DAMBISA F. MOYO

Winner Take All

China’s Race For Resources and What It Means For Us

Contents

Introduction

PART I.
CHINA’S RUSH FOR RESOURCES

1. The Drivers of World Commodity Demand

2. The Resource State of Play: Land and Water

3. The Resource State of Play: Oil, Gas, and Minerals

4. Hocking the Family Jewels

PART II.
WHAT CHINA’S RESOURCE RUSH MEANS FOR THE WORLD

5. A Commodity Price Précis

6. Cornering the Market

7. Meddling in the Markets

8. The Geopolitics of It All

9. A Harbinger of Things to Come

10. Clear and Present Danger

List of Tables and Figures

Acknowledgments

Notes

Bibliography

Chapter 1

The Drivers of World Commodity Demand

TO UNDERSTAND THE EVENTS of the next fifty years one must first and foremost understand environmental scarcity or “diminishing natural resources.” So penned Robert Kaplan in 1994 in his article titled “The Coming Anarchy: How Scarcity, Crime, Overpopulation, Tribalism, and Disease Are Rapidly Destroying the Social Fabric of Our Planet.” Kaplan offered a chilling vision of the future, foretelling in vivid and painstaking detail how the global scarcity of resources would contribute to worldwide demographic, environmental, and societal stress.

Whether or not we accept Kaplan’s dire vision, it is clear that in order to understand China’s approach to securing global resources, we must set it in the broader context of the global demand for commodities. Ultimately, global commodity supply also matters (this is discussed in the next two chapters), but this chapter considers the evolving demand dynamics: why global demand pressures across the commodity complex—arable land, water, energy, and minerals—are set to increase, and how these demand factors will exacerbate resource scarcity in the decades to come.

THE MALTHUSIAN CHRONICLES

Kaplan’s article was not the first to identify a dearth of resources as the catalyst of an impending global cataclysm. As early as 1798 Thomas Malthus in his “Essay on the Principle of Population” argued that population growth generally expands in times and places of plenty, until the size of the population relative to the primary available resources causes distress. In essence, Malthus argued, the limits on the availability of commodities are what keep population growth in check. The Club of Rome’s 1972 report “The Limits to Growth” built on Malthusian theory in modeling the impact of a growing world population against finite (and depleting) resource supplies. The Club’s conclusion: this supply-versus-demand disequilibrium would constrain economic growth and could consign large swathes of the global population to poverty.

Four decades later commodity imbalances continue apace.

The exponential growth of the world’s population and the technology that has accompanied it over the past fifty years have placed unprecedented pressures on commodity demand of all manner of resources—from food and water (itself an input to food) to energy and minerals (as, say, heating and plumbing inputs for a rapidly expanding global population). Even ten years ago few anticipated how many of us would be carrying personal technological devices or the rapidly increasing share of the global population that would be car owners, yet both are a tremendous draw on finite mineral resources.

To be sure, the world economy has largely been bailed out by technological advances that have generated productivity gains, greater efficiencies, and improved utilization of resources. But if they have delayed our day of reckoning, it’s far from clear that they will do so forever. As advancements to boost resource supply stall and global commodity demand skyrockets, a scarier picture is emerging, one in which the resources on which we depend today—many of them nonrenewable—are depleting into nonexistence or are so poorly matched that their demand and supply might never be able to meet. Yet, as we highlight throughout this chapter, China seems to be the only country that’s preparing for this eventuality in a sustainable and deliberately constructive way, by making friends across the globe and systematically and continually investing across the commodities complex.

DRIVING RESOURCE DEMAND

Like virtually all goods and services, commodity prices are driven by supply and demand. As canonical economic models suggest, where these two meet, the price of the commodity is set.

As we shall discuss in subsequent chapters, the factors driving the supply of land, water, energy, and minerals are complicated by the fact that there are cross-linkages among the different resources. For example, the supply of food, such as grains and beef, crucially depends on the availability of both arable land and water. So gaining access to these underlying resources matters almost as much as the target commodity itself and ultimately determines the price and availability of the broader spectrum of food products.

In contrast, the factors influencing the demand for soft and hard commodities are broadly the same. At a very basic level the two influential factors are population dynamics (the absolute size of the world’s population and prospects for global population growth) and the increases in wealth that are driven, in particular, by rapid economic growth in emerging economies. Naturally, the implications of these wealth increases on consumption patterns will be considerable.

THE GLOBAL POPULATION GROWS

In just sixty years the global population has exploded—from around 2.5 billion in 1950 to 7 billion in 2011.The chart below tells the story in shorthand: a gentle slope emerging out of the Middle Ages and Renaissance, a slight rise in the incline around 1928 when the Scottish scientist Alexander Fleming stumbled serendipitously upon penicillin, and then the steep Everest-like slope as medical interventions became ever more sophisticated, infant mortality rates nose-dived, and average life expectancy rose. Demographers now forecast that the world’s population will expand by an additional 1.2 billion over the next twenty years, so that by 2050 there will be as many as 10 billion people living on the planet—a 40 percent increase in the world population in a mere forty years.

