CHAPTER I
World Markets in China’s Wake
There is no doubt that the world experienced a commodity boom in the years 2002 through 2013, with a brief dip in 2009 in response to the global financial crisis. Only two other periods in the past century may be described as commodity booms, though neither matches the 2000s vintage for either length or magnitude.1 This would be true even if the 2002–2008 period were considered alone (Helbling 2008; Farooki 2012). It is hardly surprising that few analysts predicted the scale or durability of the boom (Conceição and Marone 2008), given the uniqueness of the period. During the initial boom years, analysts regularly predicted that the price cycle would likely soon come to an end (see, for example, International Monetary Fund 2006, chap. 5; United Nations Conference on Trade and Development 2006, 25; Suni 2007) or assumed that prices would not rise again following the global financial crisis (Bremmer and Johnston 2009).
The recovery of hard commodity prices in the 2009–2013 period, despite continued stagnation in the global North, is evidence that commodity price drivers had been transformed—to the extent that it makes less sense to speak of a temporary boom (as previously occurred in the early 1950s and mid-1970s) than of a commodities supercycle (a rise in prices over perhaps a decade or more), or possibly even a structural break (a longer-term shift in relative prices, in this case, between those for commodities and those for manufactured goods). The 2002–2013 boom may well be the first generalized commodities supercycle in recorded history (Farooki and Kaplinsky 2013, 57, 67–68; compare with Erten and Ocampo 2013).2
An analysis of China’s evolving place in global commodity markets shows that it is now the central motor that has propelled this transformation for a range of raw materials, particularly most metals but, increasingly, fuels as well.3 China’s thirst for resources was the major driver of booming prices in these markets over the early twenty-first century, and their fortunes continue to be strongly bound to those of China even after the end of the boom.
These global shifts enabled resource-exporting states in the South to resist the disciplinary pressures of transnational capital and to institute alternative policies and development strategies during the boom years. In the first instance, this is obviously related to increased revenue from both higher prices and expanded volumes of sales. More than this, however, with many existing natural resource deposits nearing exhaustion, increasing global demand sparked a new wave of investment in extractive industries across the global South, with firms forced to consider locations that previously had been discounted owing to some combination of extraction costs, political instability, poor infrastructure, or geographic remoteness from the intended market (Klare 2012; Moyo 2012).
China and Chinese firms had a direct role to play in this, with major investments in the extractive industries of Mongolia, Brazil, Ecuador, the Democratic Republic of the Congo, Guinea, South Sudan, Papua New Guinea, and Angola, among many others.4 Chinese investments have extended far beyond extractives, though, into transport, power generation, real estate, and agriculture—one estimate puts total investments in the South at more than $500 billion over the 2005–2013 period (Scissors 2018). China’s state-owned banks lent $136 billion to African governments and state-owned enterprises (SOEs) alone from 2000 to 2017 (School of Advanced International Studies 2018).
The debate around China’s direct impact on the rest of the global South—via investment, loans, construction, and trade—is already well advanced (Brautigam 2009, 2015; Lee 2017; Hurley, Morris, and Portelance 2018). The intention of this book is to focus instead on the rise of China’s indirect impact on Southern resource-rich states via the changes wrought in global markets for their main exports. The result over the course of the commodity boom was not only higher absolute revenues for such states but also increases in their bargaining power relative to multinational firms and thus in their ability to retain a larger proportion of an expanding pie for the setting and realization of nationally defined development goals. To this end, some states pushed through full or quasi nationalizations of resource industries (Kaup 2010; Romero 2012), acquired larger stakes in their extractive operations (Krusekopf 2015), or signed much more favorable contracts with multinationals (Escribano 2013). At the very least, most upped their royalty and taxation rates on extraction (see Lungu 2008a; Nem Singh 2012). These moves, in turn, potentially provided Southern states with revenue streams outside the control of global capital and the international financial institutions (IFIs), creating space for greater discretion in policy making.
