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Have British Commodity Companies Become Too Reliant On China?

  • British companies have spent years increasing imports from China, especially key minerals and commodities.
  • The hope that the investment in these relationships would bring China more in line with Western values has begun to fade.
  • There is now a growing call for British energy and mining companies to reduce their dependence on China.

Encouraged by successive governments, British companies have spent many years courting China, its resources and its huge, increasingly affluent population. 

British companies have paid a part in China’s unprecedented development, which has made the Middle Kingdom the world’s second-largest economy and raised hundreds of millions out of poverty.

However, the hope that such development would anchor China in the Western world and foster values such as respect for the rule of law, human rights, and democracy has been shown to be fundamentally wrong.

Modern, powerful, rich China undoubtedly is, but it is using this new-found power to challenge the West, not to coexist with it. Many are aware of its treatment of people inside China’s borders, including of the Uighar Muslims in Xinjiang, dissident movements in Tibet and the digital ratings system which restricts and controls everyone’s personal movement. 

The crushing of democracy movements and breaking of international treaties on Hong Kong, threats to invade Taiwan, island building in the South China Sea and subtle colonisation of Africa all point to a China which is determined to coerce, threaten and challenge the existing global order. 

However, it is in the economic sphere where British interests are quietly but relentlessly coming under threat. 

China controls the vast majority of the world’s critical minerals. According to the International Energy Agency China extracts 64% of the graphite and 60% the all rare earths extracted on earth. It is the world’s largest steel exporter. 

It processes 87% of global production of rare earths, 65% of cobalt, 58% of lithium, 40% of copper and 35% of nickel. 

Steel, iron, aluminium, lithium, cobalt, graphite, silicon and tin all flow through and are dominated by Chinese suppliers. These are crucial for the production of most modern goods including electronics, electric cars and wind turbines. 

China controls the crucial commodities of the 21st century economy, without which the British economy can’t prosper. The companies that conduct this trade are controlled by the Chinese government, which itself aims to challenge the Western economic pre-eminence.

According to the ONS, 13% of all our imports are from China and nearly 6% of our exports go there. Together with our dependence on Chinese minerals, China is an important and lucrative economic partner. We are sleepwalking into dependence on China, with grave economic and geopolitical implications. 

This is not a problem only for the UK government. Sectors with national security implications have a key role – the private sector cannot simply treat China as just another customer, just another investor. British companies involved in such sectors are effectively now political actors; it is naïve at best for them to expect their interactions with China to be ignored, and for political leaders it is essential to have eyes on any UK companies who are in danger of straying the wrong side of the line.

This is not a hypothetical. Major globally-active firms with British listings, such as British American Tobacco (BAT) and mining giant Rio Tinto, are increasing their investments in China. BAT recently announced a new facility in Shenzhen. Rio Tinto is deeply embedded in China’s critical raw materials industry through a series of joint ventures and business contracts. It is also highly dependent on Chinese customers who account for 56% of the company’s total sales, according to Nikkei Asia. 

Rio Tinto’s China links are growing stronger. Chinalco, China’s state-owned aluminium producer owns 11% of it and is its biggest shareholder. It has also just struck a deal with China Baowu Steel Group to develop an iron ore mine in Western Australia. 

Given the strategic importance of these raw materials and the UK’s wider energy and mineral security strategy, a key goal of which is to reduce reliance on China, these relationships potentially put Rio Tinto in a vulnerable position. 

The Canadian government recently ordered China to sell its holdings in three Canadian mining companies, with industry minister, François-Philippe Champagne, saying “We will act decisively when investments threaten our national security and our critical minerals supply chains, both at home and abroad”.

The UK appears unwilling to take such firm action. Companies here that are deeply intertwined with, and dependent on, China are not treated with the level of scepticism and concern that they deserve.

Rio Tinto is not the only major player that has put itself in a potentially tricky position – but it is significant because of the importance of its industry. Turning down investment is never easy, but here may be an example of where it is necessary.

Our guest opinion areas do not necessarily reflect the views of City A.M. or Oilprice.com 

By City AM

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