese equity stake (Chinalco’s prior 12 percent in Rio Tinto would be diluted by the rights offering, and the company would not be able to exercise veto power over the consolidation of the two great iron ore producers). This episode represents a failed pattern-two strategy on the part of the Chinese.

China Development Bank Loan to Rosneft and Transneft, Russia, 2009 On February 17, 2009 China and Russia announced a partnership involving the construction of a new pipeline, long-term crude oil delivery to China, and loans for Russia. The China Development Bank agreed to 20-year loan contracts with the Russian state-owned oil companies Rosneft and Transneft totaling $25 billion.90 In exchange, Russia’s oil pipeline operator Transneft is designing, building, and operating a crude-oil pipeline from Skovorodino in eastern Siberia to Daqing in China’s northernmost province.91 This will be Russia’s first pipeline to Asia, with destinations both in China and toward the Pacific Ocean. Upon completion in late 2010, it is expected to carry 600,000 barrels per day, 300,000 of which will go to China.92 Rosneft anticipates oil delivery to China as early as January 2011. It is then expected to deliver an additional 15 million tons of crude oil a year to China for 20 years, for which China will pay the market price of oil at the time of delivery. Russia is expected to repay the loans in cash, separately from the sale of oil and at market-based interest rates.93 China receives no equity stake in either Russian company. The Chinese-Russian agreement came after failed negotiations in 2008. In an effort to diversify away from the West, Moscow sought to build a pipeline east to take advantage of China’s growing energy demand,94 and Rosneft and Transneft were in need of financial backing. But disagreements arose over the loans’ interest rates and whether or not the Russian state would guarantee the loans. Russia threatened that, if they could not find a compromise, it would build the pipeline directly to the Pacific coast to transport oil coming from eastern Siberia.95

Chinese Investments to Secure Natural Resource Supplies  23

Rosneft is Russia’s largest oil producer, with primary exploration and production projects across Russia and secondary projects in Kazakhstan and Algeria. The state owns 75 percent of the company, which in 2008 produced 776 million barrels of crude oil (or 2.2 million barrels per day). Set to receive $15 billion of the $25 billion in loans, Rosneft plans to use the Chinese funds to develop its new massive oilfields in eastern Siberia and to pay off some of the debt it accrued in its acquisition of the bankrupt oil company Yukos in 2006 and 2007.96 Also state-owned, Transneft owns a pipeline monopoly in Russia, transporting more than 90 percent of the oil Russia produces and operating one of the world’s largest oil pipeline networks. While Russia faces a decline in oil output due to underinvestment, this arrangement should nonetheless probably be judged as a deal falling into the third procurement pattern of loans to a major producer to secure a share of the major’s output.97

Sinopec and Petrobras, 2009 Petrobras is a state-owned Brazilian integrated oil company with operations in 27 countries, more than 100 production platforms, and 16 refineries. The company’s principal operations outside Brazil are in Angola, Argentina, Bolivia, Colombia, Nigeria, and the United States. In a deal finalized on May 19, 2009 Petrobras announced a $10 billion, 10-year loan from the state-owned China Development Bank. In return, Petrobras is to supply Sinopec with 150,000 barrels of oil a day in the first year and 200,000 barrels a day for the remaining nine years (currently Petrobras supplies about 60,000 barrels a day). According to Petrobras Chief Executive Officer Jose Sergio Gabrielli, the loan’s interest rate, at less than 6.5 percent, is lower than the rate Petrobras is paying for other debt.98 While the loan uses oil as collateral, Petrobras will make payments in cash99 by selling the oil at market price to Sinopec, with trading volumes expected to increase from 3 million tons in 2008 to between 10 million and 12.5 million tons by the end of 2010.100 Before China’s $10 billion loan, earlier in 2009 Petrobras announced a $174 billion investment plan over five years to develop its pre-salt fields recently discovered in Brazil’s offshore Santos Basin.101 Though Brazil has seen some recent discoveries of large oilfields, most are in difficult locations that require a significant initial investment. Petrobras had been in loan negotiations with China since 2008, seeking an alternative source of funding for this massive investment given falling crude prices and the international credit crunch.102 China’s loan has allowed Petrobras to finance this investment without using the US dollar.103 At the same time, Sinopec and Petrobras also signed a memorandum of understanding, “which covers for the cooperation in several areas of 24  China’s Strategy to Secure Natural Resources

mutual interest comprising exploration, refining, petrochemical, and the supply of goods and services.”104 Less than ten days after the deal was finalized, Sinopec and Petrobras announced negotiations involving offshore Brazilian oil and natural gas concessions.105 The $10 billion loan aroused many of the worries that had surrounded the earlier proposal of CNOOC to acquire American energy company Unocal (described earlier)—that the transaction would allow China to lock up output in the Western Hemisphere, forcing the United States “to lose access to vast portions of the world’s energy supplies.”106 Unlike the CNOOC or Chinalco proposed acquisitions, however, the Sinopec arrangement involved no equity stake in Petrobras whatsoever. It was instead a rather standard procurement contract. The increased Brazilian exports come from an increment of existing fields—Marlim crude oil in 2009, Marlin and Roncador crude thereafter. The capital, meanwhile, is devoted to Petrobras’s massive $175 billion development plan for the 80 billion–barrel Santos Basin, and—according to Gabrielli—might constitute only the first of several large loans from China. “Chinese dollars will help prime the pump” in the offshore pre-salt field, concluded Paul Ausick, but not “buy the pump.”107 Rather than fitting into the industryconsolidating first or third patterns, the Sinopec-Petrobras transaction falls into the second pattern of gaining new market shares by strengthening independents.

Sinopec’s Acquisition of Addax Petroleum, 2009 Based in Calgary, Canada, Addax Petroleum is a rapidly growing international oil and gas exploration and production company focusing on West Africa and the Middle East. It has properties in Nigeria and Gabon and development opportunities in West Africa and the Kurdistan region of Iraq. Addax shares are listed and traded on the Toronto Stock Exchange, with a secondary listing on the London Stock Exchange. On June 24, 2009 Sinopec and Addax Petroleum announced Sinopec’s all-cash $7.2 billion negotiated takeover bid of Addax.108 Sinopec finalized the offer on July 9, a 47 percent premium on the closing market price when the offer was first announced, and the deal closed in August. The Sinopec transaction fits into the second pattern of procurement—expanding the competitive fringe—and is the largest international takeover ever by a Chinese company.109 Some analysts suggest that the acquisition is somewhat risky for Sinopec. Though the takeover could bolster Sinopec’s strategy to expand in West Africa and Iraq, both Nigeria and Iraq are politically sensitive regions, where it may prove difficult to maintain oil production. Sinopec is also relying on continuing rising oil prices to ensure a wise investment.110 In 2008 Addax averaged 136,500 barrels a day, over three-quarters of Chinese Investments to Secure Natural Resource Supplies  25

which came from its 94 producing wells in Nigeria. Gabon wells contributed about 28,500 barrels a day in 2008.111 Addax’s 136,500 barrels a day represent about 1.7 percent of China’s daily consumption of oil.112 In its 2009 second quarterly report, Addax reported a “record production performance.”113 Earlier that year, the Iraqi and Kurdish governments announced a resolution ending the ban on direct international export of Kurdish oil, to Addax’s benefit, as it had been developing prospects there.114 On May 14, 2009 Addax announced an acquisition to begin further exploration drilling in Gabon.115 And on June 1 it announced that it had begun internationally exporting oil from the Taq Taq license area in Kurdistan.116 The company has licenses to begin production in Cameroon.

China National Petroleum Company’s Development of South Pars Gasfield, Iran, 2009 Covering an area of 500 square miles and containing about 15 trillion cubic meters of natural gas reserves, South Pars in Iran is the world’s largest gas reservoir. It accounts for 60 percent of Iran’s gas reserves and 10 percent of the world’s gas reserves.117 In early June 2009 the National Iranian Oil Company (NIOC) announced a $4.7 billion contract with the CNPC to develop Phase 11 of the South Pars gasfield between Iran and Qatar.118 The deal followed nine months of negotiations and replaced an arrangement with French oil company Total SA, which had signed a memorandum of understanding in 2004 to develop Phase 11 of the field.119 Total had delayed making a financial commitment to Iran mainly due to international sanctions prohibiting investment in Iran and had received an ultimatum from Iran in April 2008.120 After significant delays by Total, Iran sought other investors to develop its huge reserves in the face of rising domestic demand and fear of reserve migration as Qatar developed its portion of the gasfield.121 Even though Iran has the world’s second-largest natural gas reserves, the country has been slow to develop them. Currently Iran exports only LNG to Turkey, which is roughly offset by Iran’s own imports from Turkmenistan. The development of the South Pars gasfield is expected to make Iran a major gas exporter.122 In winning the deal with Iran, China also beat out India’s ONGC. Despite the enormous gas production potential, Iran’s deal with the CNPC qualifies as a second-pattern arrangement because of Iran’s inability to rely on investment by major oil companies from countries that disapprove of Iran’s nuclear and other policies. Phase 11 development is expected to operate for about 52 months, producing 2 billion cubic meters of natural gas and 70,000 barrels of gas condensate per day.123

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Under the terms of the deal, the CNPC will build two platforms, digging 20 shafts; two sea pipelines to transfer gas to the shore; two pipelines to transfer monoethylene glycol to sea factories; optical fibers to connect sea and land factories; and a pipeline to transfer liquid gas.124 As is typical in Iran, the deal is couched in buyback terms, whereby the CNPC will eventually relinquish control of operations and receive payment from production to recoup investment costs.

China National Petroleum Company’s Development of South Azadegan Gasfield, Iran, 2009 In September 2009 the CNPC acquired a 70 percent stake in Iran’s South Azadegan oilfield from the National Iranian Oil Company’s Swiss-based subsidiary, Naftiran Intertrade Company (NICO). NICO’s stake fell to 20 percent, with Japan’s Inpex keeping the remaining 10 percent. Holding 42 billion barrels of oil, the 900-square-kilometer Azadegan field is the world’s largest united oilfield discovered in the past 30 years. It is expected ultimately to produce 260,000 barrels of oil per day: 150,000 barrels per day, or 7.5 million tons annually, in the first stage of production, and 110,000 barrels per day, or 5.5 million tons annually, in the second stage.125 Under the terms of the deal, the CNPC will supply 90 percent of the $2.5 billion needed for the development project—all of NICO’s commitment to the project.126 The two companies signed a memorandum of understanding to this effect in spring 2009, after it became clear that NICO could not finance the project.127 As is typical of this kind of transaction in Iran, the purchase was made under buyback terms, whereby the CNPC will relinquish operation of the field to NICO after it is developed but receive payments from oil production in the following years as a return on the investment.128 Iran supplies 14 percent of China’s oil demand.129 The South Azadegan deal followed CNPC’s $1.76 billion acquisition in January 2009 of the rights to develop the North Azadegan oilfield130 and came at the expense of India’s ONGC, which had expected to receive a 45 percent stake in the South Azadegan field. The deal with ONGC reportedly was passed up when the CNPC offered soft loans for the investment.131 Iran had initially indicated that, after the CNPC won the rights to the northern section of the field, it wanted a different investor in the south.132 Some analysts have speculated that India lost out after delays, possibly under pressure from the United States.133 Iran’s tactic of playing Indian and Chinese oil companies off each other is part of a larger strategy to develop its resources independent of Western investors—a second-pattern arrangement.

Chinese Investments to Secure Natural Resource Supplies  27

Notes 1. Petroleum Economist, “Sudan Pipeline Operational,” August 26, 1999, www.petroleumeconomist.com; Sudan Update, “Arakis and the NIF,” www.sudanupdate.org (accessed on March 12, 2010). 2. Petroleum Economist, “Sudan Pipeline Operational”; Rone (2003). 3. Source Watch, “Greater Nile Petroleum Operating Company,” 2009, www.sourcewatch. org (accessed on March 11, 2010). 4. Source Watch, “Arakis Energy Corporation,” 2009, www.sourcewatch.org (accessed on March 11, 2010). 5. Business Wire, “Talisman Acquires Arakis Energy,” October 8, 1998. 6. Greater Nile Petroleum Operating Company (GNPOC), “Brief History,” www.gnpoc.com (accessed August 13, 2009); Oil & Gas Journal, “The GNPOC Project,” November 13, 2000. 7. Sudan Update, “Sudan Oil Companies,” www.sudanupdate.org (accessed on March 12, 2010). 8. APS Downstream Review Trends, “Sudan—The Oil Sector,” October 29, 2007. 9. School of Oriental and African Studies, University of London, “Bloomsbury Expert on BBC TV China-Sudan Oil Expose,” August 8, 2008, www.soas.ac.uk (accessed on March 11, 2010). 10. Chris Nicholson, “China’s Sinopec Offers $7.22 Billion for Oil Firm,” New York Times, June 24, 2009. 11. CNOOC Ltd., “CNOOC Ltd. Signs a Definitive Agreement to Acquire Interest in Australian LNG JV,” press release, October 21, 2002. 12. Woodside Australian Energy, “China LNG Contract—Prime Minister’s Release,” August 2, 2002; CNOOC Ltd., “CNOOC Limited Acquires a Stake in the Australian North West Shelf,” press release, May 15, 2003. 13. Woodside Australian Energy, “North West Shelf Venture,” www.woodside.com.au; Woodside Australian Energy, “New Joint Venture Established for LNG Supply to China,” October 21, 2002. 14. Woodside Australian Energy, “Australia Signs China LNG Agreements,” October 18, 2002. 15. “Guangdong Liquefied Natural Gas (LNG) Terminal, China,” www.hydrocarbons-technology.com (accessed August 9, 2009). 16. Woodside Australian Energy, “First LNG Cargo for China Loading at Australia’s North West Shelf,” May 17, 2006. 17. Eli Greenblat, “Chinese Join Shelf Partners,” The Age, August 26, 2002, www.theage.com. au (accessed on August 9, 2009). 18. Guangdong Dapeng LNG Company Ltd., “GDLNG Project—Project Profile,” www. dplng.com (accessed on August 8, 2009); “Great Plutonio, Block 18, Deepwater Drillship Pride, Angola,” www.offshore-technology.com (accessed on August 9, 2009). 19. India Business Insight, “OVL to Buy into Angola Block,” April 9, 2004. 20. Subsea Oil and Gas Directory, “Sonangol,” www.subsea.org (accessed on August 8, 2009).

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21. Press Trust of India, “India to intensify diplomatic efforts for Angolan oil field,” August 23, 2004. 22. Chemical News & Intelligence, “In Monday’s Asia Papers,” October 18, 2004; Olivia Amaewhule, “India to Take Another Shot at Oil Diplomacy in Angola,” World Markets Analysis, January 20, 2005; Downs (2007). 23. Olivia Amaewhule, “Angola to Launch Licensing Round for Seven Offshore Fields in December,” World Markets Analysis, October 25, 2005; Jacinta Moran, “Sinopec is big bidder for Angola blocks; Chinese major teams with Sonangol in two billion-dollar bids,” Platts Oilgram News, May 11, 2006. 24. China Business News On-Line, “Sinopec acquires stakes in three Angolan oil blocks,” June 13, 2006. 25. Rigzone, “Chinese Oil Majors Collect Stake in Angola’s Block 32 for $1.3B,” July 17, 2009, www.rigzone.com (accessed on August 8, 2009). 26. CNOOC Ltd., “CNOOC Ltd. and Sinopec Jointly Acquire 20% Interest of Block 32 in Angola,” July 17, 2009. 27. Marathon Oil Corporation, “Marathon Announces $1.3 Billion Sale of 20 Percent Interest in Angola Block 32,” July 7 2009; Tom Bergin and Michael Erman, “CNOOC, Sinopec to Buy Angola Stake from Marathon,” Reuters, July 17, 2009, www.reuters.com (accessed on August 8, 2009). 28. Petroleum Economist, “March 2008: Analysis—Angola,” www.petroleum-economist.com (accessed on August 8, 2009). 29. CNOOC Ltd., “CNOOC Proposes Merger with Unocal Offering US$67 per Unocal Share in Cash,” June 23, 2005. 30. Bill Powell, “The Energy Game,” Time, May 23, 2005. 31. Associated Press, “China’s CNOOC Drops Bid for Unocal,” August 2, 2005. 32. Press statements on CNOOC’s proposed acquisition of Unocal by Representative Joe Barton (R-Texas) and Representative Duncan Hunter (R-CA). 33. China Daily, “US lawmakers meddle in CNOOC’s Unocal bid,” July 6, 2005, www.chinadaily.com.cn (accessed on August 8, 2009). 34. CNOOC Ltd., “CNOOC Proposes Merger with Unocal”; CNOOC Ltd., “Statement by Fu Chengyu, Chairman and CEO of CNOOC Limited,” June 24, 2005. 35. Katherine Griffiths, “Chinese assault on Unocal raises hackles in energy-obsessed US,” Independent, July 15, 2005. 36. Xinhua News, “CNOOC Withdraws Unocal Bid,” August 3, 2005, www.chinaview.cn (accessed on August 8, 2009). 37. Associated Press, “China’s CNOOC Drops Bid for Unocal.” 38. CNOOC Ltd., “CNOOC Ltd. to Withdraw Unocal Bid,” August 2, 2005. 39. Daniel Rosen and Trevor Houser (2007) find that most of the oil pumped outside of China by Chinese companies is sold into international markets, not sent back to China. 40. Associated Press, “China’s CNOOC Drops Bid for Unocal”; Powell, “The Energy Game.” 41. CNOOC Ltd., “CNOOC Proposes Merger with Unocal.”

