Free By All Means Necessary by Elizabeth Economy Michael Levi Page A

directly affects resource availability beyond China’s borders. This ultimately leads us, in particular, to exclude a host of domestic Chinese activities that have important global environmental consequences, most notably the burning of coal and its impact on climate change. In contrast, efforts to secure water within Chinese borders (which can affect the flow and availability of water in downstream countries) often fit our definition of a “resource quest” and hence are included.
    In researching and writing this book, we relied on intensive use of the existing scholarly and business literature (along with our own analysis of both) and of statistical data. We also conducted research on the ground in many of the countries affected by China’s resource quest, including Canada, China, Kenya, Mozambique, Zambia, Kuwait, Qatar, the United Arab Emirates, and Brazil, and we interviewed officials, scholars, and businesspeople from other countries such as Mongolia, Vietnam, and Peru. A book like this is only possible with such a mix of primary and secondary resources, and we are indebted to all those from whose knowledge this book has benefited.

10
Resource Strategy in a Changing World
    AT THE OUTSET OF this book we asked a simple pair of questions: is China’s natural resource quest changing the world? Or is China itself being changed as it seeks secure supplies of natural resources abroad? The reality is that both types of transformations are under way—and often in surprising forms.
Changing the World
    China has already changed the world through its rapidly rising consumption of a host of natural resources. Contrary to the prevailing belief in some quarters, it does not secure them mainly by buying up resource deposits abroad, but rather it procures resources through trade. Indeed, the consequences of this, primarily in the form of rising prices for commodities ranging from oil to iron ore, are the largest that China’s resource quest has had—and are more far-reaching than the impacts of investment abroad. China has also changed the very structure of critical markets, but not as Chinese policy makers sought or international observers feared. A decade ago, many people worried that China would steer the global oil trade away from its market-based foundations, yet this hasn’t happened. Meanwhile, the emergence of thousands of small Chinese steel mills ultimately led to a much more transparent and competitive system for trading iron ore—an outcome that Beijing actively resisted.
    Chinese investment abroad has also transformed resource-rich economies, but more subtly than what Chinese leaders promise or skeptics of Chinese investment often warn about. Resourceinvestment in most sectors and countries remains a small part of their overall FDI pie. Moreover many of the tools China uses—for example, loans tied to resource production—are variations on ones that Western firms use too. And Chinese firms’ labor, environmental, and financial practices are often no worse (but certainly no better) than what some of their competitors bring to bear.
    Yet Chinese firms regularly export the ways of doing business that they have learned at home. Indeed, this is a theme pervading China’s natural resource quest: understanding Chinese behavior abroad requires understanding Chinese behavior at home. The same political and economic practices that shape its development model at home are reflected in Chinese behavior when investing in natural resources abroad. The central government and state-owned enterprises, which set the strategic direction for the domestic economy, are similarly powerful actors in establishing the overall strategy for China’s international actions. As a matter of broad policy, these players approach the country’s resource needs through a loosely coordinated trade, aid, and investment strategy that mixes a powerful role for market forces with a much stronger role