Analysis Of China’s Investment Into Resource Rich Regions As A Form Of Mercantilism
China’s recent investment into resource rich regions including Africa and Central Asia is a form of Mercantilism. When discussing whether their recent investments fall into mercantilism, it is vital to consider the definition of mercantilism, which is the system adopted where countries prioritise a current account surplus through export led growth. This was originally formulated in the 16th century by major european powers, however in today's era we see the uprise of China’s economy, not only through means of ridiculously low domestic price fueled by labour market competition and stunted wages, however rather their expansionist ideology placed into energy and global oil investment. This includes the three major Chinese national oil companies, CNPC, Sinopec and CNOOC, who stake their acquisitions into oil and gas.
In 2009, China spent $18.2 billion on oil and gas which accounted for roughly 13% of global shares, furthermore this increased to $23.4 billion in 2010, which begs the question as to how this could be seen as a form of mercantilism.
Initially, it may be perceived as China’s methodology into global expansion, as with all nations, the incentive is to attain global market shares and become an economic powerhouse which can provide adequately for its population, in China’s case, of 1.386 billion. However when referring back to the definition of “export led growth”, its apparent that attaining global shares of energy in this case would be solely for the purpose of exporting. Consider investments in Xinjiang, where the purpose was originally to build an east-west pipeline to “Develop the West”. Political theories soon disregarded its development, but rather focused on territorial expansion whereby the only plausible theory was to control all gas pipelines within Central Asia in order to affirm their dominance over the western provinces. In corroboration, further corporate inflows into Kazakhstan represent the largest share of Chinese equity at roughly 23%, moreover the connection of a 2800km pipeline into Xinjiang allowed for 5% of total oil demand in capacity. On the scale of mercantilist theory, its obvious there are intents on export led global domination, as the only explanation of investment into infrastructure of that scale would be profit. Furthermore, its gas pipeline into Turkmenistan symbolises the sheer volume at which china wishes to export at, prominently over its rivals within Russia. Therefore we can come to an understanding that China’s investments for global oil shares are indeed mercantilist forms of expansion, not only economically but also through its territorial acquisitions in the west.
Alternately, it could be argued that although there is a clear incentive for export domination, its underpinned by the sole ideology that China are just global players for a much more sustainable channel of growth. There’s no denying that its devaluation of currency over the decades as well as dumping into export rich countries has ethical as well as environmental footholds. Not only does it corrupt inflow of other countries markets, but rather also the environmental degradation prominent in the operations within secondary sector economy provide negative externality to the global economy which prompts the need for a sustainable alternative. In this case, the capitalisation of energy shares may not be seen as a form of mercantilism, but rather a form of survival.
Consider this source from ScienceMag which maps the pollution and environmental degradation in relation to economic growth and GDP. Relative to the integrated environment index, economic growth tends to stay close to the line of environment index, however this comes at the stifling of the coupling degree of this waste. Essentially, this means China’s growth (especially pre 2000) was driven substantially by forms of pollution and toxic waste, however over recent years we see the waste level remain fairly constant while GDP figures rise, indicating a possible shift to tertiary sector output. Alternately, it produces the need for a shift to tertiary sector, as pollution levels have been maxed and irreversible damage has been done within the environment. The fact that China’s post 2000 investments rely more significantly on energy companies should come as no surprise, as the race for sustainable growth was a political agenda that long needed fulfilling, in order for China to be recognised as a more ethically aware country.
This in contrast, presents two spectrums of mercantilism, benign and malevolent. Benign mercantilism is the aim to protect domestic welfare and stability, whereas malevolent mercantilism solely influences state rule. Whilst it could be argued that China is indeed only scanning for means of a sustainable economic development, it is not impossible to rule out the theory of either forms of mercantilism.
Consider China’s FDI into parts of Africa in what “The Economist” is labelling “The new scramble for Africa”. Some of these projects include $20bn loans for infrastructure in parts of Guinea in exchange of alumina and bauxite projects, as well as $12bn injection into a 1402km railway running through the coast of Nigeria. Ofcourse, like all rational economic thinkers, this comes with implications of incentive to profit, maybe not monetarily but rather influence state control. For example, in 2001 China shared 4% of Africa’s imports while that figure exponentially rose to 16% by 2018 at a compound annual rate of 19%, which would indicate means to dominate African regions for means of territorial gain. In theory, China’s trade with South African regions provide these countries with monetary assistance so prominent that eventually China will expect returns in dividends or even colonial rule (although unlikely due to national legislation).
Conclusively, this can relate back to the theory of malevolent mercantilism where the investment and exporting caused by China within Africa is solely to increase state influence, as they will be recognised as a larger global superpower where they expand overseas to new territories such as Nigeria and Guinea. In addition to this, lets not rule out forms of benign mercantilism, ensuring domestic welfare and stability is a clear aim of China in a bid to escape unethical and degrading means of production. By prioritising global oil and energy investment in both Africa and Central Asia, it can therefore be argued that this comes with the intention to shift their production to one which will allow sustainable growth as well as securing the welfare of their population for centuries onwards. There are clearly mercantilist implications to China’s investment phase therefore, where both benign and malevolent forms on mercantilism have been explored. In conclusion, China’s recent investment into resource rich regions including Africa and Central Asia is a form of Mercantilism.