Chinese Investments to Secure Natural Resource Supplies  29

42. Forbes, “China’s CNPC to acquire PetroKazakhstan for 55 USD per share,” October 19, 2005. 43. PR Newswire, “PetroKazakhstan Announces Sale to CNPC International Ltd. for Approximately US$4.18 Billion,” August 22, 2005. 44. China Daily, “PetroKazakhstan shareholders OK CNPC bid,” October 19, 2005. 45. Forbes, “China’s CNPC to acquire PetroKazakhstan”; China Internet Information Center, “CNPC Announces PetroKazakhstan Acquisition,” October 27, 2005, www.china.org.cn (accessed on August 8, 2009). 46. BBC News, “CNPC secures PetroKazakhstan bid,” October 26, 2005; China Daily, “PetroKazakhstan shareholders OK CNPC bid.” 47. China Economic Net, “CNPC turns PetroKazakhstan Around,” March 2, 2009, http:// en.ce.cn (accessed on August 8, 2009); James Daley, “PetroKazakhstan board accepts £2.32bn China offer,” Independent, August 23, 2005. 48. China Economic Net, “CNPC turns PetroKazakhstan Around.” 49. CNOOC Ltd., “CNOOC Limited acquires 45% stake in offshore Nigerian oil mining license 130 for US $2.268 billion cash,” January 9, 2006. 50. Total Nigeria, “Akpo Field Inauguration,” company news, June 3, 2009, www.ng.total. com. 51. John Duce, “CNOOC Rises Most in Two Months on Nigerian Oil Field,” Bloomberg News, March 10, 2009, www.bloomberg.com (accessed on August 7, 2009). 52. CNOOC Ltd., “CNOOC Limited acquires 45% stake”; Wang Ying, “CNOOC taps into Nigerian resources,” China Daily, January 10, 2006. 53. Wang Ying, “CNOOC buys share in Nigerian oil area,” China Daily, April 21, 2006. 54. CNOOC Ltd., “CNOOC Limited Closes Nigerian Deal,” April 20, 2006. 55. Ying, “CNOOC taps into Nigerian resources”; Martin Ayankola, “Akpo field to boost oil reserves in 2009,” Business Daily Online, December 15, 2008, available at www.businessdailyonline.com; Klare (2008). 56. Don Lee, “China Making Big Oil Moves,” Los Angeles Times, January 23, 2006. 57. Peter Klinger, “CNOOC beats Indian rival to stake in Nigerian oil field,” Times Online, January 10, 2006, www.timesonline.co.uk (accessed on August 7, 2009); China Daily, “China, India sign energy agreement,” January 13, 2006, www.chinadaily.com.cn (accessed on August 7, 2009). 58. Honorable Anna Bligh, premier, Queensland Government, “Chalco sees prosperity in Queensland,” June 25, 2008. 59. Chalco, “Announcement of 2007 Interim Results,” August 20, 2007. 60. Honorable Geoff Wilson, minister for mines and energy, Queensland Government, “Major Milestone for $3 Billion Chalco Investment,” September 10, 2007, and “Chinese firm to boost Queensland coal exploration,” November 28, 2008; Premier Bligh, “Chalco sees prosperity in Queensland.” 61. James Regan, “Chalco inks Aboriginal pact for bauxite mine,” Reuters, May 25, 2007, www.reuters.com (accessed on August 6, 2009). 62. Wilson, “Major Milestone.”

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63. Tehran Times International Daily, “Sinopec Starts Yadavaran Oildfield BOD Operation,” September 18, 2008; University of Alberta China Institute, “Iran, Sinopec reach technical agreement for Yadavaran oil field,” May 27, 2007. 64. Reuters, “Sinopec Yadavaran team to visit Iran next week,” April 30, 2007, www.reuters. com (accessed on August 6, 2009). 65. Parisa Hafezi, “Iran and China’s Sinopec sign oil-field deal,” Reuters, December 9, 2007, www.reuters.com (accessed on August 6, 2009). 66. University of Alberta China Institute, “Iran, Sinopec reach technical agreement”; Elaine Kurtenbach, “China’s Sinopec, Iran ink Yadavaran deal,” USA Today, December 10, 2007. 67. Yao Runping, “Sinopec, Iran to sign deal to develop huge oil field,” Xinhua News, September 15, 2006, www.chinaview.cn (accessed on August 6, 2009). 68. See statement of Seffidah Jashnsaz, managing director, National Iranian Oil Company, May 11, 2009: “The available information indicates that the use of internal resources does not meet investment needs. We must seek foreign investments,” available at www.upstreamonline.com (accessed on March 10, 2010). 69. BBC News, “China Steps Up African Investment,” April 23, 2008. 70. John Vandaele, “China Outdoes Europeans in Congo,” Asia Times, February 12, 2008. 71. Ibid. 72. Ibid. 73. The Enough Project Team with the Grassroots Reconciliation Group, “A Comprehensive Approach to Congo’s Conflict Minerals,” Strategy Paper, April 24, 2009, www.enoughproject.org (accessed on June 8, 2009); United Nations Security Council. Report of the Secretary-General pursuant to paragraph 8 of resolution 1698 (2006) concerning the Democratic Republic of the Congo, S/2007/68, February 2007. 74. Wenran Jiang, “A Chinese ‘Marshall Plan’ or Business?” Asia Times, January 14, 2009, www.atimes.com (accessed on May 18, 2010). 75. Vandaele, “China Outdoes Europeans”; Jiang, “A Chinese ‘Marshall Plan’ or Business?” 76. Jiang Yuxia, “Chinalco, Alcoa buy 12% stake of Rio Tinto’s UK-listed firm,” Xinhua News, February 1, 2008, www.chinaview.cn (accessed on August 4, 2009). 77. Rio Tinto Plc, “Rio  Tinto announces pioneering strategic partnership with Chinalco,” February 12, 2009. 78. Ibid. 79. Xin Zhiming and Zheng Lifei, “Exim Bank to extend loans to Chinalco’s Rio Tinto deal,” China Daily. March 10, 2009. 80. Dana Cimilluca, Shai Oster, and Amy Or, “Rio Tinto Scuttles Its Deal With Chinalco,” Wall Street Journal, June 5, 2009; Rio Tinto Plc, “Strategic partnership with Chinalco.” 81. John Garnaut, “Chinalco, Rio deal collapses,” Sydney Morning Herald, June 5, 2009. 82. Chinalco press releases from March 25, 27 and May 15, 2009, www.chinalco.com (accessed on August 4, 2009). 83. Rowena Mason, “Pressure grows on Rio Tinto-Chinalco deal,” Telegraph, March 16, 2009, www.telegraph.co.uk (accessed on August 4, 2009).

Chinese Investments to Secure Natural Resource Supplies  31

84. Cimilluca, Oster, and Or, “Rio Tinto Scuttles Its Deal with Chinalco.” 85. Shai Oster and Rick Carew, “China Inc.’s Top Deal Maker Provokes a Backlash Abroad”, Wall Street Journal, April 16, 2009, A1. The larger equity stake allowed Chinalco to exercise veto power over the “Great Acquisition.” 86. Days after making the offer to increase Chinalco’s stake in Rio Tinto in 2009, Chinalco’s President XiaoYaqing was “promoted” to a new post in China’s cabinet. 87. John Beverage, “Rio Tinto deal leaves a list of winners and losers,” Herald Sun, June 6, 2009; Michael Wines, “Australia, Nourishing China’s Economic Engine, Questions Ties,” New York Times, June 3, 2009, A1. 88. Cimilluca, Oster, and Or, “Rio Tinto Scuttles Its Deal with Chinalco.” 89. BHP Billiton Plc, “Rio Tinto and BHP Billiton announce Western Australian Iron Ore Production Joint Venture,” June 5, 2009. 90. Rosneft, “Rosneft Attracted a USD 15 bln Loan from China,” February 17, 2009. 91. Market Watch, “Rosneft,” www.marketwatch.com (accessed on August 5, 2009); Rosneft, “USD 15 bln Loan from China.” 92. Oil & Gas Eurasia, “China Makes 25mln Loan to Trans/Rosneft,” February 17, 2009, www. oilandgaseurasia.com (accessed on August 5, 2009); Wenran Jiang, “China’s oil partners hang onto assets,” Asia Times, July 30, 2009. 93. Jiang, “China’s oil partners.” 94. Upstream Online, “Russia seals $25bn China cash for oil deal,” February 17, 2009, www. upstreamonline.com (accessed on August 5, 2009). 95. Oil & Gas Eurasia, “China Makes 25mln Loan.” 96. Ibid. 97. Arrangements between China and Russia for oil and minerals have a history of not delivering as promised. Jing Yang, “Sinopec Considering Pulling Out of Sakhalin III Project,” Resource Investor, October 16, 2007, www.resourceinvestor.com (accessed on June 10, 2009); Tina Wang, “China-Russia Oil Deal: Take it with a Grain of Salt,” Forbes, February 18, 2009, www.forbes.com (accessed on June 17, 2009); Michael Lelyveld, “China-Russia Oil Deal Masks Frictions,” Radio Free Asia, May 18, 2009, ww.rfa.org (accessed on June 9, 2009). 98. Matt Daily and Joshua Schneyer, “Petrobras could get more funding from China: CEO,” Reuters, May 21, 2009, www.reuters.com (accessed on August 5, 2009). 99. Shai Oster, “China Wields Credit Clout Again to Lock In Brazilian Oil,” Wall Street Journal, May 20, 2009. 100. Paul Ausick, “Petrobras to Get Chinese Dollars,” 24/7 Wall St., February 20, 2009, www.247wallst.com (accessed on March 11, 2010); Xinhua News, Petrobras to borrow $10 bln from CDB, increase oil exports to China,” May 19, 2009, www.chinaview.cn (accessed on August 5, 2009). 101. John Liu and Andres R. Martinez, “China, Brazil Agree to $10 Billion Loan, Exploration,” Bloomberg News, May 19, 2009, www.bloomberg.com (accessed on August 5, 2009); Ausick, “Petrobras to Get Chinese Dollars.” 102. Iuri Dantas and Jeb Blount, “Petrobras Gets $10 Billion China Loan, Sinopec Deal,” Bloomberg News, February 19, 2009, www.bloomberg.com (accessed on August 5, 2009).

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103. Manuela Zoninsei, “Brazil Turns East,” Newsweek, June 11, 2009. 104. Petrobras, “Contracting of a Credit Line Worth $10 billion from the China Development Bank,” May 19, 2009. 105. Jeff Flick, “Petrobras, Sinopec Discuss China’s Entry into Brazil’s Oil Exploration,” Rigzone, May 28, 2009, www.rigzone.com (accessed on August 5, 2009). 106. Shai Oster, “China Wields Credit Clout Again to Lock in Brazilian Oil,” Wall Street Journal, May 20, 2009; Chris Mayer, “The United States economy cannot easily afford to lose access to vast portions of the world’s energy supplies,” Gold News Bullion Vault, www. goldnews.bullionvault.com (accessed on June 11, 2009). 107. Ausick, “Petrobras to Get Chinese Dollars.” 108. Chris Nicholson, “China’s Sinopec Offers $7.22 Billion for Oil Firm,” New York Times, June 24, 2009. 109. Addax Petroleum Corporation, “Consolidated Interim Financial Statements as at June 30, 2009 and for the three- and six-month periods ending June 30, 2009 and 2008”; Stephen Grocer, “Deal Profile: Sinopec-Addax–China’s Big Oil Play,” Wall Street Journal, June 24, 2009. 110. Rick Carew, “Sinopec-Addax: The Dragon Flexes Its Deal-Making Muscles,” Wall Street Journal, June 24, 2009. 111. Addax Petroleum Corporation, “Frequently Asked Questions,” www.addaxpetroleum. com (accessed on August 4, 2009). 112. Guy Chazan and Shai Oster, “Sinopec Pact for Addax Boosts China’s Buying Binge,” Wall Street Journal, June 25, 2009. 113. China Petroleum and Chemical Corporation, “Notice to Shareholders: Offer to Purchase for Cash all of the issued and outstanding common shares of Addax Petroleum Corporation,” July 9, 2009. 114. Chazan and Oster, “Sinopec Pact.” 115. China Petroleum and Chemical Corporation, “Notice to Shareholders.” 116. Addax Petroleum Corporation, “Addax Petroleum and Genel Energy Commence International Export from Kurdistan Region of Iraq,” June 1, 2009. 117. Offshore-technology.com, “South Pars, Qatar North Field, Iran,” www.offshore-technology.com (accessed on March 12, 2010); Comtex News Network, Inc., “CNPC Said to Take Over Iran South Pars Gas Field Development,” June 5, 2009. 118. Samuel Ciszuk, “Total Displaced by CNPC on Upstream Phase of Iran’s Giant Pars LNG Project,” Global Insight, June 4, 2009; BBC Monitoring Asia Pacific, “Iran signs 5bn-dollar gas agreement with China,” June 8, 2009. 119. Offshore-technology.com, “South Pars, Qatar North Field, Iran.” 120. Ibid. 121. Ciszuk, “Total Displaced by CNPC.” 122. Tasmin Carlisle, “Iran enlists China for South Pars gas project,” The National, June 3, 2009. 123. Sanchez Wang, “Iran, China Sign $5 Billion Contract on South Pars Gas Field,” Bloomberg News, June 10, 2009; BBC Monitoring Asia Pacific, “Iran signs 5bn-dollar gas agreement with China.”

Chinese Investments to Secure Natural Resource Supplies  33

124. BBC Monitoring Asia Pacific, “Iran signs 5bn-dollar gas agreement with China.” 125. China Daily, “CNPC signs pact to develop South Azadegan oilfield,” August 1, 2009. 126. Business Standard, “ONGC-Hinduja JV loses rights to develop Iran’s oilfield to China,” October 6, 2009; China Daily, “CNPC signs pact to develop South Azadegan oilfield,” August 1, 2009. 127. Tehran Times, “CNPCI inks deal for 70% stake in S. Azadegan.” September 29, 2009. 128. BBC Monitoring, “Iran, China Sign Major Deal to Develop South Azadegan,” September 29, 2009; Business Standard, “ONGC-Hinduja JV loses rights.” 129. BBC Monitoring, “Iran, China Sign Major Deal.” 130. Tehran Times, “CNPCI inks deal.” 131. Business Standard, “ONGC-Hinduja JV loses rights”; Steel Guru, “OVL-Hinduja JV loses rights to develop to CNPC,” October 2, 2009, http://steelguru.com. 132. Business Standard, “ONGC-Hinduja JV loses rights.” 133. Economic Times, “India may lose a gas project in Iran,” October 4, 2009.

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Appendix 3A Background on Smaller Cases Reviewing smaller Chinese procurement arrangements does not suggest that the 16 largest projects are atypical of China’s general strategy toward procurement of natural resources. CNOOC’s acquisition of a 12.5 percent share of Indonesia’s Tangguh LNG project from BP for $275 million, which began delivery in 2009, may follow the first pattern of procurement. But Sinosteel’s acquisition of more than 50 percent of Australia’s Midwest Company, an iron ore prospector, for $1.4 billion in 2008; China Nonferrous Metal Mining Group Company’s $600 million Tagaung Taung nickel mine in Myanmar in 2008; and the CNPC-Sinopec Andes oil purchase of Canadian oil exploration company EnCana in Ecuador for $1.42 billion in 2005 all fall under the second pattern of procurement.

Sinosteel’s Acquisition of Australia’s Midwest Company, 2008 State-owned steelmaker Sinosteel is China’s second-largest iron ore importer. It develops, processes, and trades metallurgical mineral resources. In December 2007 Sinosteel announced its $1.05 billion bid for Australian iron ore mining firm Midwest Company. This bid followed Australian iron ore company Murchison Metal’s bid for Midwest in October. Based on Murchison’s stock price in December, Murchison’s bid valued Midwest at $710.2 million, or $3.35 per share compared with Sinosteel’s offer of $4.91 per share.1 In early February 2008 Murchison abandoned its offer because of low acceptance, leaving Sinosteel the front-runner for the acquisition.2 Despite Murchison’s withdrawal, Midwest announced on February 20, 2008 that Sinosteel’s offer was unsatisfactory because it undervalued the company and its prospects. When Sinosteel refused to sign a confidentiality agreement, negotiations further stalled as Midwest denied Sinosteel access to its books for due diligence inquiries.3 In mid-March Sinosteel launched the first ever hostile takeover bid by a Chinese company in Australia. It offered $905 million for the 80.1 percent of Midwest that it had not yet acquired, for a total valuation of the company at $1.13 billion or $5.28 per share. This represented a 35 percent premium to Midwest’s shares’ closing price the previous day.4 In the following months, Sinosteel continued to buy up shares in the company until on July 11 it announced that it had acquired a controlling 50.97 percent stake.5 Finally, on September 25 Sinosteel announced that it held 98.52 percent of Midwest, after American hedge fund Harbinger Capital gave up its 15.2 percent stake.6 China’s Exim Bank provided the full debt funding for Sinosteel in its acquisition of Midwest. Chinese Investments to Secure Natural Resource Supplies  35

Midwest’s mine in western Australia currently produces the relatively small amount of 1.1 million tons of iron ore a year. Midwest is also working to bring online a new project that is expected to produce about 16.5 million tons per year.7 Before Sinosteel’s bid for Midwest, the two companies had been working together in a joint venture exploring and developing the Weld Ranch hematite project and Koolanooka magnetite project in western Australia.8

CNOOC and Indonesia’s Tangguh LNG Project, 2002–09 The Tangguh project is Indonesia’s third-largest LNG project. It is located in West Papua, Indonesia and its fields have 14.4 trillion cubic feet of certified proven gas reserves. It has the capacity to produce 7.6 million tons of gas annually, and, as of July 2009, sales agreements to sell 7.4 million tons per year. On September 26, 2002 the partners in Indonesia’s Tangguh LNG Project signed a sales and purchase agreement with CNOOC to supply 2.6 million tons of LNG to China’s Fujian LNG terminal project for 25 years beginning in 2007. CNOOC also acquired a 12.5 percent stake in the project for $275 million on February 4, 2003, reducing BP’s stake from 49.7 to 37.2 percent.9 The remaining partners maintained their stakes: Mitsubishi at 16.3 percent, Nippon 12.2 percent, BP 10.7 percent, Kanematsu Corp 10 percent, and LNG Japan 1.1 percent. BP remained the project’s operator.10 On May 13, 2004 CNOOC announced it had acquired an additional 4.4 percent interest in the project from BP for $105.1 million,11 though on June 28, 2008, it sold a 3.06 percent stake for $212.5 million, reducing its own stake to 13.9 percent.12 The Tangguh LNG project shipped its first commercial cargo on July 6, 2009, and on July 27, CNOOC’s Fujian terminal received LNG from the project for the first time.13 Based on CNOOC’s 2002 contract, the terminal will receive 14 more project shipments in 2009 to supply a total of 2.6 million tons of LNG. Construction to increase the Fujian terminal’s annual receiving capacity began in 2008 and is expected to increase the terminal’s receiving capacity to 5.6 million tons per year by 2011.14