The China Effect on Commodity Markets
Figure 1.1 shows price indexes since 1960 for metals, energy, and agricultural commodities, in constant 2010 dollars. Prices began to rise for all three groups around 2002, with a steeper gradient in metals and energy. By the mid-2000s, real prices for metals and energy were higher than previous peaks (in the 1960s for metals and the 1970s for energy) and continued to climb until 2007–2008, at which point both categories experienced sharp dips, concurrent with the global financial crisis. Prices rebounded strongly before beginning to fall off in 2012 for metals and in 2014 for energy, with a slight strengthening in 2017, leaving both close to or above their previous peak levels, and certainly higher than in the years immediately preceding the boom. Surprisingly, the post-2008 resurgence came despite widespread economic torpor across most of the global North, providing a clue that commodity prices were now being driven by forces other than conditions in these traditionally dominant markets.
Figure 1.1 Historical commodity price indexes, in constant 2010 dollars.
Source: World Bank, Commodity Price Data—Pink Sheet Data.
Copper, in particular, is a significant case in highlighting the power of China as a commodity demand driver. Copper is so widely used in cables, pipes, and almost all electronic devices, with few good substitutes,5 that copper price movements have long tended to be good predictors of global economic activity, to the extent that it has earned the nickname “Dr. Copper” for its forecasting abilities (Economist 2011). Nevertheless, as figure 1.2 shows, copper price movements over the period correlate much more closely with shifts in net import demand from China than from the Group of Seven countries, particularly after 2006. Though the fall in price seen in 2009 coincides with declining G7 imports (while Chinese imports are largely stagnant), price movements thereafter closely mirror changes in Chinese imports rather than those of the G7.
Figure 1.2 Copper prices compared to net G7 and Chinese copper imports. Calculated from Chatham House Resourcetrade.earth database and World Bank, Commodity Price Data—Pink Sheet Data.
China’s rapid, materials-intensive development in the 1995–2002 period already placed it as a highly significant consumer of most metals and as the most important factor in new demand growth (Yu 2011). However, China has substantial reserves of many commodities, and so much of the new demand in this earlier period was met by expanding domestic production. As this growth began to lag behind consumption, China was forced to import ever-larger quantities of key resources, the effects of which began to manifest themselves in rising global prices around the middle of the last decade.
Figure 1.3 gives an indication of China’s evolving role as an importer in the three largest base metal markets (iron ore, copper, and aluminum). In 2002, China already accounted for 18 percent of global copper imports, but it was a less significant importer of the other two metals, where domestic reserves were greater. The most striking growth in terms of import share is seen in iron ore, where China’s imports moved to 64 percent of the world total by 2013. In copper, the increase in share of imports is less pronounced but still significant, reaching 30 percent in 2013. However, this was in the context of a world market that grew much faster over the boom years, from $39.8 billion in 2002 to $227 billion in 2013 for copper, compared to movement from $122.7 billion to $163 billion for iron ore (Chatham House n.d.). China played a much more minor role in aluminum trade, with imports rising from 5.2 percent to 8.6 percent of world totals between 2002 and 2013. This is an important differential, which I will return to in chapters 9 and 10. Figures for 2016 are provided as evidence of China’s continuing centrality to these commodity markets, even in a postboom context.
Figure 1.3 China base metal imports as a share of world total. Calculated from Chatham House Resourcetrade.earth database.
Figure 1.4 provides another view of these markets by comparing the change in Chinese import demand for each metal against that of the rest of the world in dollar values, both over the whole period (2002–2013) and since the global financial crisis (2008–2013). Chinese demand was very clearly the most important driver of these markets in the postcrisis years in particular, compensating for weak performance elsewhere. Over the whole of the boom years, the iron ore sector again stands out, with imports to China surging by more than $100 billion, even while elsewhere they fell by $61.5 billion. Though rest of the world’s demand for copper was relatively strong over 2002–2013, China alone accounted for a little under half the global total, while, again, China’s role in aluminum appeared to be less significant.
