China between dependency and self-sufficiency 自力更生 ?
China is the world export champion. In debates about China the topic is mostly how dependent the West and the world is from China, but t is often ignored that China for important products is dependent on imports – including from countries against which Beijing has strong antipathies The People’s Republic of China needs oil from abroad – since 2017 the country has been the world’s largest oil importer. And the gap between stagnant domestic production and still growing demand is widening. But that’s not all: Oil isn’t the only commodity that China has needs. In addition to the fragile energy security, there are other vulnerabilities. China must create a „strategic basis“ for self-sufficiency in important raw materials from energy to soybeans, President Xi Jinping stressed in December at the Communist Party’s annual economic conference. „For a large country like ours, it is a key strategic issue that we can secure the supply of primary products,“ Xi urged the delegates. „Soybeans, iron ore, crude oil, natural gas, copper and aluminum ores are all linked to our nation’s destiny.“ In 2021, China’s imports grew by 21.5 percent to 2.4 trillion euros. The growth was recently driven primarily by rising demand for commodities for the energy sector and metals. Concepts such as the dual circulation presented by Xi 2020 should therefore strengthen the role of the internal market. The 14th five-year plan aims for the country’s technological independence by 2025. But at least in the short term, China needs the imports.
The issue is therefore gaining increasing priority on the country’s long-term agenda under Xi. For commodities such as soybeans, iron ore, crude oil, natural gas, copper, bauxite and gold, up to 80 percent of Chinese consumption comes from abroad. In the technology sector, it is primarily semiconductors that China has to import: the country has been the world’s largest chip importer since 2005. But China also has to procure other technologies and components largely abroad. According to a new study by the Center for Security and Emerging Technology (CEST) at Georgetown University in the US, these include lidar systems (distance and speed sensors) for self-driving cars, engine housings for commercial aircraft or reagents for gene editing kits. Soybean imports have increased tenfold The geopolitical tensions between China and the West, above all with the USA, have long had an impact on the country’s imports. In 2018, shipments of American soybeans to China became part of the trade war. The growing meat consumption of the Chinese is driving up the demand for corn and soybeans as animal feed. In the past 20 years, soybean imports have increased tenfold from 10.4 million to 100.3 million tons. Here, too, the People’s Republic is by far the world leader. The trade dispute with Washington halved Chinese imports of US soybeans from 32.9 billion tons in 2017 to just 16.6 million tons in 2018. China turned to Brazil to help fill the gap. Today, Brazil supplies 60 percent of the country’s soybean imports. 30 percent still come from the USA. But Brazil’s production can no longer keep up with demand from China. Beijing is therefore trying to establish further channels in Russia and Southeast Asia. Especially since the need for imports will continue to increase because the arable land under cultivation in China is shrinking – by 14.8 percent in 2021. According to the National Bureau of Statistics, many farmers are giving up soybean cultivation because of the low margins.
The US policy of blacklisting by former US President Donald Trump has also cut off many Chinese companies from important components for years. Beginning in 2018, Trump put hundreds of Chinese companies on the Commerce Department’s harmless-sounding Entity List. That amounted to a ban on American companies selling to these Chinese companies. The Biden administration has retained this list. In December, it even added more companies, including AI specialist Sensetime and leading drone maker DJI. In the past, China also benefited from technology transfer from abroad. But US tech investment has plummeted 96 percent since 2016, according to CEST: „Beijing has been forced to look for new ways to source key technologies — and to turn to shell companies and middlemen for foreign components, reagents and other relevant equipment to get.“ According to the experts, fewer than ten percent of the Chinese military’s equipment suppliers are listed on the US export control and sanctions lists. But: „Some do their business by packaging US-origin equipment and reselling it to sanctioned Chinese military units.“ This gray area helps China in the short term.
However, this trick does not diminish the dependency on other countries. China’s semiconductor imports are larger than oil imports China is dependent on imports for 35 key technologies that it cannot produce domestically in sufficient quality or quantity, wrote CEST researcher Emily Weinstein in early January, citing China’s Ministry of Education. These technologies include high power gas turbines, high pressure piston pumps, steel for high value bearings, photolithography machines, industrial software and more. In other words, a whole arsenal of high technology that an economic power needs in order to be able to claim a leading role in the world in the long term.