China National Petroleum Company and Sinopec in Ecuador, 2005 On September 13, 2005 Calgary-based EnCana Corporation announced its plan to sell all its oil and gas assets in Ecuador to the newly formed Chinese consortium Andes Petroleum Company for $1.42 billion. Under the terms of the deal, the consortium, led by Chinese firms CNPC and Sinopec, would acquire all of EnCana’s shares in subsidiaries that owned 36  China’s Strategy to Secure Natural Resources

oil or pipeline interests in Ecuador.15 Reports had emerged the previous August that EnCana intended to sell all its assets outside North America to concentrate on its strategic interests within North America.16 India’s state-owned ONGC was among the bidders for the Ecuadorian assets.17 EnCana and the Andes Petroleum Company closed the deal on February 28, 2006. The Chinese consortium paid $1.42 billion for the Ecuadorian assets, which had a net book value of $1.4 billion18 and included full ownership of the Tarapoa block, producing 38,000 barrels of oil per day, as well as a 40 percent stake in another block producing 30,000 barrels per day. Additionally, the consortium acquired EnCana’s 36.3 percent stake in a 310-mile pipeline carrying 450,000 barrels per day.19 At the end of 2004, EnCana had 143 million barrels of proven oil reserves in Ecuador.20 The Andes Petroleum Corporation was formed specifically to purchase EnCana’s assets in Ecuador. After the September 2005 transaction announcement, the CNPC, Sinopec, and other Chinese firms negotiated the distribution of interest in the consortium; the CNPC ultimately acquired 55 percent and Sinopec 45 percent. The CNPC was to focus on the oilfields’ operation while Sinopec would focus on refining.21 Following the deal the Andes Petroleum Corporation became the largest foreign operator in Ecuador.22

China Nonferrous Metal Mining Company and Tagaung Taung Nickel Mine, 2008 On July 28, 2008 China Nonferrous Metal Mining Group (CNMC) signed a production sharing contract with Myanmar’s state-owned Number 3 Mining Enterprise to develop the Taguang Taung nickel mine north of Mandalay. The CNMC is to provide all the capital for the project while the Number 3 Mining Enterprise provides the mining rights to the Taguang Taung mine. The mine is scheduled to begin operation in 2011 for a total of 20 years. The project follows the joint venture formed in 2004 between the CNMC and the Number 3 Mining Enterprise, which called for a 75-25 distribution between the CNMC and the Myanmar company.23 In early August 2008 the CNMC announced that work on the longdelayed mining project would begin before the end of the year, though officials initially refused to confirm that the 75-25 distribution had been maintained.24 Further, the estimated cost of the project had risen from $600 million to $800 million and was expected to increase even more by the time the mine was operational. By late August, it became clear that the project’s distribution had been altered, with Myanmar receiving a 50 percent stake.25 Observers of the project attributed the delays up until then to negotiations over the government’s stake in the project.26 The Taguang Taung mine is estimated to have 40 million tons of lateritic nickel ore. Ultimately the project is expected to include mining and Chinese Investments to Secure Natural Resource Supplies  37

smelting facilities and to produce annually 80,000 tons of ferro-nickel, used in stainless steel production. The CNMC claims that, once the project is online, it will raise Myanmar’s GDP by 2 percent. This is the largest cooperative mining project ever undertaken between China and Myanmar.27

China-Myanmar Oil and Gas Pipeline, 2009 In late March 2009 China announced an agreement with Myanmar to build oil and gas pipelines connecting the two countries and signed a memorandum of understanding in June through the CNPC concerning the construction, operation, and management of the cross-border project.28 The CNPC is to have a 50.9 percent stake but is expected to carry virtually all the costs of the project and is responsible for its construction. Myanmar Oil and Gas Enterprise will hold the remaining 49.1 percent interest.29 According to China’s official news agency Xinhua, construction on the project began in 2009. Both pipelines will begin at Kyaukryu Port on Myanmar’s west coast and cross into China at Ruilin in Yunnan Province. The oil pipeline will end in Kunming, the capital of Yunnan, spanning a distance of nearly 700 miles. It is expected to carry 20 million tons of crude oil annually from the Middle East and Africa. The natural gas pipeline will continue past Kunming to Guizhou and the Guangxi Zhuang Autonomous Region, for a total of more than 1,700 miles. It is expected to carry 12 billion cubic meters of gas annually.30 The project also includes a crude unloading wharf as well as transportation and storage facilities at Kyaukryu Port.31 The new pipelines will comprise a fourth method of oil and gas importation into China, after the Sino-Kazakhstan line, Sino-Russian line, and ocean transportation. Apart from reducing the transportation route of oil and gas coming from Africa or the Middle East by some 750 miles, the pipelines also give China the increased security associated with bypassing the crowded and potentially risky Malacca Straits, through which over 70 percent of China’s fuel imports currently pass.32 The pipelines are scheduled to be completed by 2013 at a total cost of $2.5 billion.33 Myanmar has 510 billion cubic meters of proven recoverable reserves of gas and 3.2 billion barrels of recoverable crude oil. In December 2008 it signed a 30-year contract to sell natural gas to China.34

Notes 1. Vivian Wai-yin Kwok, “Sinosteel Mounts $1.5B Bid for Australian Miner,” Forbes, December 10, 2007. 2. Asia Pulse News, “Australia’s Midwest Knocks Back Sinosteel Takeover Bid,” February 20, 2008. 3. Ibid.

38  China’s Strategy to Secure Natural Resources

4. Shu-Ching Jean Chen, “Sinosteel Goes Hostile on Iron Miner Midwest,” Forbes, March 14, 2008. 5. Herald Sun, “Sinosteel Ups Stake in Midwest,” June 13, 2008, www.news.com.au (accessed on August 10, 2009); Sinosteel Corporation, “Sinosteel Takes Majority Stake in Australia’s Midwest Corporation,” July 11, 2008. 6. Sinosteel Corporation, “Sinosteel Takes Purchase in Australia’s Midwest Corporation,” September 25, 2008; Associated Press, “China’s Sinosteel to proceed with Midwest takeover,” September 18, 2008. 7. Associated Press, “China’s Sinosteel to proceed.” 8. Kwok, “Sinosteel Mounts $1.5B Bid.” 9. BP Indonesia, “BP at Forefront of China’s LNG Strategy as Fujian Chooses Tangguh,” September 26, 2002; CNOOC Ltd., “CNOOC Limited to Acquire Interest in Indonesia Gas Joint Venture,” press release, September 27, 2002. 10. CNOOC Ltd., “CNOOC Limited Completes Acquisition of Tangguh LNG Equity Stake,” February 4, 2003; BP Indonesia, “CNOOC Limited Acquires Stake in Tangguh,” February 4, 2003. 11. CNOOC Ltd., “CNOOC Limited Completes Acquisition of Additional Equity Interest in the Tangguh LNG Project,” May 13, 2004. 12. CNOOC Ltd., “CNOOC Ltd. Ink a Deal with Talisman on Tangguh LNG Project,” January 28, 2008. 13. CNOOC Ltd., “CNOOC Limited Announces the First LNG of Tangguh Project,” July 6, 2009; Eric Watkins, “CNOOC’s Fujian terminal receives first Tangguh LNG cargo,” Oil & Gas Journal, July 27, 2009. 14. Watkins, “CNOOC’s Fujian terminal.” 15. Wang Ying, “Oil Consortium Buys EnCana Ecuador Assets,” redOrbit, September 15, 2005, www.redorbit.com (accessed on March 11, 2010). 16. Argus Media Ltd., “China raises profile in Ecuador,” LatAm Energy, September 21, 2005, www.argusmedia.com; Argus Media Ltd., “China strengthens presence in Ecuador,” LatAm Energy, March 8, 2006, www.argusmedia.com. 17. Ying, “Oil Consortium.” 18. EnCana, “EnCana to sell its oil and pipeline business in Ecuador to Andes Petroleum Company for US$1.42 billion,” September 13, 2005; EnCana, “EnCana closes sale of Ecuador interests to Andes Petroleum Company for about US$1.42 billion,” February 28, 2006. 19. Argus Media Ltd., “China raises profile in Ecuador.” 20. EnCana, “EnCana to sell its oil and pipeline business in Ecuador.” 21. Mark Xiong, “China’s CNPC Led Consortium to Buy EnCana’s Ecuador Assets for 1.42bln USD,” Forbes, September 14, 2005; Argus Media Ltd., “China strengthens presence in Ecuador.” 22. Argus Media Ltd., “China strengthens presence in Ecuador.” 23. Mines and Communities, “China moves on Burma and rescues foundering Kenya project,” August 1, 2008, www.minesandcommunities.org (accessed on March 11, 2010); Myanma Thadin, “China group says $800 million in Myanmar mine on track,” April 23, 2009, www. myanmathadin.com (accessed on March 11, 2010).

Chinese Investments to Secure Natural Resource Supplies  39

24. Mines and Communities, “China moves on Burma.” 25. Eric Snider, “Billion dollar nickel mine in Burma to go ahead,” August 25, 2008, www. minesandcommunities.org (accessed on August 10, 2009). 26. Myanma Thadin, “China group.” 27. Ibid. 28. Straits Times, “China, Myanmar in Oil Deal, March 27, 2009; CNPC, “MoU Signed on Myanmar-China Oil Pipeline,” press release, June 16, 2009. 29. Straits Times, “China to Myanmar Pipelines,” November 20, 2008. 30. Shasha Deng, “Construction of Sino-Myanmar oil-and-gas pipelines to begin in September,” Xinhua News, June 16, 2009, www.chinaview.cn (accessed on August 11, 2009). 31. CNPC, “MoU Signed.” 32. Deng, “Construction of Sino-Myanmar oil-and-gas pipelines”; Aljazeera, “China Investment in Myanmar Soars,” July 16, 2009, http://english.aljazeera.net (accessed on March 11, 2010). 33. Straits Times, “China to Myanmar Pipelines”; Jyoti Malhotra, “Myanmar pipelines confirm China’s place in Bay of Bengal,” Business Standard, June 29, 2009, www.business-standard.com (accessed on August 11, 2009). 34. Arakan Oil Watch, “Gas and oil pipelines to start in ’09,” January 22, 2009, www.arakanoilwatch.org. (accessed on March 11, 2010).

40  China’s Strategy to Secure Natural Resources

Rare Earths: A Sophisticated New Resource Model for China?

4

Within the general pattern of China’s natural resource procurement, attention must be paid to its strategy regarding rare earth elements (REEs), a category of metals used in a variety of technological applications, from lighter flints to high-temperature superconductivity. The term “rare earth,” according to the US Geological Survey (USGS 2002, 2), “is a historical misnomer; persistence of the term reflects unfamiliarity rather than true rarity.” Even the two least abundant REEs—thulium and lutetium— are approximately 200 times more common than gold. Worldwide undiscovered sources of REEs are estimated to be much larger than expected demand (USGS 2009); however, REEs appear to be only occasionally concentrated in specific rich ore deposits and currently are derived from only a handful of sites. Historically, price patterns have been too low to support extensive exploration and development beyond these, though this may be changing. The number of applications for REEs, alone or in alloys, is growing. High-strength REE magnets allow miniaturization of components used in computers, communications systems, and military gear. REE magnets control the guidance vanes on the sides of missiles. Liquid-crystal displays and color cathode-ray tubes employ europium as red phosphor. New energy-efficient fluorescent lamps also use REEs. Several REEs are essential constituents of both petroleum fluid cracking catalysts and automotive pollution control catalytic converters.

41

China Surpasses California From 1965 through the mid-1980s, the dominant source of REEs for global consumption was Mountain Pass, in the upper Mojave Desert in California, which became commercially viable as demand rose for europium used in color televisions. After 1985 Chinese REE production began to increase rapidly, originating in two sources: the Bayan Obo deposit in Inner Mongolia and a collection of small and often unlicensed mines in tropical southern China. By 1999 more than 90 percent of REEs used in US industry came from China, as Mountain Pass was beset by environmental and regulatory problems associated with waste-water management and operated only intermittently (USGS 2002). China currently has the largest reserves of REEs and is both their largest producer and largest exporter (ResearchInChina 2008). REE mining involves heavy leaching processes, with the need to take care of extremely toxic runoff. Monazite is the most commonly mined REE and usually contains elevated levels of thorium, which is accompanied by concentrations of highly radioactive materials, such as radium (USGS 2002). In China the customary mining process has been to pump powerful acid down bore holes, dissolving some of the rare earths, after which the slurry is dumped into artificial ponds with earthen dams that often leak into rivers.1 China has not enjoyed the environmental and regulatory sensitivities, or the rigorous surveillance, of northern California. From 2000 to 2006 the Chinese REE industry was characterized by what industry sources call “disorderly competition,” “price chaos,” and “a price war” among domestic firms (ResearchInChina 2006). According to China’s National Development and Reform Commission, by 2008 the country’s annual REE smelting and separating capacity exceeded 200,000 tons, more than double the world’s annual demand (ResearchInChina 2008), even as China’s government lowered its export quota on REEs each year from 2005 through 2008.2 In August 2009 China’s Ministry of Industry and Information Technology issued a draft policy to set an annual REE export quota of 35,000 tons, potentially ban exports of at least five types of REEs, strengthen controls on mining, and improve environmental practices.3 The goal appears to be a comprehensive industrial policy for China’s REE sector that stabilizes prices, consolidates the domestic industry, improves environmental management, and attracts investment in downstream applications, from processing ores to manufacturing magnets and high-performance electric motors—possibly providing an advantage to investors located in China who rely on REE inputs.

42  China’s Strategy to Secure Natural Resources

New Sources of Rare Earths Concern about the availability of rare earths, combined with the prospect of higher prices, has sparked interest in alternative sources in an industry hitherto characterized by excess capacity and oversupply. Sumitomo and Toyota have begun to investigate supplier deposits in Kazakhstan and Vietnam.4 An independent mining company, Avalon Rare Metals, is developing a new mine in northwest Canada.5 Great Western Mining Group, an Ireland-based exploration company, may reopen a mine in South Africa.6 The US Geological Survey identifies Kiruna, Sweden as a possible site for expansion (USGS 2002). Molycorp Minerals is trying to reopen its mine in Mountain Pass, California. As for US needs, the value of US imports of REEs totaled no more than $127 million in 2008 (USGS 2009), and the United States could revise its policies toward the Department of Defense’s strategic REE stockpiles if the threat of withholding supplies appears likely. Most advanced among potential new sites are two Australian operations, the Lynas Corporation and a smaller competitor, Arafura Resources, the combined production of which would equal a quarter of global output.7 The two were poised to seriously threaten China’s global dominance in the REE market, but with the international financial crisis of 2008–09, Lynas’s bond issue and Arafura’s initial public offering could not attract buyers. In spring 2009 the Chinese government provided favorable financing for the China Nonferrous Metal Mining Company (CNMC)8 to acquire 51.7 percent of Lynas and for Jiangsu Eastern China Non-Ferrous Metals Investment Holding Company to acquire 25 percent of Arafura so that the companies could finish the construction of the Australian mines and processing facilities.9 The latter arrangement has been approved by Australian regulators; but not the former. CNMC, the would-be acquirer of Lynas, agreed not to try to manage the daily operations of the company but would have four of the eight seats on its board.10 This did not satisfy Australia’s foreign investment review board, which demanded that CNMC take a smaller equity position with fewer board seats. CNMC declined, withdrawing its offer.11 How should national authorities react to the prospect of Chinese investment in offshore REE companies? The foreign acquisition analytics in this sector fit well within the broader framework of this book: Chinese investment in a small independent producer such as Arafura, the impact of which can do nothing except help expand supply and make the industry more competitive, should be encouraged; Chinese investment in a more major producer such as Lynas, which perhaps puts the Chinese owners— and Chinese government—in a position to control or constrain production, should be viewed with circumspection.

Rare Earths: A Sophisticated New Resource Model for China?  43

Lithium Supply Apart from rare earths, there may also be concerns about control over supplies of lithium, which, among other things, is a crucial element in high-performance batteries. The lowest-cost commercial reserves are found in brine pools (USGS 2009). Nearly half the world’s known reserves are located in Bolivia, along the central eastern slope of the Andes. As of 2009, Japanese, French, and Korean firms are negotiating to begin extraction.12 In the United States lithium is recovered from brine pools in Nevada. Lithium has also been discovered in Australia, Russia, and Serbia. The US Geological Survey indicates that it is difficult to predict how concentrated the international industry will become as demand to make batteries for hybrid and electric vehicles grows (USGS 2009). Using a measure called the cumulative availability curve, Andres Yaksic and John E. Tilton (2009) suggest that lithium depletion per se is not likely to pose a serious problem for many decades. For its part, China is scheduled to become a significant producer of brine-source lithium carbonate in 2010–11 and is currently the leading producer of lithium metal in the world.

Notes 1. Keith Bradsher, “China Tightens Grip on Rare Minerals,” New York Times, September 1, 2009. 2. Ibid. 3. Chuin-Wei Yap, “Will China Tighten “Rare Earth” Grip?” Wall Street Journal, September 3, 2009. 4. Ibid. 5. Bradsher, “China Tightens Grip.” 6. Keith Bradsher, “Chinese Threat Reinvigorates Effort to Mine Rare Minerals,” New York Times, September 26, 2009. 7. Bradsher, “China Tightens Grip.” 8. CNMC is a state-owned enterprise involved in the investment, development, and management of foreign and domestic mines (Major Companies Database, 2009). 9. Ross Kelly, “Australia Delays Ruling on China Rare-Earth Investment,” Wall Street Journal, September 4, 2009; Bradsher, “China Tightens Grip.” 10. Bradsher, “China Tightens Grip.” 11. Bradsher, “Chinese Threat.” 12. Simon Romero, “In Bolivia, Untapped Bounty Meets Nationalism,” New York Times, February 2, 2009.