Figure 1.4 Chinese demand compared to that of the rest of the world (in billions of dollars). Change in industrial metals imports, 2002–2013, calculated from Chatham House Resourcetrade.earth database.
For energy commodities (principally oil, coal, and natural gas), the picture is somewhat different. China’s share of global energy consumption rose substantially, up from 12 percent in 2002 to 22 percent in 2013, overtaking the United States to become the world’s largest energy consumer from 2009 onward. Coal overwhelmingly remained China’s most important fuel source, with the People’s Republic of China accounting for more than half of global consumption in 2013 (Enerdata 2018). Even with oil making up less than one-fifth of China’s energy usage, according to some estimates the PRC surpassed the United States in 2014 to become the world’s largest oil importer (U.S. Energy Information Administration 2015), a significant milestone, given China’s status as the world’s fourth-largest oil producer and the fact that the country was still a net exporter in the early 1990s (Stang 2014).
Natural gas is a less important though growing factor in the Chinese energy mix. Consumption rose by an average of 15 percent per annum over the 2000s, and although this began from a low base, China became the third-largest market for gas in 2013 (U.S. Energy Information Administration 2015; Enerdata 2018). Even though, globally, the majority of natural gas is transported via pipelines and so is not traded on world markets, the high degree of substitutability between energy commodities, as compared to metals, means that price movements in natural gas are heavily influenced by the global oil (and, to a lesser extent, coal) trade.
Overall, China has become the major demand driver in energy markets over recent years, accounting for 55 percent of consumption growth from 2002 to 2013 and becoming the biggest net energy importer by 2012 (Enerdata 2018). It also seems likely that China’s centrality within energy markets will be maintained in the future, with India’s role also becoming increasingly significant (World Bank 2018). Until recently, trends in the PRC’s energy intensity (measured as primary energy consumption divided by gross domestic product) were somewhat higher than those seen in South Korea at similar levels of GDP (see table 1.1).6 Energy intensity in China has now begun to drop, suggesting that income elasticity of energy consumption may be starting to fall off, likely because of structural changes to the economy and efforts to increase efficiency in line with emissions targets. Nevertheless, energy intensity remains high today in comparison to other states at similar levels of GDP (table 1.2). An International Energy Agency (2017) projection, based on China’s implementation of current policy plans, has China’s energy intensity falling through 2040. However, even assuming slowing GDP growth, these forecasts foresee the PRC becoming the largest consumer of oil and the biggest source of demand growth for natural gas globally, as these fuels (along with renewables) are increasingly adopted as somewhat cleaner alternatives to coal. We will revisit these issues in the concluding chapter.
South Korea and China energy intensity (in British thermal units) at comparable levels of gross domestic product
Sources: World Bank, World Development Indicators; U.S. Energy Information Administration, “Open Data.”
Energy intensity for China and selected economies, 2015
|
Nation |
2015 per capita GDP (constant 2011 U.S. dollar purchasing power parity) |
2015 energy intensity (1,000 Btu/dollars 2010 GDP purchasing power parity) |
||
|
China |
13,570 |
6.6 |
||
|
Brazil |
14,703 |
4.3 |
||
|
Indonesia |
10,368 |
2.6 |
||
|
Thailand |
15,252 |
4.9 |
Sources: World Bank, World Development Indicators; U.S. Energy Information Administration, “Open Data.”
China’s Rise in World-Historical Perspective
Although empirical observation of the effects of China’s growing global weight will be undertaken principally at the national level, I adopt a theoretical framing that views these national shifts as ultimately the product of transformation at the global level, requiring explanation in terms of systemic change. I rely heavily on Arrighi’s formulation of the world-system, especially in its temporal aspect (Arrighi 1994; Arrighi and Silver 1999; Sewell 2012).7 In particular, I use the idea of a series of overlapping secular cycles of accumulation as a kind of baseline to an ever-evolving global political economy and a basis for understanding China’s rise within the current world-historical context.
