By All Means Necessary (11 page)

Provincial-level state farm agribusiness corporations (SFACs) can act independently or partner with CSFAC.
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Perhaps the most prominent provincial SFAC is the commercial entity of the Heilongjiang State Farm Bureau, the Beidahuang Group. Founded in 1998 and based in the northeastern province of Heilongjiang, the state-owned enterprise is involved in purchases of grains, oil-bearing crops, beets, fruit, meat, milk, and marine products.
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Beidahuang is heavily involved in overseas land investment, with notable investments in Argentina, the Philippines, and Australia, among others. In 2011 the governor of Argentina's Río Negro province signed a $1.5 billion deal (that ultimately failed) that would give Beidahuang exclusive control over the supply of soybeans, corn, and other crops from an area of up to 320, 000 hectares for twenty years. In the Philippines, Beidahuang signed a deal to develop rice, corn, and other crops over an area of about 200, 000 hectares in the province of Luzon. As of early 2013, Beidahuang was also reportedly looking to gain access to tens of thousands of hectares of land in Australia.

How does China compare to others in the scale and scope of its land acquisitions? According to an International Institute for Sustainable Development report, in 2007, the country's foreign direct investment in agriculture ranked third after the United States and Canada.
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However, international agricultural investment from all countries remains less than 2 percent of total international investment in natural resources.
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Chinese land and agricultural investments around the world differ in form and purpose. In African countries such as Zambia and Senegal, Chinese-invested farms are often smaller-scale, as in
ten hectares or fewer, and typically serve local Chinese communities, such as those that emerge around particular resource or infrastructure investments. Poor infrastructure and high transportation costs limit Chinese interest in larger-scale agricultural investment in Africa. Political challenges also affect these agricultural investment decisions. According to one Chinese official, African countries such as Tanzania, Angola, and Zimbabwe boast ample farmland, but Chinese investors are concerned about insurgents, employee kidnappings, and changing investment regulations.
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In addition, larger Chinese agricultural enterprises, which are most interested in developing export opportunities, often face a paucity of skilled labor, as well as difficulties gaining access to pertinent information on matters such as soil quality and complex land tenure issues.
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Chinese companies' preference is to own land outright to ensure “product safety, lower production costs, and better profits.”
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Where owning land outright is not possible, they invest in infrastructure and processing facilities; in the case of Brazil, this allows them to purchase soybeans directly from Brazilian farmers, circumventing multinational grain companies. Here, too, challenges emerge. In Brazil, the additional costs for translation services to overcome language barriers, as well as farm labor costs—which run two to three times those of Chinese labor—can make investment prohibitively expensive for some Chinese farming enterprises.
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Chinese investment in agriculture generally ranks a distant second or third to that in energy or minerals in a given country. In Brazil, about 20 percent of Chinese investment is in agribusiness (as opposed to 45 percent in energy). In Australia, in 2011, $4.2 million of a hefty $9.8 billion in Chinese resource investment was directed toward agriculture. In contrast to Brazil and some other countries, however, Australia is seeking to reduce barriers to land purchases.

Chinese companies do not go out in search of water in the same way they seek investments in land, minerals, or energy, in substantial part because water is not traded on a large scale on global markets.
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Instead, they influence water resources in other countries through their use of rivers that flow through China before entering other countries downstream.

Water-parched China controls the headwaters of at least ten of Asia's transboundary rivers, prominently the Yarlung Tsangpo, which becomes the Brahmaputra in India and Bangladesh; the Lancang, also known as the Mekong, in Cambodia, Burma, Vietnam, Laos, and Thailand; and the Ili and Irtysh, which flow into Kazakhstan. (The Irtysh also flows into Russia.) Downstream countries rely on these water resources for a range of agricultural, energy, and fishery needs. As local Chinese governments and companies build dams and hydropower facilities, and in some cases consider river diversions, they can drastically affect the availability of water for their downstream neighbors. With few exceptions, however, China has been reluctant to engage in discussions of water-sharing rights, asserting that it alone has the right to determine how the water is used.

It is most helpful, then, to think of the main players when it comes to water as the government agencies overseeing water policy rather than the companies implementing projects. (This contrasts with the other resource areas studied here, since the Chinese government has more control over companies operating at home than abroad.) The primary overseer of Chinese water policy is the Ministry of Water Resources (MWR), which works with eight other departments under the State Council in what has been described as the “nine dragons who administer water.”
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There are also seven River Basin Commissions (RBCs) that share in administrative authority. And decision making isn't fragmented just at the national and regional level; an array of responsibilities for water data, infrastructure, transportation, agriculture, and sustainability are devolved to local authorities in a manner that further frustrates any hope for a well-coordinated water policy.
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This fragmented domestic approach to water governance makes it all the more difficult to integrate concerns about impacts on other countries (and China's bilateral relations) into water policy. The extent of coordination between the Ministry of Water Resources and the Ministry of Foreign Affairs is unclear, though Chinese water
experts Feng Yan and He Daming note that the lack of any “single specialized official agency in charge of China's transboundary waters” has led to “administrative overlap” and a more basic “lack of clarity in how China's water resources are managed.”
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The Ministry of Foreign Affairs lacks expertise in water issues and often defers to agencies like the MWR, the Ministry of Environmental Protection, the National Development and Reform Commission, and the State Electric Power Corporation.
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As a result, when it comes to international water policy, the MWR—an agency with little diplomatic expertise—often plays the leading role.
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Water also differs from other resources in the geographical distribution of foreign impacts. (We discuss the precise patterns of impacts more thoroughly in
chapter 8
, which looks at how these affect international relationships and security.) Chinese companies target opportunities for oil and gas, minerals, and land in large part on the basis of where the best overseas prospects are. The locations of Chinese water-related projects, in contrast, are driven by the geography of domestic needs for water and hydroelectric power, and of domestic water resources. As a result, the impacts on other countries are incidental; China does not, for example, seek to “acquire” water resources from Kazakhstan, but the geography of domestic water resources and needs means that domestic activities affect Kazakhstan downstream.

