China crunch

Winner Take All: The Race for the World’s Resources, by Dambisa Moyo, Allen Lane, RRP£20/Basic Books, RRP$26.99, 272 pages

Predicting future demand and supply for commodities is a tricky business, as The Economist demonstrated in 1999 when its cover declared that we were “Drowning in oil” and it pondered whether the oil price would fall to $5 a barrel. Shortly after that, oil embarked on an eight-year-long rise to $145 a barrel.

Dambisa Moyo, the Zambian-born economist, is thus tempting fate with her third book. Her argument that the world faces a Malthusian future of shortages of everything from water to food and metals such as copper comes as the copper price has fallen by 20 per cent in a year and as mining companies worry that the “supercycle” in commodities is over.

Still, it takes more than a temporary softening of the Chinese economy and weakening in its demand for commodities to disprove Moyo’s thesis. We could simply be experiencing a pause in an inexorable process. “The world needs to face up to hard facts,” she writes. “The commodities outlook is fundamentally bleak.”

If we do have to face facts, Moyo is our woman. Winner Takes All would delight Gradgrind: it is peppered with nuggets and statistics, both macro and micro. There are five people per hectare of the world’s arable land; it takes 986 litres of water to produce a kilogram of wheat; the total number of US mobile phones in 2005 contained the same amount of metal as 50 Boeing 747 jumbo jets.

One cannot accuse Moyo of failing to do her homework. So much has been packed into it that her book is impossible to read without learning something. Even asides such as her explanation of the potential and risks of shale gas fracking are replete with numbers and tables.

Moyo has picked her topic adroitly too. China has developed so rapidly that it has left many outsiders behind, still regarding it primarily as the country where phones and household goods get made cheaply. Its accomplishments in bringing hundreds of millions of people out of poverty and becoming pivotal to global trade are far less familiar.

The west – or more accurately, the north – regards China’s most significant trade and financial relationship as being with the US and Europe. The US, feeling its 20th-century economic dominance threatened by the world’s second-biggest economy, is upset that China maintains a large trade surplus and does not “play fair” in controlling its currency.

As Moyo points out, that is no longer the biggest story. As the US fulminates, China has steadily been developing links with commodity-rich countries in Africa and Latin America. These links often include extraordinary arrangements for China to sate its hunger for raw materials.

China’s three big state-owned oil companies have become the biggest investors in Africa, taking stakes in energy and infrastructure ventures. China even tried to lease 2.5m acres of the Philippines to grow crops to be sent home during the 2007 food crisis, a negotiated land-grab akin to Sudan’s leasing of 1.5m acres of farmland to the Gulf States, Egypt and South Korea.

Meanwhile, Chinese workers have moved abroad – often being hired by Chinese companies in Africa – to drive their country’s expansion. There are widespread claims that Chinese workers in Africa include prisoners who are in effect indentured labour – claims fiercely denied by the Chinese state.

Moyo says China is becoming a monopsonist in many commodities by buying so much of the supply in spot markets, as well as trying to secure long-term access to mines and arable land. She compares its strategy to that of Walmart in establishing such a grip over suppliers that it can dictate terms.

As she notes, China’s voraciousness is driven by domestic needs. As long as its population ate mainly rice and grains and lived in villages, its demand for commodities was constrained. The Great Famine was in part caused by Mao’s insistence on an ill-judged attempt to industrialise by diverting resources from agriculture into steel-making.

Yet as China grows richer, the diet of more of its 1.3bn people becomes meat-based and its economy rapidly industrialises, it needs more raw materials. It is hardly the first country to go through this phase, but its sheer size means that the effects of this transformation will be the most far-reaching.

Winner Takes All is not a thesis similar to Dead Aid, Moyo’s broadside against western aid for Africa and in favour of self-reliant development. Instead, it is a warning of crippling resource scarcity: “The simple fact is that the world faces unprecedented constraints in natural resources: from arable land, to water, to minerals – and oil in particular.”

Moyo provides plenty of reasons to worry about the effects of China’s rise. Yet she admits that previous Malthusian predictions about the squeeze on the world’s resources fell short thanks to improvements in productivity and technology. “If they delayed our day of reckoning, it’s far from clear that they will do so forever,” she insists.

She sketches some possible remedies – raising energy taxes or cutting back military spending, for example. But if, as she says, the villains are “self-interest and myopia”, then a solution is remote. In the end, we have to hope she’s wrong.

John Gapper is the FT’s chief business commentator

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