On the supply side, the effect of Chinese efforts to procure raw materials is more ambiguous.

Which outcome Chinese procurement arrangements generate depends upon whether those arrangements 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 supplier system (using Chinese ownership/control as a lever for expansion, diversification, and enhanced competition).

The Chinese deployment of capital to procure natural resources takes four forms.

In the first procurement arrangement, Chinese investors take an equity stake in a very large and already established producer so as to secure a share of production on terms comparable to other co-owners.

In the second procurement arrangement, Chinese investors take an equity stake in an up-and-coming producer so as to secure an equity-share of production on terms comparable to other co-owners.

In the third procurement arrangement, Chinese buyers and/or the Chinese government make a loan to a very large already-established producer in return for a purchase agreement to service the loan.

In the fourth procurement arrangement, Chinese buyers and/or the Chinese government make a loan to finance an up-and-coming producer in return for a purchase agreement to service the loan.

All four strategies are intended to ‘lock-in’ future supplies. Their effects on the global system, however, are quite different. If the procurement arrangement simply solidifies the Chinese company’s legal claim to a given structure of production (the first and third arrangement), ‘tying up’ or gaining ‘preferential access’ to supplies has zero-sum implications for other consumers – that is, it cuts them out. However, if the procurement arrangement expands and diversifies sources of output more rapidly than growth in world demand (second and fourth arrangement), other consumers have easier access to a larger and more competitive global resource base.

So which strategies do Chinese companies typically embark on?

Examining China’s 16 largest procurement arrangements there are only three instances in which Chinese natural resource companies take an equity stake to create a ‘special relationship’ with a major already-established producer. But the predominant pattern (thirteen of sixteen) is to take equity stakes and/or write long-term procurement contracts with producers that might be considered along the competitive fringe.

Thus, popular concerns about Chinese ‘lock up’ of world resources are unsubstantiated. This should not be surprising. The Japanese government, for example, entertained the idea of creating the country’s own major resource companies, or engaging in procurement arrangements with major resource companies and/or producer governments during the early resource struggles of the 1970s. But from the late 1970s through the 1980s, Japanese policies shifted toward procurement arrangements with up-and-coming producers, and Japanese investment, loans, and off-take contracts became a major force in enhancing the competitive structure of global extractive industries and diversifying the geography of production, continuing through today.

Nonetheless, there are other big concerns about Chinese resource investments.

Chinese natural resource investment flows to problematic states and regions. Perusal of these sixteen largest cases shows long-standing activity by Chinese investors in Sudan, and determined Chinese efforts to enable Iran to circumvent external pressures. A review of smaller (but still large) Chinese projects reveals Chinese support for oil transport, natural gas, and mineral production in Myanmar.

In addition, Chinese oil and mineral investment may have a dubious impact on host country governance. The disbursement of the first Chinese Exim Bank loan of US$2 billion for infrastructure projects in Angola, in return for access to resources, generated such a scramble for payoffs that the Chinese Secret Services had to appeal to President dos Santos for guidance about who the special recipients should be. The ultimate impact of Chinese investments and loans in the Democratic Republic of Congo will not be known for some time.

The world community must assess the potential implications of Chinese resource investments for regional conflict, corrupt payments, repressive government, and violation of human rights. Undertakings such as the Extractive Industries Transparency Initiative must be structured – via company-by-company reporting of tax payments and procurement contracts, for example – to help induce Chinese investors to observe best practices equal to OECD competitors in the business of international resource development. But on the specific question of ‘locking up’ the world resource base, Chinese investment has been helping to multiply and diversify sources of supply.

Theodore H. Moran is the Marcus Wallenberg Professor of International Business and Finance at Georgetown University, and Non-Resident Senior Fellow at the Peterson Institute for International Economics.

This article is an edited extract from the PIIE Working Paper, Chinese Strategy to Secure Natural Resources: Risks, Dangers, Opportunities.