China has followed in others' footsteps by shifting from merely buying resources through trade to investing directly overseas; in doing so, it is joining other countries, not creating a new phenomenon of its own. China's strongest presence so far is in oil, though even there, the scale of investment remains limited compared to that of other major players and will still lag even in ten years, given the strong head start that others have. China remains a minor participant in minerals and land investments, though the role of its companies is steadily growing. Moreover, averages can be deceiving: in more and
more individual countries, China is either the biggest player or the largest source of new investment and growth.

Yet even where Chinese investments are relatively small, they can have new and significant consequences, in part because they differ from most others in important ways. Though many observers have exaggerated the top-down and strategic nature of Chinese investment and have overstated the novelty of some of the tools employed, it remains true that many Chinese companies (particularly the largest ones) benefit from government support that most of their competitors do not possess, thus changing the world of natural resource investments. Cheap money, which can allow Chinese companies to underbid competitors, is the most obvious aid, though that might be scaled back if the Chinese economy stumbles. The ability and willingness of many Chinese companies to call on their government for help may have more pervasive consequences, not all of which, however, ultimately help those companies get ahead.

IN MAY
2012,
THE
Mongolian parliament dropped a bombshell. Mongolia's vast territory, sandwiched between China and Russia and rich in resources, had long been wide open for foreign investment. Now a new Strategic Entities Foreign Investment Law would require government approval for foreign investments over $75 million in “strategic sectors” such as mining that would result in a 33 percent or greater foreign stake. Parliamentary approval would be required for any foreign majority stake.

The reaction from foreign investors was harsh and immediate. By the end of 2012, investment in Mongolia had dropped 17 percent from the year before. The government quickly revisited its decision and, in April 2013, clarified that the rule was targeted only at investment by state-owned enterprises. In fact, it was a thinly veiled attempt to protect Mongolia against Chinese investment. The powerhouse Chinese mining state-owned enterprise Chalco was attempting to buy a 60 percent share in South Gobi Resources Limited, a subsidiary of the British Australian mining behemoth Rio Tinto, for nearly $1 billion.
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The new law was designed to stop it.

China is Mongolia's largest foreign investor; just over 50 percent of all foreign direct investment comes from Chinese companies. Moreover, approximately 90 percent of Mongolia's exports—overwhelmingly raw materials—go to China. According to Gotov Battsengel, the chief executive officer of the Mongolian Mining Corporation, “Mongolia's mining fever is driven by Chinese consumption…virtually, we have one customer.”
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Yet such extensive trade and investment ties with China have yielded at least as much concern as enthusiasm in Mongolia, which is wary of too great a Chinese presence and influence in the country's economy. Ganhuyag Chuluun Hutagt, former vice finance minister, has said, “We will not be another Africa…we cannot afford to have one particular nation control our business.”
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Centuries of Chinese and then Soviet rule have also made Mongolians particularly sensitive to outside influence. An April 2012 poll revealed that only 1.2 percent of Mongolians believe China is the “best partner for Mongolia.”
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Human rights activist Oyungerel Tsedevdamba cites Chinese labor exports and weak environmental standards among the reasons Mongolians prefer that their country do business with other investors.
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As a result, Mongolia has gone to extraordinary lengths to defend itself against closer economic integration with China. It is building a railroad to bring coal from the Gobi desert to China but will use its own rail gauge rather than matching it to that of China. This means transporting coal across the border will require either changing the undercarriages of the trains or transferring the coal to trucks, adding an estimated $120 million annually to the export costs.
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Fears of Chinese workers flooding in are pervasive, and immigration from any one country is limited to ten thousand workers. In the mining sector, companies must recruit nine Mongolian workers for every foreign worker brought in, while construction companies pay a fee of 15 percent of the foreign worker's salary to the Mongolian government. Still, according to one Chinese report, companies often prefer to pay the extra costs for their workers, viewing Mongolian workers as “lazy, alcoholic and unwilling to adhere to normal working hours.”
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Conflicts between Mongolians and Chinese are frequent.

Few countries share the history, geography, and economic complementarity of Mongolia and China. Yet the former's experience navigating the range of opportunities and challenges posed to resource-rich countries by rapidly rising Chinese investment is far from unique. In just over a decade, this investment has helped transform many resource-rich developing countries. The immediate economic benefits are easily seen in thriving mining industries, new
highways, and active ports around the globe. The ultimate impact of this investment on the political, social, and broader economic fortunes of these same countries, however, is less clear.

Foreign direct investment can have wide-ranging and positive impacts on economic, social, and political development. Multinationals tend to provide higher wages than local businesses. They also typically offer more worker training and, as a result, do more to boost people's skills than local enterprises.
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FDI also tends to improve labor practices by encouraging stronger workers' rights and the rule of law, social services, and infrastructure necessary to support better working conditions.
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Moreover, multinationals can contribute to stronger environmental performance through their adherence to higher standards (often imposed by their home governments) and use of more advanced and environmentally friendly technologies than others might.
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