44  China’s Strategy to Secure Natural Resources

Policy Implications

5

China’s rapid emergence as a major industrial power poses a complex challenge for global natural resource markets. The country’s demand for vast amounts of energy and minerals strains the international supply system tremendously, a situation that Chinese efforts to procure raw materials can exacerbate or help solve. Which outcome prevails depends upon whether those efforts solidify a concentrated global supplier system—and enhance Chinese control within that system—or expand and diversify the global supplier system, making it more competitive. The evidence from the 16 largest Chinese natural resource procurement arrangements shows that Chinese efforts predominantly help expand and diversify the global supplier system.1 This outcome is consistent with the Chinese government’s articulated policy strategy “to encourage the signing of long-term supply contracts with foreign companies, and promote the diversification of trading channels.”2 The Chinalco–Rio Tinto case (in chapter 3) even offers direct evidence that senior officials seek to prevent consolidation of the natural resource supplier base. In the sector most crucial for China’s procurement strategy—access to international oil—Chinese companies have not diverted oil supplies toward the Chinese domestic market but instead sold the supplies they controlled predominantly into international markets. Using customs data, industry intelligence, and news reports, Daniel H. Rosen and Trevor Houser (2007) find that, while the CNPC used the dedicated pipeline from Kazakhstan to China to import 50,000 barrels of oil in 2006 (a figure that has risen since then), none of the CNPC’s production in Azerbaijan, Canada, Syria, or Venezuela entered the Chinese market and only a small portion of production from Ecuador, Algeria, and Colombia did.3 CNPC 45

imports to China from Sudan even declined in 2006 as China’s national oil company sold more to Japan (though imports from Sudan rose again in 2007 and 2008). CNOOC and Sinopec did not target most of their overseas equity oil toward China but rather sold it to the highest bidder in the open market. The effect of China’s procurement on the structures of supplier industries, however, is only one dimension of the challenge that Chinese natural resource acquisition poses. A natural resource strategist from Mars might applaud China’s vigorous support for oil production in Sudan or Iran, or oil transport, natural gas, and mineral production in Myanmar (see appendix 3A). But the United States and other allies are rightly appalled at the consequences for regional conflict, support for terrorist groups, violation of human rights, and oppression. These concerns take on additional weight as provision of equity capital and loans in return for natural resources form part of China’s larger global procurement strategy, encompassing Central Asia, the Middle East, Africa, Latin America, and the South Pacific. In addition, the United Nations Conference on Trade and Development (UNCTAD 2007) echoes the concern of many nongovernmental organizations that non-OECD natural resource companies, including those from China, may disregard best environmental practices and, through an approach officially termed “noninterference in domestic affairs,” undermine hard-won governance standards observed under the OECD Convention on Combating Bribery.4 It is beyond this book’s scope to evaluate the comparative performance of Chinese and OECD-headquartered investors in the realm of environmental practices and antibribery behavior. But anecdotal evidence shows cause for concern. In Angola the struggle over who qualifies for corrupt payments has taken on what would be a comic-opera aura, were it not so serious. The disbursement of the first China Exim Bank loan of $2 billion for infrastructure projects in 2004 apparently sidelined some senior presidential advisers, leading China’s secret services to provide Angolan president José Eduardo dos Santos with a list of 20 Angolan businesses that were seeking to benefit illegally (Campos and Vines 2008, 6; Hanson 2008). Shortly thereafter, President dos Santos set up a single reconstruction office, the Gabinete de Reconstrucao Nacional (GRN), exclusively accountable to the president’s office, to manage the Chinese infrastructure loans. Given the opacity of GRN activities, it is difficult to determine whether the objective is to clean up contracting procedures or simply rationalize the payoff structure. The evidence introduced here illuminates but does not fully answer some fundamental questions about China’s grand strategy, coordination or conflicts among Chinese government objectives and Chinese investor goals, and the actual process of Chinese policy formation and implementation. How explicit is China’s plan for securing natural resources? Do China’s resource companies follow Chinese government instructions, 46  China’s Strategy to Secure Natural Resources

or are they becoming more independent as corporate actors? An official Chinese government articulation of a grand natural resource strategy is missing, though a White Paper on Energy (China State Council Information Office 2007), as noted earlier, lays out a terse argument for signing long-term contracts and diversifying sources of supply. The investment behavior of China’s energy companies, as documented here, aligns with such a policy direction. For extractive industries where China is a large net importer—iron ore, copper, bauxite, aluminum, and nickel—the logic of self-interest likewise supports a deliberate strategy of diversification, which is backed up by the record of Chinese companies’ investments in these areas. Daniel Rosen and Trevor Houser (2007, 33), as well as Thilo Hanemann, suggest that Chinese oil companies are “prioritizing profits over political considerations,”5 and national champion companies tend to become more anational as they mature, adopting practices that increasingly resemble those of their international competitors and becoming less willing to follow the dictates of their home governments (Moran 2008). The cases I examine in this policy analysis, however, show Chinese natural resource companies working closely with the China Exim Bank, China Development Bank, and other ministries and agencies to craft customized packages, in which Chinese energy or mineral investments are intimately embedded. The argument that Chinese companies are becoming more independent corporate actors may be likely in other trade sectors but not in the extraction of natural resources.6 How, then, are Chinese aid, infrastructure loans, debt management decisions, and investor bids coordinated? When do “principal-agent” tensions, as Bates Gill and James Reilly (2007) call them, arise between Chinese ministries or agencies and Chinese companies, and who prevails? The sole instance from the investments I have examined (chapter 3) that offers insight into the Beijing policymaking process is the Wall Street Journal’s examination of Chinalco’s decision to act as white knight in the original Rio Tinto–BHP Billiton merger proposal in 2007.7 As the article relates, China’s National Development and Reform Commission (NDRC) led the meetings with the express objective of “blocking the BHP bid.” Steelmaker Baosteel Group and Chinalco made “competing proposals.” Chinalco’s proposal had the support of the China Development Bank and China International Capital Corporation and had been formulated with help from Lehman Brothers. After Chinalco “pitched” its plan “in a kind of beauty pageant judged by the NDRC,” Chinalco received official approval from “government regulators” to proceed. The headline called the deal a “China Inc.” outcome. Whether such coherent policymaking typifies China natural resource investment strategy more generally would require more detailed investigations of the kind Gill and Reilly call for. The questions raised clearly require further analysis. But the cases examined in this book are nonetheless important for those who worry about China locking up or gaining control over a fixed base of world Policy Implications  47

resources. Looking strictly at the effect of Chinese procurement efforts on the structure of the global supplier base for energy and minerals, the empirical record to date suggests a predominant thrust in the opposite direction, toward diversification of output and enhanced competition among producers.

Notes 1. In this, China’s actions are similar to an earlier 1980s Japanese strategy of natural resource procurement. 2. This statement applies specifically to the oil sector (China State Council Information Office 2007, Ma and Andrews-Speed 2006, Herberg 2007, Chen 2008). 3. Data are from 2006, the latest available then. 4. The convention’s full name is the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. In US domestic law, it is implemented through the Foreign Corrupt Practices Act, as amended by the International Anti-Bribery and Fair Competition Act of 1998. See UNCTAD (2007). 5. Personal communication with Thilo Hanemann, World Resources Institute, June 15, 2009. 6. Erica Downs (2008) notes, however, that within the upper echelons of China’s power elite individuals whose careers have included senior oil sector positions are becoming more powerful and prominent. For case study reports that Chinese companies are becoming more independent, see Jansson, Burke, and Jiang (2009). 7. Shai Oster and Rick Carew, “China Inc.’s Top Deal Maker Provokes a Backlash Abroad,” Wall Street Journal, April 16, 2009.

48  China’s Strategy to Secure Natural Resources

References

Adelman, M.A. 1972. The World Petroleum Market. Baltimore, MD: Johns Hopkins Press for Resources for the Future. Campos, Indira, and Alex Vines. 2008b. Angola and China: A Pragmatic Partnership. In US and Chinese Engagement in Africa: Prospects for Improving US-China-Africa Cooperation, ed. Jennifer Cooke. Washington: Center for Strategic and International Studies. Chen, Shaofeng. 2008. Motivations behind China’s Foreign Oil Quest: A Perspective from the Chinese Government and the Oil Companies. Journal of Chinese Political Science 13, no. 1 (January): 79–104. China State Council Information Office. 2007. China’s Energy Conditions and Policies. White Paper on Energy. Beijing. Downs, Erica S. 2007. The Fact and Fiction of Sino-African Energy Relations. China Security 3, no. 3 (summer): 42–68. Downs, Erica S. 2008. Business Interest Groups in China’s Politics. In China’ s Changing Political Landscape: Prospects for Democracy, ed. Cheng Li. Washington: Brookings Institution. Drysdale, Peter, and Christopher Findlay. 2008. Chinese Foreign Direct Investment in Australia: Policy Issues for the Resource Sector. China Economic Journal 2, no. 2 (July): 133– 58. Crawford School, Australian National University. Gill, Bates, C. Huang, and J. S. Morrison. 2007. China’s Expanding Role in Africa: Implications for the United States. Washington: Center for Strategic and International Studies. Gill, Bates, and James Reilly. 2007. The Tenuous Hold of China Inc. in Africa. Washington Quarterly 30, no. 3 (summer): 37–52. Hanson, Stephanie. 2008. China, Africa, and Oil. New York: Council on Foreign Relations. Herberg, Mikkal E. 2007. Energy Security Survey 2007: The Rise of Asia’s National Oil Companies. Seattle: National Bureau of Asian Research. Jansson, Johanna, Christopher Burke, and Wenran Jiang. 2009. Chinese Companies in the Extractive Industries of Gabon and the DRC: Perceptions of Transparency. Johannesburg: Centre for Chinese Studies.

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Ma, Xin, and Philip Andrews-Speed. 2006. The Overseas Activities of China’s National Oil Companies: Rationale and Outlook. Minerals and Energy 21, no. 1 (March): 17–30. Moran, Theodore H. 2008. What Policies Should Developing Country Governments Adopt Toward Outward FDI? Lessons from the Experience of Developed Countries. In The Rise Of Transnational Corporations From Emerging Markets: Threat or Opportunity? eds. Karl Sauvant, Kristin Mendoza, and Irmak Ince. New York: Edward Elgar Publishing. ResearchInChina. 2006. China Rare Earth Industry Report 2006. Beijing. Available at www.researchinchina.com. ResearchInChina. 2008. China Rare Earth Industry Report 2008. Beijing. Available at www.researchinchina.com. Rone, Jemera. 2003. Sudan, Oil, and Human Rights. New York: Human Rights Watch. Rosen, Daniel H., and Trevor Houser. 2007. China Energy: A Guide for the Perplexed. Washington: Peterson Institute for International Economics. UNCTAD (United Nations Conference on Trade and Development). 2007. World Investment Report 2007: Transnational Corporations, Extractive Industries, and Development. New York. USGS (US Geological Survey). 2002. Rare Earth Elements—Critical Resources for High Technology. USGS Fact Sheet 087-02. Washington. USGS (US Geological Survey). 2009. Mineral Commodity Summaries 2009. Washington. Vernon, Raymond. 1971. Sovereignty at Bay: The Spread of US Enterprises. New York: Basic Books. Wells, L. T., Jr. 1993. Minerals: Eroding Oligopolies. In Beyond Free Trade: Firms Governments, and Global Competition, ed. D. B. Yoffie. Boston: Harvard Business School Press. Wilkins, Myra. 1974. The Maturing of Multinational Enterprise: American Business Abroad 1917 to 1970. Cambridge, MA: Harvard University Press. Yaksic, Andres, and John E. Tilton. 2009. Using the Cumulative Availability Curve to Assess the Threat of Mineral Depletion: The Case of Lithium. Resources Policy 34, no. 4 (December): 185–94.

50  China’s Strategy to Secure Natural Resources

Index

Addax Petroleum, 25–26 Akpo oilfield (Nigeria), 17–18 Alcan, 22 Al Thani Corporation, 12–13 Aluminum Corporation of China (Chalco/ Chinalco) Australian investments, 18–19 Rio Tinto stake, 21–23, 45, 47 Anaconda, 6 Andes Petroleum Company, 36–37 Angola, 14–15, 46 antibribery behavior, 46, 48n Arafura Resources, 43 Arakis Energy Group, 12 Aurukun Bauxite Project (Australia), 18–19 Australia bauxite reserves, 18–19 iron ore reserves, 35–36 lithium reserves, 44 natural gas reserves, 13–14 North West Shelf Venture, 13–14 rare earth reserves, 3, 43 Australian Competition and Consumer Commission, 22 Avalon Rare Metals, 32 Bank of China, 22 Baosteel Group, 47 bauxite reserves, 18–19 Bayan Obo deposit (Mongolia), 42 Belgium, 20–21 BHP Billiton, 6

Australian projects, 13–14 Rio Tinto bid, 22–23, 47 Block 32 (Angola), 15 Bolivia, 44 BP, 13–14, 35, 36 Brazil, 9, 18, 24–25 bribery, 46, 48n brine-source lithium, 44 California, 42 Cameroon, 26 Canada Addax Petroleum acquisition, 25–26 Ecuador investment, 35, 36–37 rare earth reserves, 2, 43 Chalco (Aluminum Corporation of China) Australian investments, 18–19 Rio Tinto stake, 21–23, 45, 47 Chevron Australian projects, 13–14 Gorgon LNG project, 10n Sudan project, 11 Unocal bid, 15–16 China Development Bank, 22 Brazilian loans, 24–25 Rio Tinto bid, 47 Russian loans, 23–24 “China Inc.” outcome, 47 China International Capital Corporation, 47 Chinalco (Aluminum Corporation of China) Australian investments, 18–19 Rio Tinto stake, 21–23, 45, 47

51

China LNG Joint Venture, 13–14 China National Offshore Oil Corporation (CNOOC) Angola investment, 14–15 Australia investment, 13–14 Indonesia investment, 35, 36 Nigeria investment, 17–18 Unocal bid, 15–16, 25 China National Petroleum Company (CNPC) Ecuador investment, 35, 36–37 Iran investments, 26–27 Kazakhstan investment, 17, 38 Sudan investments, 11–13 China Nonferrous Metal Mining Group Company (CNMC), 35, 37–38, 43 China Petroleum and Chemical Corporation. See Sinopec cobalt reserves, 20–21 collateral, procurement contracts as, 10n competitive fringe, 6–7, 8t Concorp International, 11 Congo, Democratic Republic of, 20–21 Conoco, 9 copper reserves, 6, 20–21 costs, switching, 5 cumulative availability curve, 44

German Competition Authority, 22 global energy supply, effect of procurement patterns on, 1–2, 9, 45, 47–48 Greater Nile Petroleum Operating Company (GNPOC), 11–12 Great Western Mining Group, 43 Guangdong LNG, 14 Gulf of Mexico, 16

demand for resources, 1–3, 9 Democratic Republic of the Congo, 20–21 Deng Xiaoping, 3

Japan, 9 Japan Australia LNG (MIMI), 13–14 Jiangsu Eastern China Non-Ferrous Metals Investment Holding Company, 43

Ecuador, 35, 36–37 EnCana Corporation, 35, 36–37 energy supply, effect of procurement patterns on, 1–2, 9, 45, 47–48 environmental impact, 42, 46 Exim Bank (China) Angola investment, 46 Chinese company relationships with, 47 Congo investment, 20–21 Rio Tinto investment, 22 Sinosteel investment, 35 Exxon Mobil, 15 foreign acquisition, in rare earth sector, 3, 43 Forrest Group, 20 Fujian LNG terminal project (China), 36 Gabinete de Reconstrucao Nacional (GRN), 46 Gabon, 26 Gadhafi, Muammar, 9 Galp Energia, 15 geographical diversification, 7–9

52

Harbinger Capital, 35 hematite reserves, 36 Idris I, 9, 10n Inco, 6 India natural gas investments, 26 oil investments, 12, 17, 18, 27, 37 Indonesia, 35, 36 industrial policy, rare earth sector, 42 Inpex, 27 investment cases, 11–40. See also specific company or site investment practices, 47 Iran natural gas reserves, 19–20, 26–27 oil production, 3, 19–20, 27 Iraq, 25–26 iron ore, 35–36

Kabila, Joseph, 21 Kanematsu Corp, 36 Kazakhstan oil production, 17, 38 rare earth reserves, 2, 43 KazMunayGas, 17 Kennecott, 6 Kiruna (Sweden), 43 Kolwezi mine (Congo), 20–21 Koolanooka magnetite project (Australia), 36 Kurdistan, 26 large buyer, procurement patterns of, 6–7 Lehman Brothers, 47 Libya, 9 liquefied natural gas (LNG). See also specific site or producer procurement patterns, 10n lithium, 44 LNG Japan, 36 loans to producers, 7, 8t

China’s Strategy to Secure Natural Resources

lutetium, 41 Lynas Corporation, 43 magnetite reserves, 36 major producers, 6–7, 8t. See also specific producer Malaysia, 12 Marathon Oil Corporation, 15 Melut Basin (Sudan), 13 Midwest Company, 35–36 Ministry of Industry and Information Technology (China), 2, 42 Mitsubishi, 36 Mobil, 9 Molycorp Minerals, 43 monazite, 42 Mountain Pass (California), 42, 43 Murchison, 35 Myanmar, 3, 35, 37–38 Myanmar Oil and Gas Enterprise, 38 Naftiran Intertrade Company (NICO), 27 National Development and Reform Commission (NDRC), 42, 47 National Iranian Oil Company (NIOC), 19, 26, 27 natural gas reserves. See also specific site or producer procurement patterns, 10n natural resource-procurement patterns. See procurement patterns natural resource producers, 6–7, 8t. See also specific producer nickel Congolese reserves, 20–21 major producers, 6 Myanmar reserves, 35, 37–38 Nigeria, 17–18, 25–26 Nippon, 36 “noninterference in domestic affairs,” 46 North Azadegan oilfield (Iran), 27 North West Shelf Venture (Australia), 13–14 no structure pattern, 10n Number 3 Mining Enterprise (Myanmar), 37–38 Occidental, 9 OECD Convention on Combating Bribery, 46, 48n Oil and Natural Gas Corporation (ONGC), 12, 17, 18, 26, 27, 37 oil production. See also specific site major producers, 6 (See also specific company) procurement strategy, 45–46