According to this schema, the United States has been the central dynamo in the accumulation cycle that began at the end of the nineteenth century and superseded the previous, British-led phase during the first half of the twentieth (Arrighi 1994, 277–84). Despite the 2008 crash, the United States currently retains its position at the center of global capitalism, as the largest economy (at market exchange rates) and the holder of the world reserve currency (Hung 2008; World Bank n.d.). Nevertheless, since the turn of the twenty-first century, for the large numbers of Southern states whose economies depend upon the export of natural resources, it is China rather than the United States that now constitutes the primary driver for the most important processes of accumulation in which they participate.
Clearly, the implications of China’s rise are not confined to commodity markets or resource-exporting states. Several authors have focused, in particular, on China’s evolving relationships in Africa (for example, Brautigam 2009, 2015; Mohan and Lampert 2013), Latin America (Jilberto and Hogenboom 2012; Gallagher 2016; Fornes and Mendez 2018), and Southeast Asia (Glassman 2010; Reilly 2012). More broadly, China and Chinese institutions’ growing influence are evident in development finance (Brautigam and Gallagher 2014; Kaplan 2016; Chin and Gallagher 2019) and investment (Kaplinsky and Morris 2009; Gonzalez-Vicente 2012), as an economic competitor (Álvarez and Claro 2009; Jenkins 2012; Edwards and Jenkins 2015), and as a possible economic model (Zhao 2010; Breslin 2011b). The scale of China’s reach and impact is already clear in reconfigurations of global production networks (Asmeh and Nadvi 2013; Gereffi 2014) and is beginning to be felt in currency markets (Prasad 2017; Subacchi 2017) and in the security domain (Alden and Large 2015).8
Most recently, China’s growing world role has become even more prominent with the rollout of the hugely ambitious Belt and Road Initiative (BRI), an umbrella term covering a wide range of projects—in transport, energy, communications, and industrial production—centered on Eurasia but extending into parts of Africa, Latin America, and the Pacific (Cai 2017). Linked to BRI is the increasing penetration of Chinese capital into Europe, including, for example, Chinese SOEs’ purchase of ports, amounting to around one-tenth of European capacity (Johnson 2018), and substantial investment in advanced manufacturing, with a view to technological upgrading (Drahokoupil 2017, 8–9).
As much as the PRC’s global significance across these fields is now widely acknowledged, a linked debate exists—both within and beyond academia—on the more speculative terrain of what these shifts may augur for the future. Of particular interest has been the question of whether China might at some stage challenge the U.S.-centered (or more broadly “Western”) global economic and geopolitical order. (A small sample of a by now vast literature on this includes Arrighi [2007]; Ikenberry [2008]; Jacques [2009]; Hung [2016]; Nye [2015]; and Rachman [2016].) Another strand of discussion places China at the head of a group of emerging powers in a “rise of the rest” (Amsden 2001; Zakaria 2008), these days most often identified with Brazil, Russia, India, China, and (since 2010) South Africa (BRICS), though sometimes extended to other large Southern states such as Mexico, Indonesia, Nigeria, and Turkey (Pieterse 2011; BBC 2014). Such talk was boosted significantly in the aftermath of the 2008 crisis, which shook confidence in the Anglo-American model of capitalism while throwing into relief the relative economic successes of the four original BRIC countries, whose economies were said to all diverge from Washington Consensus policy in various ways (Ban and Blyth 2013). In 2009, the BRICs (later joined by South Africa) became a formal institution, organizing regular summits and eventually inaugurating the New Development Bank and the Contingent Reserve Arrangement. Some see these institutions, along with the China-led Asian Infrastructure Investment Bank, as potential Southern-led alternatives to the IFIs (Griffith-Jones 2014; Stuenkel 2016, chap. 4) and as part of an emerging BRICS collective financial statecraft (Roberts, Armijo, and Katada 2018). Others are much more skeptical, relating the BRICS’ role to the older idea (not coincidentally associated with Brazil) of large developing states as “sub-imperialist” powers (Garcia and Bond 2017). Somewhat similar arguments are also made with regard to China itself, with its rise seen as potentially buttressing rather than ending the era of U.S. hegemony (Hung 2016, 173–4; Fischer 2015).
