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China Seeks Global Sources of Raw Materials

Industry executives and analysts say the Chinese government is continuing to block shipments of crucial strategic minerals to Japan following the detainment of a Chinese fishing boat captain earlier this year. Rare earth shipments to the United States and Europe did resume after a brief suspension in October. The dispute has brought increased attention to China's massive industrial need for raw materials and rare earths used in electronic and high-tech products. China is searching not only for the most needed minerals at home, but in many other parts of the world.

China's modernization and new industrial revolution has led to a growing quest for energy and raw materials in Africa, Latin America and Australia, which has intensified over the last decade.

Derek Scissors is with the Asian Studies center at the Heritage Foundation in Washington. "They are looking to, not lose money, because there is a big political problem at home with big investments that fail, store reserves, and improve supply access for natural resources," he said. "The real goal of Chinese outward investment on the material side is to lock up long-term supply. The return, the price, it's not the material."

China has been continuously expanding foreign expenditures, including investments in Venezuela and trade agreements with Chile. Francisco E. Gonzalez, an associate professor at Johns Hopkins University, said China's approach in Latin America is very long-term.

"China's charming offensive in Latin America includes not only the loans, not only the promise to be together in international forums to forge south-south solidarity to confront the rich north,” he said. “But it also has a very sophisticated policy that is trying to forge cultural links in order to think about this relationship in the next 40 or 50 years."

A natural trading partner much closer to China is Australia. Patrick Fazzone is the chairman of the Trade and Government Committee of the American Chamber of Commerce in Australia. "Traditionally Australia has been very dependent on foreign investment for growth and development because of its relatively small population and large land mass,” he said. “On the other hand of course, China has enormous demand for resources, notably resources that are available in large supply in Australia. China has a tremendous amount of available capital these days. And importantly a concern to secure sources of supply of a lot of the resources that exist in Australia."

But Derek Scissors said China is not always able to secure raw materials for a number of reasons. "The Chinese firms make major mistakes in their outward investment bids because they are inexperienced. That is one source of failed deals. Another source is absolutely host country rejection. A third major source of rejection is Chinese regulators saying no." he said.

He said while China has become the world's leading exporter of capital with about $175 billion in deals completed over the past few years, it also has recorded about $130 billion in deals failed. Some of China's largest deals include oil in Nigeria, the Congo, Saudi Arabia, Brazil and Kazakhstan, natural gas in Iran, and iron ore in Australia.

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