ONGC Videsh Ltd., 12 OPEC (Organization of Petroleum Exporting Countries), 6, 20 output, manipulation of, 7–8 Petrobras, 18, 24–25 Petrodar Operating Company, 12–13 PetroKazakhstan, 17 Petronas, 12 policy implications, 45–48 Port Sudan pipeline, 12, 13 preferential access to supplies, 2 “principal-agent” tensions, 47 procurement patterns, 5–10 Chinese, 7–9, 8t fundamental types, 1–2, 6–7, 10n global effects of, 1–3, 9, 45, 47–48 of large buyer, 6–7 oil production, 45–46 policy implications, 45–48 regional conflict and, 3, 46 Qatar, 26 rare earth elements (REE), 2–3, 41–44. See also specific site or producer Chinese reserves, 42 Chinese strategy toward, 7 foreign acquisition analytics, 3, 43 mining process, toxic runoff from, 42 new sources of, 43 regional conflict, procurement patterns and, 3, 46 Rio Tinto, 6 BHP Billiton bid for, 22–23, 47 Chinalco stake in, 21–23, 45, 47 Rosneft, 23–24 Royal/Dutch Shell, 14–15 Russia lithium reserves, 44 oil production, 23–24, 38 Santos Basin (Brazil), 24–25 Sapetro (South Atlantic Petroleum), 17–18 Serbia, 44 Seven Sisters, 6, 9, 9n Shell, 13–14 Sinopec (China Petroleum and Chemical Corporation) Addax Petroleum acquisition, 25–26 Angola investment, 14–15 Ecuador investment, 35, 36–37 Iran investment, 19–20 Petrobras loan, 24–25 Sudan investment, 12–13

INDEX 53

Sinosteel, 35–36 Socomin Joint Venture (Congo), 20–21 Sonangol, 14–15 South Africa, 43 South Atlantic Petroleum (Sapetro), 17–18 South Pars Gasfield (Iran), 26 special relationship with producers, 6–7, 8t State Petroleum Corporation, 12 Sudan, 3, 11–13 Sudapet, 12 Sumitomo, 43 supplies, tying up, 2, 5, 47–48 Sweden, 2, 43 switching costs, 5 Tagaung Taung nickel mine (Myanmar), 35, 37–38 Talisman Energy, 12 Tangguh LNG project (Indonesia), 35, 36 thorium, 42 thulium, 41 Total, 15, 18, 26 toxic runoff, from rare earth mining, 42 Toyota, 43

54

Transneft, 23–24 Tri-Ocean Exploration and Production, 13 tying up supplies, 2, 5, 47–48 United Arab Emirates, 12–13 United Nations Conference on Trade and Development (UNCTAD), 46 United States CNOOC bid for Unocal, 15–16, 25 Committee on Foreign Investment, 22 Foreign Corrupt Practices Act, 48n lithium reserves, 44 rare earth reserves, 2, 42, 43 Unocal (Union Oil Company of California), 15–16, 25 Vietnam, 2, 43 Weld Ranch hematite project (Australia), 36 White Paper on Energy (China), 10n, 47 Woodside Energy, 10n, 13–14 Xinhua, 38 Yadavaran oilfield (Iran), 19

China’s Strategy to Secure Natural Resources

Other Publications from the Peterson Institute for International Economics WORKING PAPERS 94-1 APEC and Regional Trading Arrangements in the Pacific Jeffrey A. Frankel with Shang-Jin Wei and Ernesto Stein 94-2 Towards an Asia Pacific Investment Code Edward M. Graham 94-3 Merchandise Trade in the APEC Region: Is There Scope for Liberalization on an MFN Basis? Paul Wonnacott 94-4 The Automotive Industry in Southeast Asia: Can Protection Be Made Less Costly? Paul Wonnacott 94-5 Implications of Asian Economic Growth Marcus Noland 95-1 APEC: The Bogor Declaration and the Path Ahead C. Fred Bergsten 95-2 From Bogor to Miami…and Beyond: Regionalism in the Asia Pacific and the Western Hemisphere Jeffrey J. Schott 95-3 Has Asian Export Performance Been Unique? Marcus Noland 95-4 Association of Southeast Asian Nations and ASEAN Free Trade Area: Chronology and Statistics Gautam Jaggi 95-5 The North Korean Economy Marcus Noland 95-6 China and the International Economic System Marcus Noland 96-1 APEC after Osaka: Toward Free Trade by 2010/2020 C. Fred Bergsten 96-2 Public Policy, Private Preferences, and the Japanese Trade Pattern Marcus Noland 96-3 German Lessons for Korea: The Economics of Unification Marcus Noland 96-4 Research and Development Activities and Trade Specialization in Japan Marcus Noland 96-5 China’s Economic Reforms: Chronology and Statistics Gautam Jaggi, Mary Rundle, Daniel Rosen, and Yuichi Takahashi 96-6 US-China Economic Relations Marcus Noland 96-7 The Market Structure Benefits of Trade and Investment Liberalization Raymond Atje and Gary Hufbauer 96-8 The Future of US-Korea Economic Relations Marcus Noland

96-9 Competition Policies in the Dynamic Industrializing Economies: The Case of China, Korea, and Chinese Taipei Edward M. Graham 96-10 Modeling Economic Reform in North Korea Marcus Noland, Sherman Robinson, and Monica Scatasta 96-11 Trade, Investment, and Economic Conflict Between the United States and Asia Marcus Noland 96-12 APEC in 1996 and Beyond: The Subic Summit C. Fred Bergsten 96-13 Some Unpleasant Arithmetic Concerning Unification Marcus Noland 96-14 Restructuring Korea’s Financial Sector for Greater Competitiveness Marcus Noland 96-15 Competitive Liberalization and Global Free Trade: A Vision for the 21st Century C. Fred Bergsten 97-1 Chasing Phantoms: The Political Economy of USTR Marcus Noland 97-2 US-Japan Civil Aviation: Prospects for Progress Jacqueline McFadyen 97-3 Open Regionalism C. Fred Bergsten 97-4 Lessons from the Bundesbank on the Occasion of Its 40th (and Second to Last?) Birthday Adam S. Posen 97-5 The Economics of Korean Unification Marcus Noland, Sherman Robinson, and Li-Gang Liu 98-1 The Costs and Benefits of Korean Unification Marcus Noland, Sherman Robinson, and Li-Gang Liu 98-2 Asian Competitive Devaluations Li-Gang Liu, Marcus Noland, Sherman Robinson, and Zhi Wang 98-3 Fifty Years of the GATT/WTO: Lessons from the Past for Strategies or the Future C. Fred Bergsten 98-4 NAFTA Supplemental Agreements: Four Year Review Jacqueline McFadyen 98-5 Local Government Spending: Solving the Mystery of Japanese Fiscal Packages Hiroko Ishii and Erika Wada 98-6 The Global Economic Effects of the Japanese Crisis Marcus Noland, Sherman Robinson, and Zhi Wang 98-7 The Relationship Between Trade and Foreign Investment: Empirical Results for Taiwan and South Korea Li-Gang Liu, The World Bank and Edward M. Grahm 99-1 Rigorous Speculation: The Collapse and Revival of the North Korean Economy Marcus Noland, Sherman Robinson, and Tao Wang

99-2 Famine in North Korea: Causes and Cures Marcus Noland, Sherman Robinson, and Tao Wang 99-3 Competition Policy and FDI: A Solution in Search of a Problem? Marcus Noland 99-4 The Continuing Asian Financial Crisis: Global Adjustment and Trade Marcus Noland, Sherman Robinson, and Zhi Wang 99-5 Why EMU Is Irrelevant for the German Economy Adam S. Posen 99-6 The Global Trading System and the Developing Countries in 2000 C. Fred Bergsten 99-7 Modeling Korean Unification Marcus Noland, Sherman Robinson, and Tao Wang 99-8 Sovereign Liquidity Crisis: The Strategic Case for a Payments Standstill Marcus Miller and Lei Zhang 99-9 The Case for Joint Management of Exchange Rate Flexibility C. Fred Bergsten, Olivier Davanne, and Pierre Jacquet 99-10 Does Talk Matter After All? Inflation Targeting and Central Bank Behavior Kenneth N. Kuttner and Adam S. Posen 99-11 Hazards and Precautions: Tales of International Finance Gary Clyde Hufbauer and Erika Wada 99-12 The Globalization of Services: What Has Happened? What Are the Implications? Gary C. Hufbauer and Tony Warren 00-1 Regulatory Standards in the WTO Keith Maskus 00-2 International Economic Agreements and the Constitution Richard M. Goodman and John M. Frost 00-3 Electronic Commerce in Developing Countries Catherine L. Mann 00-4 The New Asian Challenge C. Fred Bergsten 00-5 How the Sick Man Avoided Pneumonia: The Philippines in the Asian Financial Crisis Marcus Noland 00-6 Inflation, Monetary Transparency, and G-3 Exchange Rate Volatility Kenneth N. Kuttner and Adam S. Posen 00-7 Transatlantic Issues in Electronic Commerce Catherine L. Mann 00-8 Strengthening the International Financial Architecture: Where Do We Stand? Morris Goldstein 00-9 On Currency Crises and Contagion Marcel Fratzscher 01-1 Price Level Convergence and Inflation in Europe John H. Rogers, Gary Clyde Hufbauer, and Erika Wada 01-2 Subsidies, Market Closure, CrossBorder Investment, and Effects on Competition: The Case of FDI on the Telecommunications Sector Edward M. Graham

01-3 Foreign Direct Investment in China: Effects on Growth and Economic Performance Edward M. Graham and Erika Wada 01-4 IMF Structural Conditionality: How Much Is Too Much? Morris Goldstein 01-5 Unchanging Innovation and Changing Economic Performance in Japan Adam S. Posen 01-6 Rating Banks in Emerging Markets Liliana Rojas-Suarez 01-7 Beyond Bipolar: A Three-Dimensional Assessment of Monetary Frameworks Kenneth N. Kuttner and Adam S. Posen 01-8 Finance and Changing US-Japan Relations: Convergence Without Leverage—Until Now Adam S. Posen 01-9 Macroeconomic Implications of the New Economy Martin Neil Baily 01-10 Can International Capital Standards Strengthen Banks in Emerging Markets? Liliana Rojas-Suarez 02-1 Moral Hazard and the US Stock Market: Analyzing the “Greenspan Put”? Marcus Miller, Paul Weller, and Lei Zhang 02-2 Passive Savers and Fiscal Policy Effectiveness in Japan Kenneth N. Kuttner and Adam S. Posen 02-3 Home Bias, Transaction Costs, and Prospects for the Euro: A More Detailed Analysis Catherine L. Mann and Ellen E. Meade 02-4 Toward a Sustainable FTAA: Does Latin America Meet the Necessary Financial Preconditions? Liliana Rojas-Suarez 02-5 Assessing Globalization’s Critics: “Talkers Are No Good Doers???” Kimberly Ann Elliott, Debayani Kar, and J. David Richardson 02-6 Economic Issues Raised by Treatment of Takings under NAFTA Chapter 11 Edward M. Graham 03-1 Debt Sustainability, Brazil, and the IMF Morris Goldstein 03-2 Is Germany Turning Japanese? Adam S. Posen 03-3 Survival of the Best Fit: Exposure to Low-Wage Countries and the (Uneven) Growth of US Manufacturing Plants Andrew B. Bernard, J. Bradford Jensen, and Peter K. Schott 03-4 Falling Trade Costs, Heterogeneous Firms, and Industry Dynamics Andrew B. Bernard, J. Bradford Jensen, and Peter K. Schott 03-5 Famine and Reform in North Korea Marcus Noland 03-6 Empirical Investigations in Inflation Targeting Yifan Hu 03-7 Labor Standards and the Free Trade Area of the Americas Kimberly Ann Elliott

03-8 Religion, Culture, and Economic Performance Marcus Noland 03-9 It Takes More than a Bubble to Become Japan Adam S. Posen 03-10 The Difficulty of Discerning What’s Too Tight: Taylor Rules and Japanese Monetary Policy Adam S. Posen and Kenneth N. Kuttner 04-1 Adjusting China’s Exchange Rate Policies Morris Goldstein 04-2 Popular Attitudes, Globalization, and Risk Marcus Noland 04-3 Selective Intervention and Growth: The Case of Korea Marcus Noland 05-1 Outsourcing and Offshoring: Pushing the European Model Over the Hill, Rather Than Off the Cliff! Jacob Funk Kirkegaard 05-2 China’s Role in the Revived Bretton Woods System: A Case of Mistaken Identity Morris Goldstein and Nicholas Lardy 05-3 Affinity and International Trade Marcus Noland 05-4 South Korea’s Experience with International Capital Flows Marcus Noland 05-5 Explaining Middle Eastern Authoritarianism Marcus Noland 05-6 Postponing Global Adjustment: An Analysis of the Pending Adjustment of Global Imbalances Edwin Truman 05-7 What Might the Next Emerging Market Financial Crisis Look Like? Morris Goldstein, assisted by Anna Wong 05-8 Egypt after the Multi-Fiber Arrangement: Global Approval and Textile Supply Chains as a Route for Industrial Upgrading Dan Magder 05-9 Tradable Services: Understanding the Scope and Impact of Services Offshoring J. Bradford Jensen and Lori G. Kletzer 05-10 Importers, Exporters, and Multinationals: A Portrait of Firms in the US that Trade Goods Andrew B. Bernard, J. Bradford Jensen, and Peter K. Schott 05-11 The US Trade Deficit: A Disaggregated Perspective Catherine L. Mann and Katharina Plück 05-12 Prospects for Regional Free Trade in Asia Gary Clyde Hufbauer and Yee Wong 05-13 Predicting Trade Expansion under FTAs and Multilateral Agreements Dean A. DeRosa and John P. Gilbert 05-14 The East Asian Industrial Policy Experience: Implications for the Middle East Marcus Noland and Howard Pack 05-15 Outsourcing and Skill Imports: Foreign High-Skilled Workers on H-1B and L-1 Visas in the United States Jacob Funk Kirkegaard

06-1 Why Central Banks Should Not Burst Bubbles Adam S. Posen 06-2 The Case for an International Reserve Diversification Standard Edwin M. Truman and Anna Wong 06-3 Offshoring in Europe—Evidence of a Two-Way Street from Denmark Peter Ørberg Jensen, Jacob F. Kirkegaard, Nicolai Søndergaard Laugesen 06-4 The External Policy of the Euro Area: Organizing for Foreign Exchange Intervention C. Randall Henning 06-5 The Eurasian Growth Paradox Anders Åslund and Nazgul Jenish 06-6 Has EMU Had Any Impact on the Degree of Wage Restraint? Adam S. Posen and Daniel Popov Gould 06-7 Firm Structure, Multinationals, and Manufacturing Plant Deaths Andrew B. Bernard and J. Bradford Jensen 07-1 The Trade Effects of Preferential Arrangements: New Evidence from the Australia Productivity Commission Dean A. DeRosa 07-2 Offshoring, Outsourcing, and Production Relocation―Labor-Market Effects in the OECD Countries and Developing Asia Jacob Funk Kirkegaard 07-3 Do Markets Care Who Chairs the Central Bank? Kenneth N. Kuttner/ Adam S. Posen 07-4 Industrial Policy, Innovative Policy, and Japanese Competitiveness: Japan’s Pursuit of Competitive Advantage Marcus Noland 07-5 A (Lack of) Progress Report on China’s Exchange Rate Policies Morris Goldstein 07-6 Measurement and Inference in International Reserve Diversification Anna Wong 07-7 North Korea’s External Economic Relations Stephan Haggard and Marcus Noland 07-8 Congress, Treasury, and the Accountability of Exchange Rate Policy: How the 1988 Trade Act Should Be Reformed C. Randall Henning 07-9 Merry Sisterhood or Guarded Watchfulness? Cooperation Between the International Monetary Fund and the World Bank Michael Fabricius 08-1 Exit Polls: Refugee Assessments of North Korea‘s Transitions Yoonok Chang, Stephan Haggard, and Marcus Noland 08-2 Currency Undervaluation and Sovereign Wealth Funds: A New Role for the WTO Aaditya Mattoo and Arvind Subramanian 08-3 Exchange Rate Economics John Williamson

08-4 Migration Experiences of North Korean Refugees: Survey Evidence from China Yoonok Chang, Stephan Haggard, and Marcus Noland 08-5 Korean Institutional Reform in Comparative Perspective Marcus Noland and Erik Weeks 08-6 Estimating Consistent Fundamental Equilibrium Exchange Rates William R. Cline 08-7 Policy Liberalization and FDI Growth, 1982 to 2006 Matthew Adler and Gary Clyde Hufbauer 08-8 Multilateralism Beyond Doha Aaditya Mattoo and Arvind Subramanian 08-9 Famine in North Korea Redux? Stephan Haggard and Marcus Noland 08-10 Recent Trade Patterns and Modes of Supply in Computer and Information Services in the United States and NAFTA Partners Jacob Funk Kirkegaard 08-11 On What Terms Is the IMF Worth Funding? Edwin M. Truman 08-12 The (Non) Impact of UN Sanctions on North Korea Marcus Noland 09-1 The GCC Monetary Union: Choice of Exchange Rate Regime Mohsin S. Khan 09-2 Policy Liberalization and US Merchandise Trade Growth, 1980–2006 Gary Clyde Hufbauer and Matthew Adler 09-3 American Multinationals and American Economic Interests: New Dimensions to an Old Debate Theodore H. Moran 09-4 Sanctioning North Korea: The Political Economy of Denuclearization and Proliferation Stephan Haggard and Marcus Noland 09-5 Structural and Cyclical Trends in Net Employment over US Business Cycles, 1949–2009: Implications for the Next Recovery and Beyond Jacob Funk Kirkegaard 09-6 What’s on the Table? The Doha Round as of August 2009 Matthew Adler, Claire Brunel, Gary Clyde Hufbauer, and Jeffrey J. Schott 09-7 Criss-Crossing Globalization: Uphill Flows of Skill-Intensive Goods and Foreign Direct Investment Aaditya Mattoo and Arvind Subramanian 09-8 Reform from Below: Behavioral and Institutional Change in North Korea Stephan Haggard and Marcus Noland 09-9 The World Trade Organization and Climate Change: Challenges and Options Gary Clyde Hufbauer and Jisun Kim 09-10 A Tractable Model of Precautionary Reserves, Net Foreign Assets, or Sovereign Wealth Funds Christopher D. Carroll and Olivier Jeanne

