Where are China's Resource Risks in 2021?
Photo: Erin Schaff/The New York Times
The COVID-19 vaccination timeline is on everyone's mind as 2021 opens in the U.S. with a tumultuous start. Vaccination is not strictly a resource issue, but its global rollout speaks to broader trends in industrial competition between the U.S., the EU, Japan, and China, as well as U.S. efforts to decouple from Chinese production chains in key areas such as pharmaceuticals and semiconductors. While unlikely to immediately remove the trade sanctions put in place by the Trump administration, the Biden-Harris team is expected to take a less confrontational tone and to focus on coordinating with allies to compete economically with China more effectively. Meanwhile, China is doing its best to thwart such cooperative efforts by involving European and Asian countries in trade and investment agreements.
In this post we identify and discuss five ongoing resource trends to watch in 2021. What's interesting about these particular issues are the compounded "wicked" problems China creates in responding to them. As China addresses one resource risk, such as opting for hydropower in Tibet to reduce its carbon footprint, this leads to tensions with India over water usage. Similar quandaries arise in China's approach to coal, rare earths, grain, and fishing risks.
Coal. Xi Jinping's pledges to achieve carbon neutrality by 2060, and reach peak emissions by 2030, will be a challenge considering China continues to rely on coal for 58% of its energy. In late December 2020, some provinces already reported shortages as manufacturing returned to pre-COVID normal usage at the same time as winter heating demand increased. In retaliation against Australian Prime Minister Scott Morrison's demand for the international community to investigate the origins of the coronavirus, China slashed its imports of Australian coking coal (for steel production) by 40% and by 47% for thermal coal (for power plants) in 2020. Chinese imports of Australian products (including wine and lobster!) had already been shrinking in 2020 due to trade tensions between the two countries. China is seeking to compensate by increasing imports from Mongolia, Russia, and Canada.
Graphic: Energy Information Agency
Rare Earths. Rare earths are metals that are needed critically in many key industries, including automotive, energy, medical equipment, and defense. China is one of a few countries to have deposits of these metals, but succeeded in dominating their extraction and processing of rare earths due to its willingness to take the environmental risks, while others, like the U.S., abandoned their extraction and processing. Today more than 70% of rare earths production takes place in China. Because industrialized countries depend on rare earths for key production lines, China already has used its dominance in the sector as leverage, retaliating against Japan during an unrelated dispute in 2010. This has accentuated concern in the U.S. and its allies regarding a Chinese rare earth investment in Greenland, seen as a potential alternative supplier, and about China's Arctic goals more broadly. The joint venture in the Kvanefjeld Project, one of the largest rare earth mines in the world, between this year's odd couple, China's Shenghe Resources and Australia's Greenland Minerals, currently awaits the results of a public commentary period on the environmental impact, expected in March 2021.
Water. Bigger is still better for China's infrastructure builders, who plan to construct a major 60 GW dam on the lower Bhramaputra/Yarlung Tsangpo River near the border between Tibet and India, which will affect India's water supply and lead to a race to build dams on each side of the border. The new dam, to be outlined in China's next (14th) Five-Year Plan, would more than double existing hydropower capacity in Tibet, thereby potentially enabling China to reach its climate goals. However, the dam comes at a time of deadly border tensions between China and India as well as actions by China to retain its influence over Nepal. There is no water commission to address disputes between China and its South Asian riparian neighbors.
Map of the Brahmaputra River. Known as the Yarlung Tsangpo in Tibet, the Brahmaputra flows south through the Himalayas into India and Bangladesh
Grain. China has 20% of the world's population, but just 7% of its arable land. Given these statistics and a history of devastating famines, it is not surprising that food security is a top priority for Chinese leaders. A 2019 White Paper on Food Security, issued by China's State Council, defined food security as "ensuring basic self-sufficiency of grain and absolute security of staple food." To ensure domestic supplies and accommodate changing diets involving more meat, especially pork, China has had to import more grain. The U.S.-China trade war also created additional urgency for China to diversify its suppliers--Brazil and Argentina are among its top suppliers, though Russia, Ukraine, and Kazakhstan are also increasing their share of the Chinese market. Chinese purchases of U.S. soybeans and corn have been strong in the past year to comply with Phase One of the U.S.-China trade agreement. With the recovery of its pork industry, China has dramatically increased its imports of soy and corn. Brazil is its leading supplier and 75% of its soy was sold to China in the last few years. The weakness of the Brazilian currency, due to COVID-19, led to a Chinese soy buying spree in 2020 and Brazil is likely to expand cultivation of soy to keep up with demand. This is leading to deforestation in Brazil, with significant consequences for climate change, due to the important role of Brazilian forests as a carbon sink.
Fish and Fishing. Pollution of waterways in and around China and the decline of fish stocks in these areas has led Chinese fishing fleets to go beyond Chinese shores. While consuming fish instead of meat reduces demand for scarce water resources and grain in China, unregulated fishing contributes to the depletion of global fish stocks. In August 2020, Chinasresourcerisks.com posted about the flotilla of Chinese vessels that sailed to the perimeter of the Ecuador's Exclusive Economic Zone (in which the Galapagos Islands are located) and reportedly used longlining to fish in their protected waters. China has the largest distant-water fishing fleet in the world and also boasts the worst global record in illegal, unregulated, and unreported fishing, according to the IUU Fishing Index. China claims to be a part of the solution, signing the 2017 Agreement on Unregulated Fishing in the Central Arctic, but actually exacerbates the problem by subsidizing its otherwise unprofitable distant-water fleets. Illegal Chinese fishing also contributes to geopolitical tensions, by fishing in North Korean waters in violation of U.N. sanctions for example.
Photo of Chinese ship in South Korean Waters: South Korean Fisheries Agency
China made headlines with its latest climate pledges, but these will be difficult to achieve while ensuring food security and meeting economic goals. China's resource choices have wide-ranging consequences for neighbors like India as well as more distant partners from South America to the Arctic. These are just some of China's resource risks that we have been following among numerous others we plan to discuss in the coming year. What trends or issues you would like chinasresourcerisks.com to cover in 2021? Please let us know. You can reach us at firstname.lastname@example.org.