These latter works are perhaps more reflective of the current tone of a debate that has cooled somewhat on the extent to which China and other rising powers have the potential to upend the global order. While the geographies of global trade, production, and finance have all become much more “polycentric” or “pluripolar” in recent years (Horner and Nadvi 2018; Grabel 2018), excited talk of North–South convergence (Spence 2011) and the rise of the BRICS (Carmody 2013) has been dampened in recent years by recession in Brazil and Russia, political turmoil in South Africa and Brazil, and slowing GDP growth in China (Bremmer 2017; Roubini 2014; Tisdall 2016). At the time of this writing, balance of payments crises in Turkey, Argentina, and Pakistan threaten to spread to a host of other emerging markets (Jones 2018; Jamal 2019), and an incipient U.S.–China trade war could cause serious economic disruption at a global level (Kuo 2018). China itself faces major challenges in resolving the mounting contradictions in its economic model (Pieterse 2015; Hung 2016, chap. 7), while it is simultaneously being touted as the potential leader of a new round of globalization, especially through the BRI (Liu and Dunford 2016; Warner 2017).
Such swings between optimism and skepticism should demonstrate the dangers of presentism and of reading long-term trends from what may be relatively unenduring phenomena. The remainder of this book, therefore, is aimed at highlighting the new centrality of China as a driver of transformations in the structure of the global political economy, by revealing the scope and scale of effects stemming from shifts that have already occurred. The direct relations between China and the rest of the global South—along dimensions of finance, investment, and trade, among others—have clearly become highly significant over the past two decades. These will all necessarily play a part in the analysis to come. My focus, however, will be on commodity markets, the area in which the extent of PRC’s gravitational pull is perhaps most readily apparent but in which the second-order implications of these changes, in opening new space for policy autonomy on the part of resource-exporting states, have yet to be systematically laid out.
It is clearly too soon to make the leap to claims of impending Chinese hegemony, and I do not seek to assert that these dynamics represent the beginnings of a Chinese-led cycle of accumulation.9 But if we were to ask what the embryonic stages of such a shift might look like, the evolving contours of the relationship between the PRC and the global economy certainly appear somewhat similar to previous episodes (Bonini 2012). There are, of course, also instances where rapid growth of a single large economy has rewired key components of the global political-economic circuitry without that economy rising to hegemonic status, most notably in the case of twentieth-century Japan (Bunker and Ciccantell 2007). For current purposes, attention to the ways in which such shifts have played out in the past can lay the groundwork for an initial thinking through of the kinds of changes we might expect to detect among Southern resource-exporting states during the commodity boom years.
Change in the periphery is often sidelined in sweeping world-historical accounts, which prefer to focus on the rise and fall of hegemons and imply that such cycles simply leave the world outside core centers of accumulation in a state of unchanging or perhaps increasing exploitation. Of those studies which do concentrate on the South, Bunker and Ciccantell (2005), examining very long-term change in the Brazilian Amazon, assume a deepening peripheralization of raw materials–producing areas with each new accumulation cycle, in a manner rather reminiscent of Frank’s (1966) original development of underdevelopment thesis. However, for O’Hearn (2005), development or ascendancy within the world-system for a given state is blocked at each historical conjuncture by a range of barriers to accumulation, a situation faced by aspiring hegemon and periphery alike. Advance, stagnation, or decline for all states in common then comes as a result of more or less successful iterative attempts to solve the various problems of accumulation.