09-11 The Impact of the Financial Crisis on Emerging Asia Morris Goldstein and Daniel Xie 09-12 Capital Flows to Developing Countries: The Allocation Puzzle Pierre-Olivier Gourinchas and Olivier Jeanne 09-13 Mortgage Loan Modifications: Program Incentives and Restructuring Design Dan Magder 09-14 It Should Be a Breeze: Harnessing the Potential of Open Trade and Investment Flows in the Wind Energy Industry Jacob Funk Kirkegaard, Thilo Hanemann, and Lutz Weischer 09-15 Reconciling Climate Change and Trade Policy Aaditya Mattoo, Arvind Subramanian, Dominique van der Mensbrugghe, and Jianwu He 09-16 The International Monetary Fund and Regulatory Challenges Edwin M. Truman 10-1 Estimation of De Facto Flexibility Parameter and Basket Weights in Evolving Exchange Rate Regimes Jeffrey Frankel and Daniel Xie 10-2 Economic Crime and Punishment in North Korea Stephan Haggard and Marcus Noland 10-3 Intra-Firm Trade and Product Contractibility Andrew B. Bernard, J. Bradford Jensen, Stephen J. Redding, and Peter K. Schott 10-4 The Margins of US Trade Andrew B. Bernard, J. Bradford Jensen, Stephen J. Redding, and Peter K. Schott 10-5 Excessive Volatility in Capital Flows: A Pigouvian Taxation Approach Olivier Jeanne and Anton Korinek 10-6 Toward a Sunny Future? Global Integration in the Solar PV Industry Jacob Funk Kirkegaard, Thilo Hanemann, Lutz Weischer, Matt Miller 10-7 The Realities and Relevance of Japan’s Great Recession: Neither Ran nor Rashomon Adam S. Posen 10-8 Do Developed and Developing Countries Compete Head to Head in High Tech? Lawrence Edwards and Robert Lawrence 10-9 US Trade and Wages: The Misleading Implications of Conventional Trade Theory Lawrence Edwards and Robert Z. Lawrence 10-10 Wholesalers and Retailers in US Trade Andrew B. Bernard, J. Bradford Jensen, Stephen J. Redding, and Peter K. Schott POLICY BRIEFS 98-1 The Asian Financial Crisis Morris Goldstein

98-2 The New Agenda with China C. Fred Bergsten 98-3 Exchange Rates for the Dollar, Yen, and Euro Simon Wren-Lewis 98-4 Sanctions-Happy USA Gary Clyde Hufbauer 98-5 The Depressing News from Asia Marcus Noland, Sherman Robinson, and Zhi Wang 98-6 The Transatlantic Economic Partnership Ellen L. Frost 98-7 A New Strategy for the Global Crisis C. Fred Bergsten 98-8 Reviving the ”Asian Monetary Fund“ C. Fred Bergsten 99-1 Implementing Japanese Recovery Adam S. Posen 99-2 A Radical but Workable Restructuring Plan for South Korea Edward M. Graham 99-3 Crawling Bands or Monitoring Bands: How to Manage Exchange Rates in a World of Capital Mobility John Williamson 99-4 Market Mechanisms to Reduce the Need for IMF Bailouts Catherine L. Mann 99-5 Steel Quotas: A Rigged Lottery Gary C. Hufbauer and Erika Wada 99-6 China and the World Trade Organization: An Economic Balance Sheet Daniel H. Rosen 99-7 Trade and Income Distribution: The Debate and New Evidence William R. Cline 99-8 Preserve the Exchange Stabilization Fund C. Randall Henning 99-9 Nothing to Fear but Fear (of Inflation) Itself Adam S. Posen 99-10 World Trade after Seattle: Implications for the United States Gary Clyde Hufbauer 00-1 The Next Trade Policy Battle C. Fred Bergsten 00-2 Decision-Making in the WTO Jeffrey J. Schott and Jayashree Watal 00-3 American Access to China’s Market: The Congressional Vote on PNTR Gary C. Hufbauer and Daniel Rosen 00-4 Third Oil Shock: Real or Imaginary? Consequences and Policy Alternatives Philip K. Verleger Jr. 00-5 The Role of the IMF: A Guide to the Reports John Williamson 00-6 The ILO and Enforcement of Core Labor Standards Kimberly Ann Elliott 00-7 “No” to Foreign Telecoms Equals “No” to the New Economy! Gary C. Hufbauer/Edward M. Graham 01-1 Brunei: A Turning Point for APEC? C. Fred Bergsten 01-2 A Prescription to Relieve Worker Anxiety Lori Kletzer/Robert E. Litan

01-3 The US Export-Import Bank: Time for an Overhaul Gary C. Hufbauer 01-4 Japan 2001—Decisive Action or Financial Panic Adam S. Posen 01-5 Fin(d)ing Our Way on Trade and Labor Standards? Kimberly A. Elliott 01-6 Prospects for Transatlantic Competition Policy Mario Monti 01-7 The International Implications of Paying Down the Debt Edwin Truman 01-8 Dealing with Labor and Environment Issues in Trade Promotion Legislation Kimberly Ann Elliott 01-9 Steel: Big Problems, Better Solutions Gary Clyde Hufbauer/Ben Goodrich 01-10 Economic Policy Following the Terrorist Attacks Martin Neil Baily 01-11 Using Sanctions to Fight Terrorism Gary Clyde Hufbauer, Jeffrey J. Schott, and Barbara Oegg 02-1 Time for a Grand Bargain in Steel? Gary C. Hufbauer and Ben Goodrich 02-2 Prospects for the World Economy: From Global Recession to Global Recovery Michael Mussa 02-3 Sovereign Debt Restructuring: New Articles, New Contracts­—or No Change? Marcus Miller 02-4 Support the Ex-Im Bank: It Has Work to Do! Gary Clyde Hufbauer and Ben Goodrich 02-5 The Looming Japanese Crisis Adam S. Posen 02-6 Capital-Market Access: New Frontier in the Sanctions Debate Gary C. Hufbauer and Barbara Oegg 02-7 Is Brazil Next? John Williamson 02-8 Further Financial Services Liberalization in the Doha Round? Wendy Dobson 02-9 Global Economic Prospects Michael Mussa 02-10 The Foreign Sales Corporation: Reaching the Last Act? Gary Clyde Hufbauer 03-1 Steel Policy: The Good, the Bad, and the Ugly Gary Clyde Hufbauer and Ben Goodrich 03-2 Global Economic Prospects: Through the Fog of Uncertainty Michael Mussa 03-3 Economic Leverage and the North Korean Nuclear Crisis Kimberly Ann Elliott 03-4 The Impact of Economic Sanctions on US Trade: Andrew Rose’s Gravity Model Gary Clyde Hufbauer and Barbara Oegg 03-5 Reforming OPIC for the 21st Century Theodore H. Moran/C. Fred Bergsten 03-6 The Strategic Importance of US-Korea Economic Relations Marcus Noland 03-7 Rules Against Earnings Stripping: Wrong Answer to Corporate Inversions Gary C. Hufbauer and Ariel Assa



03-8 More Pain, More Gain: Politics and Economics of Eliminating Tariffs Gary C. Hufbauer and Ben Goodrich 03-9 EU Accession and the Euro: Close Together or Far Apart? Peter B. Kenen and Ellen E. Meade 03-10 Next Move in Steel: Revocation or Retaliation? Gary Clyde Hufbauer and Ben Goodrich 03-11 Globalization of IT Services and White Collar Jobs: The Next Wave of Productivity Growth Catherine L. Mann 04-1 This Far and No Farther? Nudging Agricultural Reform Forward Tim Josling and Dale Hathaway 04-2 Labor Standards, Development, and CAFTA Kimberly Ann Elliott 04-3 Senator Kerry on Corporate Tax Reform: Right Diagnosis, Wrong Prescription Gary Clyde Hufbauer and Paul Grieco 04-4 Islam, Globalization, and Economic Performance in the Middle East Marcus Noland and Howard Pack 04-5 China Bashing 2004 Gary Clyde Hufbauer and Yee Wong 04-6 What Went Right in Japan Adam S. Posen 04-7 What Kind of Landing for the Chinese Economy? Morris Goldstein and Nicholas R. Lardy 05-1 A Currency Basket for East Asia, Not Just China John Williamson 05-2 After Argentina Anna Gelpern 05-3 Living with Global Imbalances: A Contrarian View Richard N. Cooper 05-4 The Case for a New Plaza Agreement William R. Cline 06-1 The United States Needs German Economic Leadership Adam S. Posen 06-2 The Doha Round after Hong Kong Gary C. Hufbauer and Jeffrey J. Schott 06-3 Russia’s Challenges as Chair of the G-8 Anders Åslund 06-4 Negotiating the Korea–United States Free Trade Agreement Jeffrey J. Schott, Scott C. Bradford, and Thomas Moll 06-5 Can Doha Still Deliver on the Development Agenda? Kimberly Ann Elliott 06-6 China: Toward a Consumption Driven Growth Path Nicholas R. Lardy 06-7 Completing the Doha Round Jeffrey J. Schott 06-8 Choosing Monetary Arrangements for the 21st Century: Problems of a Small Economy John Williamson 06-9 Can America Still Compete or Does It Need a New Trade Paradigm? Martin N. Baily and Robert Z. Lawrence 07-1 The IMF Quota Formula: Linchpin of Fund Reform Richard N. Cooper and Edwin M. Truman



07-2 Toward a Free Trade Area of the Asia Pacific C. Fred Bergsten 07-3 China and Economic Integration in East Asia: Implications for the United States C. Fred Bergsten 07-4 Global Imbalances: Time for Action Alan Ahearne, William R. Cline, Kyung Tae Lee, Yung Chul Park, Jean PisaniFerry, and John Williamson 07-5 American Trade Politics in 2007: Building Bipartisan Compromise I. M. Destler 07-6 Sovereign Wealth Funds: The Need for Greater Transparency and Accountability Edwin M. Truman 07-7 The Korea-US Free Trade Agreement: A Summary Assessment Jeffrey J. Schott 07-8 The Case for Exchange Rate Flexibility in Oil-Exporting Economies Brad Setser 08-1 “Fear“ and Offshoring: The Scope and Potential Impact of Imports and Exports of Services J. Bradford Jensen and Lori G. Kletzer 08-2 Strengthening Trade Adjustment Assistance Howard F. Rosen 08-3 A Blueprint for Sovereign Wealth Fund Best Practices Edwin M. Truman 08-4 A Security and Peace Mechanism for Northeast Asia: The Economic Dimension Stephan Haggard/ Marcus Noland 08-5 World Trade at Risk C. Fred Bergsten 08-6 North Korea on the Precipice of Famine Stephan Haggard, Marcus Noland, and Erik Weeks 08-7 New Estimates of Fundamental Equilibrium Exchange Rates William R. Cline and John Williamson 08-8 Financial Repression in China Nicholas R. Lardy 09-1 Did Reagan Rule In Vain? A Closer Look at True Expenditure Levels in the United States and Europe Jacob Funk Kirkegaard 09-2 Buy American: Bad for Jobs, Worse for Reputation Gary Clyde Hufbauer and Jeffrey J. Schott 09-3 A Green Global Recovery? Assessing US Economic Stimulus and the Prospects for International Coordination Trevor Houser, Shashank Mohan, and Robert Heilmayr 09-4 Money for the Auto Industry: Consistent with WTO Rules? Claire Brunel and Gary Clyde Hufbauer 09-5 The Future of the Chiang Mai Initiative: An Asian Monetary Fund? C. Randall Henning 09-6 Pressing the “Reset Button“ on USRussia Relations Anders Åslund and Andrew Kuchins

09-7 US Taxation of Multinational Corporations: What Makes Sense, What Doesn‘t Gary Clyde Hufbauer and Jisun Kim 09-8 Energy Efficiency in Buildings: A Global Economic Perspective Trevor Houser 09-9 The Alien Tort Statute of 1789: Time for a Fresh Look Gary Clyde Hufbauer 09-10 2009 Estimates of Fundamental Equilibrium Exchange Rates William R. Cline and John Williamson 09-11 Understanding Special Drawing Rights (SDRs) John Williamson 09-12 US Interests and the International Monetary Fund C. Randall Henning 09-13 A Solution for Europe’s Banking Problem Adam S. Posen and Nicolas Véron 09-14 China’s Changing Outbound Foreign Direct Investment Profile: Drivers and Policy Implication Daniel H. Rosen and Thilo Hanemann 09-15 India-Pakistan Trade: A Roadmap for Enhancing Economic Relations Mohsin S. Khan 09-16 Pacific Asia and the Asia Pacific: The Choices for APEC C. Fred Bergsten 09-17 The Economics of Energy Efficiency in Buildings Trevor Houser 09-18 Setting the NAFTA Agenda on Climate Change Jeffrey J. Schott and Meera Fickling 09-19 The 2008 Oil Price “Bubble” Mohsin S. Khan 09-20 Why SDRs Could Rival the Dollar John Williamson 09-21 The Future of the Dollar Richard N. Cooper 09-22 The World Needs Further Monetary Ease, Not an Early Exit Joseph E. Gagnon 10-1 The Winter of Their Discontent: Pyongyang Attacks the Market Stephan Haggard and Marcus Noland 10-2 Notes on Equilibrium Exchange Rates: January 2010 William R. Cline and John Williamson 10-3 Confronting Asset Bubbles, Too Big to Fail, and Beggar-thy-Neighbor Exchange Rate Policies Morris Goldstein 10-4 After the Flop in Copenhagen Gary Clyde Hufbauer and Jisun Kim 10-5 Copenhagen, the Accord, and the Way Forward Trevor Houser 10-6 The Substitution Account as a First Step Toward Reform of the International Monetary System Peter B. Kenen 10-7 The Sustainability of China's Recovery from the Global Recession Nicholas R. Lardy 10-8 New PPP-Based Estimates of Renminbi Undervaluation and Policy Implications Arvind Subramanian

10-9 Protection by Stealth: Using the Tax Law to Discriminate against Foreign Insurance Companies Gary Clyde Hufbauer 10-10 Higher Taxes on US-Based Multinationals Would Hurt US Workers and Exports Gary Clyde Hufbauer and Theodore H. Moran 10-11 A Trade Agenda for the G-20 Jeffrey J. Schott 10-12 Assessing the American Power Act: The Economic, Employment, Energy Security and Environmental Impact of Senator Kerry and Senator Lieberman’s Discussion Draft Trevor Houser, Shashank Mohan, and Ian Hoffman 10-13 Hobbling Exports and Destroying Jobs Gary Clyde Hufbauer and Theodore Moran 10-14 In Defense of Europe’s Grand Bargain Jacob Funk Kirkegaard 10-15 Estimates of Fundamental Equilibrium Exchange Rates, May 2010 William R. Cline and John Williamson 10-16 Deepening China-Taiwan Relations through the Economic Cooperation Framework Agreement Daniel H. Rosen and Zhi Wang * = out of print POLICY ANALYSES IN INTERNATIONAL ECONOMICS Series 1 The Lending Policies of the International Monetary Fund* John Williamson August 1982 ISBN 0-88132-000-5 2 “Reciprocity”: A New Approach to World Trade Policy?* William R. Cline September 1982 ISBN 0-88132-001-3 3 Trade Policy in the 1980s* C. Fred Bergsten and William R. Cline November 1982 ISBN 0-88132-002-1 4 International Debt and the Stability of the World Economy* William R. Cline September 1983 ISBN 0-88132-010-2 5 The Exchange Rate System,* 2d ed. John Williamson Sept. 1983, rev. June 1985 ISBN 0-88132-034-X 6 Economic Sanctions in Support of Foreign Policy Goals* Gary Clyde Hufbauer and Jeffrey J. Schott October 1983 ISBN 0-88132-014-5 7 A New SDR Allocation?* John Williamson March 1984 ISBN 0-88132-028-5 8 An International Standard for Monetary Stabilization* Ronald L. McKinnon March 1984 ISBN 0-88132-018-8 9 The Yen/Dollar Agreement: Liberalizing Japanese Capital Markets* Jeffrey Frankel December 1984 ISBN 0-88132-035-8

10 Bank Lending to Developing Countries: The Policy Alternatives* C. Fred Bergsten, William R. Cline, and John Williamson April 1985 ISBN 0-88132-032-3 11 Trading for Growth: The Next Round of Trade Negotiations* Gary Clyde Hufbauer and Jeffrey J. Schott September 1985 ISBN 0-88132-033-1 12 Financial Intermediation Beyond the Debt Crisis* Donald R. Lessard, and John Williamson September 1985 ISBN 0-88132-021-8 13 The United States-Japan Economic Problem* C. Fred Bergsten and William R. Cline October 1985, 2d ed. January 1987 ISBN 0-88132-060-9 14 Deficits and the Dollar: The World Economy at Risk* Stephen Marris December 1985, 2d ed. November 1987 ISBN 0-88132-067-6 15 Trade Policy for Troubled Industries* Gary Clyde Hufbauer and Howard R. Rosen March 1986 ISBN 0-88132-020-X 16 The United States and Canada: The Quest for Free Trade* Paul Wonnacott, with an appendix by John Williamson March 1987 ISBN 0-88132-056-0 17 Adjusting to Success: Balance of Payments Policy in the East Asian NICs* Bela Balassa and John Williamson June 1987, rev. April 1990 ISBN 0-88132-101-X 18 Mobilizing Bank Lending to Debtor Countries* William R. Cline June 1987 ISBN 0-88132-062-5 19 Auction Quotas and United States Trade Policy* C. Fred Bergsten, Kimberly Ann Elliott, Jeffrey J. Schott, and Wendy E. Takacs September 1987 ISBN 0-88132-050-1 20 Agriculture and the GATT: Rewriting the Rules* Dale E. Hathaway September 1987 ISBN 0-88132-052-8 21 Anti-Protection: Changing Forces in United States Trade Politics* I. M. Destler and John S. Odell September 1987 ISBN 0-88132-043-9 22 Targets and Indicators: A Blueprint for the International Coordination of Economic Policy John Williamson and Marcus H. Miller September 1987 ISBN 0-88132-051-X 23 Capital Flight: The Problem and Policy Responses* Donald R. Lessard and John Williamson December 1987 ISBN 0-88132-059-5 24 United States-Canada Free Trade: An Evaluation of the Agreement* Jeffrey J. Schott April 1988 ISBN 0-88132-072-2 25 Voluntary Approaches to Debt Relief* John Williamson Sept. 1988, rev. May 1 ISBN 0-88132-098-6

