China's rise increases competition for minerals (Feature)

By Andreas Landwehr Sep 1, 2010, 4:07 GMT

Beijing - China's hunger for mineral resources has grown with its rise to become the world's second-largest economy. Today, the China factor is playing an increasing role on all raw materials markets.

Never before has China invested so many billions of dollars to ensure that the demands of its manufacturers and consumers are met, but in their buying sprees around the world, state-owned Chinese businesses are also meeting with resistance.

China already uses twice as much steel as the United States, Europe and Japan combined, and the sheer scale and speed of the country's economic growth will see its demand for resources rise for decades to come.

After annual economic growth of about 10 per cent since 2000, China should see growth of 7 to 8 per cent or even more in the coming decade, experts predicted.

'It means continuing per-capita increases in the consumption of iron ore, copper, aluminum and other minerals,' said Tom Albanese, chief executive of the Anglo-Australian mining business Rio Tinto Group, during his most recent visit to Shanghai.

Urbanization in China is set to produce more than 200 cities of over 1 million people by 2025 - in contrast to 35 in Europe today.

Those new city dwellers will need flats and houses and more transport infrastructure. More cars are already being sold in China than in any other country.

Increasing demand for metals is guaranteed 'for the next 20 to 30 years,' Albanese said. 'China remains central to Rio Tinto's success.'

China, the world's largest steel producer, is Rio Tinto's biggest customer, responsible for one-quarter of its revenue.

It is also the company's largest shareholder. The Aluminium Corporation of China (Chinalco) owns around 9 per cent of Rio Tinto. A planned doubling of that holding a year ago for 19.5 billion dollars failed because of political opposition in Australia.

'They cannot adapt to the new change in the world,' Zhou Dadi, vice chairman of the China Energy Research Society, said of resistance to China's ascent in the global economy.

'They consider the problem from an old perspective, even the Cold War perspective,' said Zhou, whose non-profit organization operates under the government's National Development and Reform Commission.

Is the world denying China its fair share? That's not the issue, as far as Zhou Dadi is concerned, because natural resources are not allocated into shares.

'Someone is willing to sell and someone is willing to buy,' he said. 'It is normal. Whoever wants to buy, just buys. China never wants to stop others from buying.'

But China's attempts to secure the raw materials it needs have been controversial, especially in Africa.

China exports consumer goods there in return for supplies of oil and minerals. Trade has increased around tenfold since 2000 to 100 billion dollars.

Critics target China's close cooperation with dictatorial regimes, and there have been accusations of neocolonialism, which it vehemently denies.

'China never exploits or ask others to supply minerals by force,' Zhou said. He said the trade is mutually beneficial. 'This is also a business opportunity for resource-exporting countries.'

'In the past, developed countries monopolized the resource market. Now, the new developing countries enter the market with new demand,' he said, adding that it was no cause for concern.

In 2009, Chinese companies invested a record 32 billion US dollars around the world to secure their oil and mineral needs. With the world's largest foreign currency reserves at 2.45 trillion dollars, China has the money to do this.

Zhou complained that the three largest mining businesses - Australia's BHP Billiton Ltd, Rio Tinto and Brazil's Vale SA - indirectly control prices by preventing new shareholdings.

'To some degree, it is one of the factors that leads to the higher price,' he said.

'To increase the supply, you need to increase investment,' he argued. 'China's investments will increase production and ease the pressure on the market. This is a good thing.'

He complained about criticism of China for consuming too much while at the same time not allowing it to invest.

'This is not logical,' he said.