This allows for agency on the part of peripheral governments, despite a certain parameterizing of available options by systemic constraints, partially constructed and imposed through the actions of both the ascendant economy and the current hegemon, though loosened somewhat in periods of systemic shift. In this, O’Hearn builds on Haydu’s (1998) earlier work on reiterative problem solving and on Senghaas’s (1985) study of small European states that were able to “piggyback” on British accumulation processes in the nineteenth century. This belies some of the more familiar static conceptions of the world-system, in which exceptional individual cases of ascendancy have no bearing on the relative positions of peripheral nations, which are condemned to underdevelopment by the very fact of their low position in the hierarchy. It is worth quoting O’Hearn’s alternative formulation at length here, since it meshes extremely well with the notion that underpins my central argument, of the loosening of neoliberal external constraints via Chinese disruption of global commodity markets:
The precise nature of an outcome of, say, crisis and recovery, hegemonic shift, and local position within the newly organized world-system is contingent, not only on relative positions of regional actors but on the strategies they choose at crucial junctures. In particular, localities are not just subjugated into a path-dependent position of underdevelopment. Rather, they have limited options, some of which are worse and some of which are less worse and, just possibly, some of which are actually better. These switching points are probably more likely to occur during periods of hegemonic shift when world-system positions are changing and some localities are being reintegrated into new roles that are defined by the new regional or hegemonic powers. In these situations, it may even be possible for certain regions to “hook on” to core accumulation processes and to achieve upward mobility within the world-system. (O’Hearn 2005, 133)
China may not (yet) be rising to hegemonic status, but it is already far more than a regional power, and there can be no doubt that the world’s economic center of gravity has shifted substantially in the first two decades of the twenty-first century. Nowhere is this more evident than in commodity markets, especially in metals and minerals. With prices having declined, albeit not to preboom levels, causing severe political and economic disruption in many resource exporters, it is not clear that the commodity boom represents a switching point of the kind described by O’Hearn. Even if the boom has definitively ended, however, the period stands as a kind of prototype of exactly the kind of spatially uneven reconfiguration we would expect to see play out alongside any future process of hegemonic shift or other equally large-scale systemic transformation.10
Taking up O’Hearn’s points, the rest of this book serves as a theoretical exploration and empirical illustration of the way in which constraints on local actors are differentially tightened and relaxed by such shifts, the boom allowing (though not compelling) Southern resource exporters to “hook on” to China-centered accumulation processes and achieve, if not upward mobility, then at least a far greater degree of freedom from the disciplinary structural power of the IFIs and the whims of global capital flows. The new resource-powered spaces of nationally autonomous decision-making that arose during the 2002–2013 period were breaks with previous economic orthodoxy, which would have been all but impossible in the prior decade. With the end of the boom, some of these experiments have been defeated electorally (as in Argentina) or descended into chaos (as in Venezuela), though others (such as Bolivia and Kazakhstan) have more or less endured, to varying degrees. But even if commodity prices encounter a precipitous and enduring fall in the near future, the range of policy heterodoxy and development strategies that the commodity boom unleashed surely would be worthy of study, even in the event that, as with the New Economic International Order in the 1970s, they prove to be relatively fleeting phenomena.
Chapter 2 takes the world-historical framework elaborated in this chapter and attempts to incorporate its insights into an examination of the fortunes of commodity-exporting states, and of the global South more broadly, across multiple eras of successive global regimes. In tracing the shifting developmental constraints and openings that have waxed and waned for resource exporters in each era, the aim is twofold. First, the goal is to illuminate the specifications and sources of neoliberal discipline under which such states have labored in recent decades. Second, understanding the newfound ability of resource-exporting states to transcend neoliberal conditionality under the circumstances of the 2002–2013 commodity boom requires an understanding of the distinct regulatory forms of pre-neoliberal regimes—particularly of the post–World War II settlement that I refer to as Fordism–developmentalism, under which the scope for nationally autonomous policy making was far wider.