26 American Trade Adjustment: The Global Impact* William R. Cline March 1989 ISBN 0-88132-095-1 27 More Free Trade Areas?* Jeffrey J. Schott May 1989 ISBN 0-88132-085-4 28 The Progress of Policy Reform in Latin America* John Williamson January 1990 ISBN 0-88132-100-1 29 The Global Trade Negotiations: What Can Be Achieved?* Jeffrey J. Schott September 1990 ISBN 0-88132-137-0 30 Economic Policy Coordination: Requiem for Prologue?* Wendy Dobson April 1991 ISBN 0-88132-102-8 31 The Economic Opening of Eastern Europe* John Williamson May 1991 ISBN 0-88132-186-9 32 Eastern Europe and the Soviet Union in the World Economy* Susan Collins and Dani Rodrik May 1991 ISBN 0-88132-157-5 33 African Economic Reform: The External Dimension* Carol Lancaster June 1991 ISBN 0-88132-096-X 34 Has the Adjustment Process Worked?* Paul R. Krugman October 1991 ISBN 0-88132-116-8 35 From Soviet DisUnion to Eastern Economic Community?* Oleh Havrylyshyn and John Williamson October 1991 ISBN 0-88132-192-3 36 Global Warming: The Economic Stakes* William R. Cline May 1992 ISBN 0-88132-172-9 37 Trade and Payments after Soviet Disintegration* John Williamson June 1992 ISBN 0-88132-173-7 38 Trade and Migration: NAFTA and Agriculture* Philip L. Martin October 1993 ISBN 0-88132-201-6 39 The Exchange Rate System and the IMF: A Modest Agenda Morris Goldstein June 1995 ISBN 0-88132-219-9 40 What Role for Currency Boards? John Williamson September 1995 ISBN 0-88132-222-9 41 Predicting External Imbalances for the United States and Japan* William R. Cline September 1995 ISBN 0-88132-220-2 42 Standards and APEC: An Action Agenda* John S. Wilson October 1995 ISBN 0-88132-223-7 43 Fundamental Tax Reform and Border Tax Adjustments* Gary Clyde Hufbauer January 1996 ISBN 0-88132-225-3 44 Global Telecom Talks: A Trillion Dollar Deal* Ben A. Petrazzini June 1996 ISBN 0-88132-230-X 45 WTO 2000: Setting the Course for World Trade Jeffrey J. Schott September 1996 ISBN 0-88132-234-2 46 The National Economic Council: A Work in Progress* I. M. Destler November 1996 ISBN 0-88132-239-3

47 The Case for an International Banking Standard Morris Goldstein April 1997 ISBN 0-88132-244-X 48 Transatlantic Trade: A Strategic Agenda* Ellen L. Frost May 1997 ISBN 0-88132-228-8 49 Cooperating with Europe’s Monetary Union C. Randall Henning May 1997 ISBN 0-88132-245-8 50 Renewing Fast Track Legislation* I. M. Destler September 1997 ISBN 0-88132-252-0 51 Competition Policies for the Global Economy Edward M. Graham and J. David Richardson November 1997 ISBN 0-88132-249-0 52 Improving Trade Policy Reviews in the World Trade Organization Donald Keesing April 1998 ISBN 0-88132-251-2 53 Agricultural Trade Policy: Completing the Reform Timothy Josling April 1998 ISBN 0-88132-256-3 54 Real Exchange Rates for the Year 2000 Simon Wren Lewis and Rebecca Driver April 1998 ISBN 0-88132-253-9 55 The Asian Financial Crisis: Causes, Cures, and Systemic Implications Morris Goldstein June 1998 ISBN 0-88132-261-X 56 Global Economic Effects of the Asian Currency Devaluations Marcus Noland, LiGang Liu, Sherman Robinson, and Zhi Wang July 1998 ISBN 0-88132-260-1 57 The Exchange Stabilization Fund: Slush Money or War Chest? C. Randall Henning May 1999 ISBN 0-88132-271-7 58 The New Politics of American Trade: Trade, Labor, and the Environment I. M. Destler and Peter J. Balint October 1999 ISBN 0-88132-269-5 59 Congressional Trade Votes: From NAFTA Approval to Fast Track Defeat Robert E. Baldwin and Christopher S. Magee February 2000 ISBN 0-88132-267-9 60 Exchange Rate Regimes for Emerging Markets: Reviving the Intermediate Option John Williamson September 2000 ISBN 0-88132-293-8 61 NAFTA and the Environment: Seven Years Later Gary Clyde Hufbauer, Daniel Esty, Diana Orejas, Luis Rubio, and Jeffrey J. Schott October 2000 ISBN 0-88132-299-7 62 Free Trade between Korea and the United States? Inbom Choi and Jeffrey J. Schott April 2001 ISBN 0-88132-311-X 63 New Regional Trading Arrangements in the Asia Pacific? Robert Scollay and John P. Gilbert May 2001 ISBN 0-88132-302-0 64 Parental Supervision: The New Paradigm for Foreign Direct Investment and Development Theodore H. Moran August 2001 ISBN 0-88132-313-6

65 The Benefits of Price Convergence: Speculative Calculations Gary C. Hufbauer, Erika Wada, and Tony Warren December 2001 ISBN 0-88132-333-0 66 Managed Floating Plus Morris Goldstein March 2002 ISBN 0-88132-336-5 67 Argentina and the Fund: From Triumph to Tragedy Michael Mussa July 2002 ISBN 0-88132-339-X 68 East Asian Financial Cooperation C. Randall Henning September 2002 ISBN 0-88132-338-1 69 Reforming OPIC for the 21st Century Theodore H. Moran May 2003 ISBN 0-88132-342-X 70 Awakening Monster: The Alien Tort Statute of 1789 Gary Clyde Hufbauer and Nicholas Mitrokostas July 2003 ISBN 0-88132-366-7 71 Korea after Kim Jong-il Marcus Noland January 2004 ISBN 0-88132-373-X 72 Roots of Competitiveness: China‘s Evolving Agriculture Interests Daniel H. Rosen, Scott Rozelle, and Jikun Huang July 2004 ISBN 0-88132-376-4 73 Prospects for a US-Taiwan FTA Nicholas R. Lardy and Daniel H. Rosen December 2004 ISBN 0-88132-367-5 74 Anchoring Reform with a US-Egypt Free Trade Agreement Ahmed Galal and Robert Z. Lawrence April 2005 ISBN 0-88132-368-3 75 Curbing the Boom-Bust Cycle: Stabilizing Capital Flows to Emerging Markets John Williamson July 2005 ISBN 0-88132-330-6 76 The Shape of a Swiss-US Free Trade Agreement Gary Clyde Hufbauer and Richard E. Baldwin February 2006 ISBN 978-0-88132-385-6 77 A Strategy for IMF Reform Edwin M. Truman February 2006 ISBN 978-0-88132-398-6 78 US-China Trade Disputes: Rising Tide, Rising Stakes Gary Clyde Hufbauer, Yee Wong, and Ketki Sheth August 2006 ISBN 978-0-88132-394-8 79 Trade Relations Between Colombia and the United States Jeffrey J. Schott, ed. August 2006 ISBN 978-0-88132-389-4 80 Sustaining Reform with a US-Pakistan Free Trade Agreement Gary C. Hufbauer and Shahid Javed Burki November 2006 ISBN 978-0-88132-395-5 81 A US–Middle East Trade Agreement: A Circle of Opportunity? Robert Z. Lawrence November 2006 ISBN 978-0-88132-396-2 82 Reference Rates and the International Monetary System John Williamson January 2007 ISBN 978-0-88132-401-3

83 Toward a US-Indonesia Free Trade Agreement Gary Clyde Hufbauer and Sjamsu Rahardja June 2007 ISBN 978-0-88132-402-0 84 The Accelerating Decline in America‘s High-Skilled Workforce Jacob Funk Kirkegaard December 2007 ISBN 978-0-88132-413-6 85 Blue-Collar Blues: Is Trade to Blame for Rising US Income Inequality? Robert Z. Lawrence January 2008 ISBN 978-0-88132-414-3 86 Maghreb Regional and Global Integration: A Dream to Be Fulfilled Gary Clyde Hufbauer and Claire Brunel, eds. October 2008 ISBN 978-0-88132-426-6 87 The Future of China's Exchange Rate Policy Morris Goldstein and Nicholas R. Lardy July 2009 ISBN 978-0-88132-416-7 88 Capitalizing on the Morocco-US Free Trade Agreement: A Road Map for Success Gary Hufbauer and Claire Brunel, eds September 2009 ISBN 978-0-88132-433-4 89 Three Threats: An Analytical Framework for the CFIUS Process Theodore H. Moran August 2009 ISBN 978-0-88132-429-7 90 Reengaging Egypt: Options for US-Egypt Economic Relations Barbara Kotschwar and Jeffrey J. Schott January 2010 ISBN 978-088132-439-6 91 Figuring Out the Doha Round Gary Clyde Hufbauer, Jeffrey J. Schott, and Woan Foong Wong June 2010 ISBN 978-088132-503-4 92 China‘s Strategy to Secure Natural Resources: Risks, Dangers, and Opportunities Theodore H. Moran June 2010 ISBN 978-088132-512-6 BOOKS IMF Conditionality* John Williamson, editor 1983 ISBN 0-88132-006-4 Trade Policy in the 1980s* William R. Cline, ed. 1983 ISBN 0-88132-031-5 Subsidies in International Trade* Gary Clyde Hufbauer and Joanna Shelton Erb 1984 ISBN 0-88132-004-8 International Debt: Systemic Risk and Policy Response* William R. Cline 1984 ISBN 0-88132-015-3 Trade Protection in the United States: 31 Case Studies* Gary Clyde Hufbauer, Diane E. Berliner, and Kimberly Ann Elliott 1986 ISBN 0-88132-040-4 Toward Renewed Economic Growth in Latin America* Bela Balassa, Gerardo M. Bueno, Pedro Pablo Kuczynski, and Mario Henrique Simonsen 1986 ISBN 0-88132-045-5 Capital Flight and Third World Debt* Donald R. Lessard and John Williamson, editors 1987 ISBN 0-88132-053-6

The Canada-United States Free Trade Agreement: The Global Impact* Jeffrey J. Schott and Murray G. Smith, editors 1988 ISBN 0-88132-073-0 World Agricultural Trade: Building a Consensus* William M. Miner and Dale E. Hathaway, editors 1988 ISBN 0-88132-071-3 Japan in the World Economy* Bela Balassa and Marcus Noland 1988 ISBN 0-88132-041-2 America in the World Economy: A Strategy for the 1990s* C. Fred Bergsten 1988 ISBN 0-88132-089-7 Managing the Dollar: From the Plaza to the Louvre* Yoichi Funabashi 1988, 2d. ed. 1989 ISBN 0-88132-097-8 United States External Adjustment and the World Economy* William R. Cline May 1989 ISBN 0-88132-048-X Free Trade Areas and U.S. Trade Policy* Jeffrey J. Schott, editor May 1989 ISBN 0-88132-094-3 Dollar Politics: Exchange Rate Policymaking in the United States* I. M. Destler and C. Randall Henning September 1989 ISBN 0-88132-079-X Latin American Adjustment: How Much Has Happened?* John Williamson, editor April 1990 ISBN 0-88132-125-7 The Future of World Trade in Textiles and Apparel* William R. Cline 1987, 2d ed. June 1999 ISBN 0-88132-110-9 Completing the Uruguay Round: A ResultsOriented Approach to the GATT Trade Negotiations* Jeffrey J. Schott, editor September 1990 ISBN 0-88132-130-3 Economic Sanctions Reconsidered (2 volumes) Economic Sanctions Reconsidered: Supplemental Case Histories Gary Clyde Hufbauer, Jeffrey J. Schott, and Kimberly Ann Elliott 1985, 2d ed. Dec. 1990 ISBN cloth 0-88132-115-X ISBN paper 0-88132-105-2 Economic Sanctions Reconsidered: History and Current Policy Gary Clyde Hufbauer, Jeffrey J. Schott, and Kimberly Ann Elliott December 1990 ISBN cloth 0-88132-140-0 ISBN paper 0-88132-136-2 Pacific Basin Developing Countries: Prospects for the Future* Marcus Noland January 1991 ISBN cloth 0-88132-141-9 ISBN paper 0-88132-081-1 Currency Convertibility in Eastern Europe* John Williamson, editor October 1991 ISBN 0-88132-128-1 International Adjustment and Financing: The Lessons of 1985-1991* C. Fred Bergsten, editor January 1992 ISBN 0-88132-112-5 North American Free Trade: Issues and Recommendations* Gary Clyde Hufbauer and Jeffrey J. Schott April 1992 ISBN 0-88132-120-6

Narrowing the U.S. Current Account Deficit* Alan J. Lenz June 1992 ISBN 0-88132-103-6 The Economics of Global Warming William R. Cline June 1992 ISBN 0-88132-132-X US Taxation of International Income: Blueprint for Reform Gary Clyde Hufbauer, assisted by Joanna M. van Rooij October 1992 ISBN 0-88132-134-6 Who’s Bashing Whom? Trade Conflict in HighTechnology Industries Laura D’Andrea Tyson November 1992 ISBN 0-88132-106-0 Korea in the World Economy* Il SaKong January 1993 ISBN 0-88132-183-4 Pacific Dynamism and the International Economic System* C. Fred Bergsten and Marcus Noland, editors May 1993 ISBN 0-88132-196-6 Economic Consequences of Soviet Disintegration* John Williamson, editor May 1993 ISBN 0-88132-190-7 Reconcilable Differences? United States-Japan Economic Conflict* C. Fred Bergsten and Marcus Noland June 1993 ISBN 0-88132-129-X Does Foreign Exchange Intervention Work? Kathryn M. Dominguez and Jeffrey A. Frankel September 1993 ISBN 0-88132-104-4 Sizing Up U.S. Export Disincentives* J. David Richardson September 1993 ISBN 0-88132-107-9 NAFTA: An Assessment Gary C. Hufbauer and Jeffrey J. Schott/rev. ed. October 1993 ISBN 0-88132-199-0 Adjusting to Volatile Energy Prices Philip K. Verleger, Jr. November 1993 ISBN 0-88132-069-2 The Political Economy of Policy Reform John Williamson, editor January 1994 ISBN 0-88132-195-8 Measuring the Costs of Protection in the United States Gary Clyde Hufbauer and Kimberly Ann Elliott January 1994 ISBN 0-88132-108-7 The Dynamics of Korean Economic Development* Cho Soon March 1994 ISBN 0-88132-162-1 Reviving the European Union* C. Randall Henning, Eduard Hochreiter, and Gary Clyde Hufbauer, editors April 1994 ISBN 0-88132-208-3 China in the World Economy Nicholas R. Lardy April 1994 ISBN 0-88132-200-8 Greening the GATT: Trade, Environment, and the Future Daniel C. Esty July 1994 ISBN 0-88132-205-9 Western Hemisphere Economic Integration* Gary Clyde Hufbauer and Jeffrey J. Schott July 1994 ISBN 0-88132-159-1 Currencies and Politics in the United States, Germany, and Japan C. Randall Henning September 1994 ISBN 0-88132-127-3

Estimating Equilibrium Exchange Rates John Williamson, editor September 1994 ISBN 0-88132-076-5 Managing the World Economy: Fifty Years after Bretton Woods Peter B. Kenen, editor September 1994 ISBN 0-88132-212-1 Reciprocity and Retaliation in U.S. Trade Policy Thomas O. Bayard and Kimberly Ann Elliott September 1994 ISBN 0-88132-084-6 The Uruguay Round: An Assessment* Jeffrey J. Schott, assisted by Johanna Buurman November 1994 ISBN 0-88132-206-7 Measuring the Costs of Protection in Japan* Yoko Sazanami, Shujiro Urata, and Hiroki Kawai January 1995 ISBN 0-88132-211-3 Foreign Direct Investment in the United States, 3d ed., Edward M. Graham and Paul R. Krugman January 1995 ISBN 0-88132-204-0 The Political Economy of Korea-United States Cooperation* C. Fred Bergsten and Il SaKong, editors February 1995 ISBN 0-88132-213-X International Debt Reexamined* William R. Cline February 1995 ISBN 0-88132-083-8 American Trade Politics, 3d ed. I. M. Destler April 1995 ISBN 0-88132-215-6 Managing Official Export Credits: The Quest for a Global Regime* John E. Ray July 1995 ISBN 0-88132-207-5 Asia Pacific Fusion: Japan’s Role in APEC* Yoichi Funabashi October 1995 ISBN 0-88132-224-5 Korea-United States Cooperation in the New World Order* C. Fred Bergsten and Il SaKong, eds. February 1996 ISBN 0-88132-226-1 Why Exports Really Matter!* ISBN 0-88132-221-0 Why Exports Matter More!* ISBN 0-88132-229-6 J. David Richardson and Karin Rindal July 1995; February 1996 Global Corporations and National Governments Edward M. Graham May 1996 ISBN 0-88132-111-7 Global Economic Leadership and the Group of Seven C. Fred Bergsten and C. Randall Henning May 1996 ISBN 0-88132-218-0 The Trading System after the Uruguay Round* John Whalley and Colleen Hamilton July 1996 ISBN 0-88132-131-1 Private Capital Flows to Emerging Markets after the Mexican Crisis* Guillermo A. Calvo, Morris Goldstein, and Eduard Hochreiter September 1996 ISBN 0-88132-232-6 The Crawling Band as an Exchange Rate Regime: Lessons from Chile, Colombia, and Israel John Williamson September 1996 ISBN 0-88132-231-8