China is dependent on imports for 35 key technologies that it cannot produce domestically in sufficient quality or quantity, wrote CEST researcher Emily Weinstein in early January, citing China’s Ministry of Education. These technologies include high power gas turbines, high pressure piston pumps, steel for high value bearings, photolithography machines, industrial software and more. In other words, a whole arsenal of high technology that an economic power needs in order to be able to claim a leading role in the world in the long term. Today, in times of a global chip shortage, Beijing is also competing with the EU and the USA for semiconductor supplies from the Taiwanese world market leader TSMC. In 2020, China imported $350 billion worth of semiconductors — more than its oil import volume. According to the trade magazine Technode, China recorded a trade deficit of 233.4 billion US dollars in semiconductors in 2020. Crude oil was „only“ $185.6 billion. Despite the deficit, the People’s Republic recorded a trade surplus of around USD 590 billion across all product groups in 2020, and the surplus even climbed to USD 676 billion in 2021. Incidentally, 60 percent of imported semiconductors in 2020 were components for China’s export products such as tablets and other electronic goods. After Washington put China’s industry leader SMIC from Shenzhen on the Entity List in 2020, the company struggled to produce modern seven-nanometer chips. „SMIC lack the expensive machine tools to manufacture them,“ wrote researcher Weinstein. US export controls paralyzed Huawei’s HiSilicon chip subsidiary. This is one of the reasons why China wants to produce 70 percent of the chips it needs for its tech industry and the automotive sector itself from 2025. But the goal is vaguely formulated; and even then it will still have to purchase many of the innumerable primary products from abroad.
Despite efforts to strengthen China’s position as a science and technology hub, the Communist Party is struggling to establish domestic supply chains for key commodities such as semiconductors and gas turbines, Weinstein writes. China will likely remain dependent on foreign equipment well into the 2020s. In addition, China’s path to foreign technology mainly leads through US allies such as Australia, Japan, South Korea and Great Britain. China also has to source raw materials from geopolitical rivals — such as natural gas for the winter. Meanwhile, China gets 60 percent of its iron ore imports from Australia. With Canberra, however, Beijing’s relations are at rock bottom. China has been pestering Australia with punitive tariffs or import bans on beef, lobster, barley and wine, for example, since Canberra called for an independent investigation into the origins of Covid-19. Australia has since joined several security alliances that are implicitly anti-China. It has just sealed a partnership with Japan. So far, Beijing has not dared to approach Australian iron ore imports. However, China dislikes its dependence on Australian ore. The People’s Republic is therefore looking for alternatives. One found it in 2020 in the Simandou range of hills in West African Guinea. The world’s largest reserve of undeveloped high-grade iron ore is said to lie there. In addition to developing the mine, 650 kilometers of railway line and a modern ore port have to be built. In 2020, China secured two out of four sections of the planned mine as part of a consortium with companies from France and Singapore. But Guinea is politically unstable. In September 2021, a military coup overthrew President Alpha Conde. Since then, the putschist leader Colonel Mamady Doumbouya has ruled. Beijing criticized the coup — unusually. Because nobody knows whether the army will now recognize the mines contract. Only: China is already dependent on Guinea – the country supplies the Chinese with 55 percent of the bauxite they need for the aluminum industry.
Independent and self-sufficient by 2025 sounds very ambitious and almost unrealistic. It is also interesting that the agricultural area in China has fallen by 15% because many farmers have given up or perhaps moved to the cities as migrant workers. And who are all the middlemen who ship sanctioned US goods to China are?
German sinologist Prof. van Ess commented:
“Decoupling is also an important topic in China. I sometimes suspect that the 2018 Trump list has been the catalyst for this decoupling since 2020. Self-sufficiency and self-autarcy were always a dogma in China until globalization came along. By 2018, the globalizers had the edge in Chinese politics. Since then, people have thought back to how they can do it on their own and what they really need from abroad. Somehow I have the impression that this total lockdown behind the Covid wall is not only related to Covid, but that it is used to test how it works without the rest of the world.”