Flying High: Liberalizing Civil Aviation in the Asia Pacific* Gary Clyde Hufbauer and Christopher Findlay November 1996 ISBN 0-88132-227-X Measuring the Costs of Visible Protection in Korea* Namdoo Kim November 1996 ISBN 0-88132-236-9 The World Trading System: Challenges Ahead Jeffrey J. Schott December 1996 ISBN 0-88132-235-0 Has Globalization Gone Too Far? Dani Rodrik March 1997 ISBN paper 0-88132-241-5 Korea-United States Economic Relationship* C. Fred Bergsten and Il SaKong, editors March 1997 ISBN 0-88132-240-7 Summitry in the Americas: A Progress Report Richard E. Feinberg April 1997 ISBN 0-88132-242-3 Corruption and the Global Economy Kimberly Ann Elliott June 1997 ISBN 0-88132-233-4 Regional Trading Blocs in the World Economic System Jeffrey A. Frankel October 1997 ISBN 0-88132-202-4 Sustaining the Asia Pacific Miracle: Environmental Protection and Economic Integration Andre Dua and Daniel C. Esty October 1997 ISBN 0-88132-250-4 Trade and Income Distribution William R. Cline November 1997 ISBN 0-88132-216-4 Global Competition Policy Edward M. Graham and J. David Richardson December 1997 ISBN 0-88132-166-4 Unfinished Business: Telecommunications after the Uruguay Round Gary Clyde Hufbauer and Erika Wada December 1997 ISBN 0-88132-257-1 Financial Services Liberalization in the WTO Wendy Dobson and Pierre Jacquet June 1998 ISBN 0-88132-254-7 Restoring Japan’s Economic Growth Adam S. Posen September 1998 ISBN 0-88132-262-8 Measuring the Costs of Protection in China Zhang Shuguang, Zhang Yansheng, and Wan Zhongxin November 1998 ISBN 0-88132-247-4 Foreign Direct Investment and Development: The New Policy Agenda for Developing Countries and Economies in Transition Theodore H. Moran December 1998 ISBN 0-88132-258-X Behind the Open Door: Foreign Enterprises in the Chinese Marketplace Daniel H. Rosen January 1999 ISBN 0-88132-263-6 Toward A New International Financial Architecture: A Practical Post-Asia Agenda Barry Eichengreen February 1999 ISBN 0-88132-270-9 Is the U.S. Trade Deficit Sustainable? Catherine L. Mann September 1999 ISBN 0-88132-265-2

Safeguarding Prosperity in a Global Financial System: The Future International Financial Architecture, Independent Task Force Report Sponsored by the Council on Foreign Relations Morris Goldstein, Project Director October 1999 ISBN 0-88132-287-3 Avoiding the Apocalypse: The Future of the Two Koreas Marcus Noland June 2000 ISBN 0-88132-278-4 Assessing Financial Vulnerability: An Early Warning System for Emerging Markets Morris Goldstein, Graciela Kaminsky, and Carmen Reinhart June 2000 ISBN 0-88132-237-7 Global Electronic Commerce: A Policy Primer Catherine L. Mann, Sue E. Eckert, and Sarah Cleeland Knight July 2000 ISBN 0-88132-274-1 The WTO after Seattle Jeffrey J. Schott, ed. July 2000 ISBN 0-88132-290-3 Intellectual Property Rights in the Global Economy Keith E. Maskus August 2000 ISBN 0-88132-282-2 The Political Economy of the Asian Financial Crisis Stephan Haggard August 2000 ISBN 0-88132-283-0 Transforming Foreign Aid: United States Assistance in the 21st Century Carol Lancaster August 2000 ISBN 0-88132-291-1 Fighting the Wrong Enemy: Antiglobal Activists and Multinational Enterprises Edward M. Graham September 2000 ISBN 0-88132-272-5 Globalization and the Perceptions of American Workers Kenneth Scheve and Matthew J. Slaughter March 2001 ISBN 0-88132-295-4 World Capital Markets: Challenge to the G-10 Wendy Dobson and Gary Clyde Hufbauer, assisted by Hyun Koo Cho May 2001 ISBN 0-88132-301-2 Prospects for Free Trade in the Americas Jeffrey J. Schott August 2001 ISBN 0-88132-275-X Toward a North American Community: Lessons from the Old World for the New Robert A. Pastor August 2001 ISBN 0-88132-328-4 Measuring the Costs of Protection in Europe: European Commercial Policy in the 2000s Patrick A. Messerlin September 2001 ISBN 0-88132-273-3 Job Loss from Imports: Measuring the Costs Lori G. Kletzer September 2001 ISBN 0-88132-296-2 No More Bashing: Building a New Japan– United States Economic Relationship C. Fred Bergsten, Takatoshi Ito, and Marcus Noland October 2001 ISBN 0-88132-286-5 Why Global Commitment Really Matters! Howard Lewis III and J. David Richardson October 2001 ISBN 0-88132-298-9

Leadership Selection in the Major Multilaterals Miles Kahler November 2001 ISBN 0-88132-335-7 The International Financial Architecture: What’s New? What’s Missing? Peter Kenen November 2001 ISBN 0-88132-297-0 Delivering on Debt Relief: From IMF Gold to a New Aid Architecture John Williamson and Nancy Birdsall, with Brian Deese April 2002 ISBN 0-88132-331-4 Imagine There’s No Country: Poverty, Inequality, and Growth in the Era of Globalization Surjit S. Bhalla September 2002 ISBN 0-88132-348-9 Reforming Korea’s Industrial Conglomerates Edward M. Graham January 2003 ISBN 0-88132-337-3 Industrial Policy in an Era of Globalization: Lessons from Asia Marcus Noland and Howard Pack March 2003 ISBN 0-88132-350-0 Reintegrating India with the World Economy T. N. Srinivasan and Suresh D. Tendulkar March 2003 ISBN 0-88132-280-6 After the Washington Consensus: Restarting Growth and Reform in Latin America Pedro-Pablo Kuczynski and John Williamson, editors March 2003 ISBN 0-88132-347-0 The Decline of US Labor Unions and the Role of Trade Robert E. Baldwin June 2003 ISBN 0-88132-341-1 Can Labor Standards Improve under Globalization? Kimberly A. Elliott and Richard B. Freeman June 2003 ISBN 0-88132-332-2 Crimes and Punishments? Retaliation under the WTO Robert Z. Lawrence October 2003 ISBN 0-88132-359-4 Inflation Targeting in the World Economy Edwin M. Truman October 2003 ISBN 0-88132-345-4 Foreign Direct Investment and Tax Competition John H. Mutti November 2003 ISBN 0-88132-352-7 Has Globalization Gone Far Enough? The Costs of Fragmented Markets Scott Bradford and Robert Z. Lawrence February 2004 ISBN 0-88132-349-7 Food Regulation and Trade: Toward a Safe and Open Global System Tim Josling, Donna Roberts, and David Orden March 2004 ISBN 0-88132-346-2 Controlling Currency Mismatches in Emerging Markets Morris Goldstein and Philip Turner April 2004 ISBN 0-88132-360-8 Free Trade Agreements: US Strategies and Priorities Jeffrey J. Schott, editor April 2004 ISBN 0-88132-361-6 Trade Policy and Global Poverty William R. Cline June 2004 ISBN 0-88132-365-9

Bailouts or Bail-ins? Responding to Financial Crises in Emerging Economies Nouriel Roubini and Brad Setser August 2004 ISBN 0-88132-371-3 Transforming the European Economy Martin Neil Baily and Jacob Kirkegaard September 2004 ISBN 0-88132-343-8 Chasing Dirty Money: The Fight Against Money Laundering Peter Reuter and Edwin M. Truman November 2004 ISBN 0-88132-370-5 The United States and the World Economy: Foreign Economic Policy for the Next Decade C. Fred Bergsten January 2005 ISBN 0-88132-380-2 Does Foreign Direct Investment Promote Development? Theodore Moran, Edward M. Graham, and Magnus Blomström, editors April 2005 ISBN 0-88132-381-0 American Trade Politics, 4th ed. I. M. Destler June 2005 ISBN 0-88132-382-9 Why Does Immigration Divide America? Public Finance and Political Opposition to Open Borders Gordon Hanson August 2005 ISBN 0-88132-400-0 Reforming the US Corporate Tax Gary Clyde Hufbauer and Paul L. E. Grieco September 2005 ISBN 0-88132-384-5 The United States as a Debtor Nation William R. Cline September 2005 ISBN 0-88132-399-3 NAFTA Revisited: Achievements and Challenges Gary Clyde Hufbauer and Jeffrey J. Schott, assisted by Paul L. E. Grieco and Yee Wong October 2005 ISBN 0-88132-334-9 US National Security and Foreign Direct Investment Edward M. Graham and David M. Marchick May 2006 ISBN 978-0-88132-391-7 Accelerating the Globalization of America: The Role for Information Technology Catherine L. Mann, assisted by Jacob Kirkegaard June 2006 ISBN 978-0-88132-390-0 Delivering on Doha: Farm Trade and the Poor Kimberly Ann Elliott July 2006 ISBN 978-0-88132-392-4 Case Studies in US Trade Negotiation, Vol. 1: Making the Rules Charan Devereaux, Robert Z. Lawrence, and Michael Watkins September 2006 ISBN 978-0-88132-362-7 Case Studies in US Trade Negotiation, Vol. 2: Resolving Disputes Charan Devereaux, Robert Z. Lawrence, and Michael Watkins September 2006 ISBN 978-0-88132-363-2 C. Fred Bergsten and the World Economy Michael Mussa, editor December 2006 ISBN 978-0-88132-397-9 Working Papers, Volume I Peterson Institute December 2006 ISBN 978-0-88132-388-7 The Arab Economies in a Changing World Marcus Noland and Howard Pack April 2007 ISBN 978-0-88132-393-1

Working Papers, Volume II Peterson Institute April 2007 ISBN 978-0-88132-404-4 Global Warming and Agriculture: Impact Estimates by Country William R. Cline July 2007 ISBN 978-0-88132-403-7 US Taxation of Foreign Income Gary Clyde Hufbauer and Ariel Assa October 2007 ISBN 978-0-88132-405-1 Russia‘s Capitalist Revolution: Why Market Reform Succeeded and Democracy Failed Anders Åslund October 2007 ISBN 978-0-88132-409-9 Economic Sanctions Reconsidered, 3d. ed. Gary C. Hufbauer, Jeffrey J. Schott, Kimberly Ann Elliott, and Barbara Oegg November 2007 ISBN hardcover 978-0-88132-407-5 ISBN hardcover/CD-ROM 978-0-88132-408-2 Debating China’s Exchange Rate Policy Morris Goldstein and Nicholas R. Lardy, eds. April 2008 ISBN 978-0-88132-415-0 Leveling the Carbon Playing Field: International Competition and US Climate Policy Design Trevor Houser, Rob Bradley, Britt Childs, Jacob Werksman, and Robert Heilmayr May 2008 ISBN 978-0-88132-420-4 Accountability and Oversight of US Exchange Rate Policy C. Randall Henning June 2008 ISBN 978-0-88132-419-8 Challenges of Globalization: Imbalances and Growth Anders Åslund and Marek Dabrowski, eds. July 2008 ISBN 978-0-88132-418-1 China’s Rise: Challenges and Opportunities C. Fred Bergsten, Charles Freeman, Nicholas R. Lardy, and Derek J. Mitchell September 2008 ISBN 978-0-88132-417-4 Banking on Basel: The Future of International Financial Regulation Daniel K. Tarullo September 2008 ISBN 978-0-88132-423-5 US Pension Reform: Lessons from Other Countries Martin N. Baily and Jacob Kirkegaard February 2009 ISBN 978-0-88132-425-9 How Ukraine Became a Market Economy and Democracy Anders Åslund March 2009 ISBN 978-0-88132-427-3 Global Warming and the World Trading System Gary Clyde Hufbauer, Steve Charnovitz, and Jisun Kim March 2009 ISBN 978-0-88132-428-0 The Russia Balance Sheet Anders Åslund and Andrew Kuchins March 2009 ISBN 978-0-88132-424-2 The Euro at Ten: The Next Global Currency? Jean Pisani-Ferry and Adam S. Posen, eds. July 2009 ISBN 978-0-88132-430-3 Financial Globalization, Economic Growth, and the Crisis of 2007–09 William R. Cline May 2010 ISBN 978-0-88132-4990-0

Russia after the Global Economic Crisis Anders Åslund, Sergei Guriev, and Andrew Kuchins, eds. June 2010 ISBN 978-0-88132-497-6 SPECIAL REPORTS 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Promoting World Recovery: A Statement on Global Economic Strategy* by 26 Economists from Fourteen Countries December 1982 ISBN 0-88132-013-7 Prospects for Adjustment in Argentina, Brazil, and Mexico: Responding to the Debt Crisis* John Williamson, editor June 1983 ISBN 0-88132-016-1 Inflation and Indexation: Argentina, Brazil, and Israel* John Williamson, editor March 1985 ISBN 0-88132-037-4 Global Economic Imbalances* C. Fred Bergsten, editor March 1986 ISBN 0-88132-042-0 African Debt and Financing* Carol Lancaster and John Williamson, eds. May 1986 ISBN 0-88132-044-7 Resolving the Global Economic Crisis: After Wall Street* by Thirty-three Economists from Thirteen Countries December 1987 ISBN 0-88132-070-6 World Economic Problems* Kimberly Ann Elliott and John Williamson, eds. April 1988 ISBN 0-88132-055-2 Reforming World Agricultural Trade* by Twenty-nine Professionals from Seventeen Countries 1988 ISBN 0-88132-088-9 Economic Relations Between the United States and Korea: Conflict or Cooperation?* Thomas O. Bayard and Soogil Young, eds. January 1989 ISBN 0-88132-068-4 Whither APEC? The Progress to Date and Agenda for the Future* C. Fred Bergsten, editor October 1997 ISBN 0-88132-248-2 Economic Integration of the Korean Peninsula Marcus Noland, editor January 1998 ISBN 0-88132-255-5 Restarting Fast Track* Jeffrey J. Schott, ed. April 1998 ISBN 0-88132-259-8 Launching New Global Trade Talks: An Action Agenda Jeffrey J. Schott, ed. September 1998 ISBN 0-88132-266-0 Japan’s Financial Crisis and Its Parallels to US Experience Ryoichi Mikitani and Adam S. Posen, eds. September 2000 ISBN 0-88132-289-X The Ex-Im Bank in the 21st Century: A New Approach Gary Clyde Hufbauer and Rita M. Rodriguez, editors January 2001 ISBN 0-88132-300-4

15 The Korean Diaspora in the World Economy C. Fred Bergsten and Inbom Choi, eds. January 2003 ISBN 0-88132-358-6 16 Dollar Overvaluation and the World Economy C. Fred Bergsten and John Williamson, eds. February 2003 ISBN 0-88132-351-9 17 Dollar Adjustment: How Far? Against What? C. Fred Bergsten and John Williamson, eds. November 2004 ISBN 0-88132-378-0 18 The Euro at Five: Ready for a Global Role? Adam S. Posen, editor April 2005 ISBN 0-88132-380-2 19 Reforming the IMF for the 21st Century Edwin M. Truman, editor April 2006 ISBN 978-0-88132-387-0 20 The Long-Term International Economic Position of the United States C. Fred Bergsten, ed. May 2009 ISBN 978-0-88132-432-7 WORKS IN PROGRESS China’s Energy Evolution: The Consequences of Powering Growth at Home and Abroad Daniel H. Rosen and Trevor Houser Global Identity Theft: Economic and Policy Implications Catherine L. Mann Growth and Diversification of International Reserves Edwin M. Truman Globalized Venture Capital: Implications for US Entrepreneurship and Innovation Catherine L. Mann Forging a Grand Bargain: Expanding Trade and Raising Worker Prosperity Lori Kletzer, J. David Richardson, and Howard Rosen

East Asian Regionalism and the World Economy C. Fred Bergsten The Limits of Export-Led Growth: Germany and the Future of Capitalism Adam S. Posen Devaluing to Prosperity Surjit Bhalla Global Forces, American Faces: US Economic Globalization at the Grass Roots J. David Richardson Global Services Outsourcing: The Impact on American Firms and Workers J. Bradford Jensen Policy Reform in Rich Countries John Williamson, editor Banking System Fragility in Emerging Economies Morris Goldstein and Philip Turner Witness to Transformation: Refugee Insights into North Korea Stephan Haggard and Marcus Noland Sovereign Wealth Funds and the International Financial System Edwin M. Truman The Last Shall Be the First Anders Åslund The World after the Financial Crisis Simon Johnson and Arvind Subramanian Aligning NAFTA with Climate Change Objectives Jeffrey J. Schott and Meera Fickling Intellectual Property Rights in the Global Economy Keith Maskus The Positive Agenda for Climate and Trade Trevor Houser The Implications of China-Taiwan Economic Liberalization Daniel H. Rosen and Zhi Wang Stable Prices, Unstable Currencies: The Weak Link between Exchange Rates and Inflation and What It Means for Economic Policy Joseph Gagnon

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POLICY ANALYSIS 92 The rapid emergence of China as a major industrial power poses a complex challenge for global resource markets. Backed by the Chinese government, Chinese companies have been acquiring equity stakes in natural resource companies, extending loans to mining and petroleum investors, and writing long-term procurement contracts for oil and minerals. These activities have aroused concern that China might be “locking up” natural resource supplies, gaining “preferential access” to available output, and extending “control” over the world’s extractive industries. On the demand side, Chinese appetite for vast amounts of energy and minerals puts tremendous strain on the international supply system. On the supply side, Chinese efforts to procure raw materials can either exacerbate or help solve the problems of high demand. Evidence from the 16 largest Chinese natural resource procurement arrangements shows that Chinese efforts—like Japanese deployments of capital and purchase agreements in the late 1970s through the 1980s—fall predominantly into categories that help expand, diversify, and make more competitive the global supplier system. Investigation of smaller projects indicates the 16 largest do not suffer from selection bias. However, Chinese attempts to exercise control over mining of rare earth elements may constitute a significant exception. The investigative focus of this analysis is deliberately narrow and precise, assessing the impact of Chinese resource procurement on the structure of the global supply base. The broader policy discussion in the concluding chapter raises other separate important issues, including the impact of Chinese resource procurement on rogue states, on authoritarian leadership, on civil wars, on corrupt payments and the deterioration of governance standards, and on environmental damage. Such effects may make patterns of Chinese resource procurement objectionable, on grounds quite apart from the debate about possible “control” of access on the part of China and Chinese companies. Theodore H. Moran, nonresident senior fellow, has been associated with the Peterson Institute since 1998. He holds the Marcus Wallenberg Chair at the School of Foreign Service in Georgetown University. He is the founder of the Landegger Program in International Business Diplomacy at the university and serves as director there. In 2007 he was invited to join the Director of National Intelligence Advisory Panel on International Business Practices. His books include Three Threats: An Analytical Framework for the CFIUS Process (2009), Harnessing Foreign Direct Investment for Development: Policies for Developed and Developing Countries (2006), Does Foreign Direct Investment Promote Development? (2005), International Political Risk Management: Exploring New Frontiers (2005), Beyond Sweatshops: Foreign Direct Investment, Globalization, and Developing Countries (2002), and Foreign Investment and Development (1998).

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