Figure 1.1. Skyrocketing World Population
Source: Philippe Rekacewicz, “World Population Development,” UNEP/GRID-Arendal, http://www.grida.no/graphicslib/detail/world-population-development_29db\.

The good news is that the pace at which the world population is growing will gradually slow, offering a reprieve on commodity demands. The UN expects women almost everywhere to bear fewer children by the middle of the twenty-first century. Currently the global average is 2.6 children per woman, down from 4.3 in the 1970s; this is expected to decline to just 2 by 2050. The bad news is that in the shorter term the pressures exerted on global resources by the prospects of a global population approaching 10 billion are ominous.¹

To complicate matters further—and the graph also shows this—the greatest population growth is forecast in precisely the regions with the highest prospect for rapid increases in wealth and a concomitant greater demand for resources. According to the US National Intelligence Council publication Global Trends 2025: A Transformed World, nearly all of the population growth over the next twenty years will come from Africa, Asia, and Latin America, with less than 3 percent from the developed West. More developed countries like the United States still register population growth, but at a slowing rate. For instance, according to the US Census Bureau, the US population grew by around 2.8 million people between April 2010 and July 2011, from both immigration and increased births.

However, it’s not just that there will be more people on the planet. The global population in its entirety is getting wealthier, and it is this newfound wealth that could put pressure on resource demand and ultimately wreak havoc on the supply-demand balance across the commodity complex.

THE WORLD’S POPULATION GETS WEALTHIER

In 2001 Goldman Sachs economists came up with an acronym to capture what they saw as the amazing economic growth prospects of the leading emerging economies—Brazil, Russia, India, and China, known as BRICs. Their now well-known BRIC estimates projected that by 2050 these countries would be four of the top five largest economies in the world.

The following year, in 2002, Goldman Sachs calculated that the increase in China’s dollar GDP had been effectively the same as creating two new Indias, a new Italy, and nearly a new France or UK. The economists at Goldman Sachs have since revised their estimates upward as the BRICs have posted greater economic gains in a shorter period of time than originally expected. By 2010, for example, China’s GDP had grown by almost US$4 trillion since 2000—meaning China has, in fact, created another seven Indias (at its 2001 size), nearly three Italys, and more than two Frances. Simply put, more economic growth means more wealth means more commodity demand.

In the past two decades China has had the world’s fastest-growing economy, overtaking Japan to become the world’s number-two economy after the United States in 2010. If China continues on this trajectory, it is poised to become the world’s biggest economy by 2025. But even if it hits a temporary roadblock, the fundamental path of economic improvement points to only higher levels of commodity demand, even if at a slower rate of change. The tremendous economic progress around the world and the global wealth that it has unleashed has far-reaching and untold effects on the global demand for commodities. A richer average population will demand more and better quality foodstuffs, goods, and services—all of which require more resources.

If China is this century’s biggest growth story, it is not the only one. India—home to some 1.2 billion people, around 17 percent of the global population—has followed closely behind China in this relentless economic march forward. Conservative estimates put the Indian subcontinent’s growth rate over the last several decades at an average of nearly 5 percent a year, lower than China’s at 7.5 percent, but still impressive—and remarkably consistent. All told, the combined GDP of the BRIC countries is thought to have risen from US$2.5 trillion at the beginning of 2000 to close to US$9 trillion by 2010. (By comparison, the United States is thought to have added US$4.5 trillion over the same period.) This continuing economic growth across the emerging world—not just among the BRICs—has led forecasters to predict that by 2030 at least 2 billion new people will join the global middle class. Put another way, in less than twenty years we will witness the creation of a middle class of roughly the same size as the current total population of Africa, North America, and Europe.

At one level this is a global success story of remarkable proportions. By the mid-2020s over 200 million people in the BRICs could have incomes over US$15,000. To people living in developed economies this might not seem like much—in the United States, for example, per capita incomes are around US$47,000—but given that many emerging economies had average incomes of around US$1,000 thirty years ago, such income forecasts are astounding.² The tremendous economic progress around the world is, however, a mixed blessing. A richer average populous is certain to demand more and better quality goods and services, all of which require more resources. A small example of how the voracious appetite for commodities of all kinds will expand are forecasts that global demand for food and water will increase by 50 and 30 percent respectively by 2030.

PLANES, TRAINS, AND AUTOMOBILES

Microdata confirm that the phenomenon of rapidly increasing economic wealth is not just a macroeconomic occurrence. At the end of 2008, for example, China recorded more dollar millionaires than the UK—364,000 versus 362,000 respectively. India—still regarded in many Western eyes as a poor country—has an estimated US$500 billion in private money abroad. Aside from boasting the world’s largest middle class, numbering some 450 million people, India is also home to at least fifty native-grown billionaires.

In less than half a century China alone has managed to transform the livelihoods of some three hundred million of its people, shifting them from abject poverty to economic standards that rival the West—a feat unprecedented in the history of the world. India’s aggregate poverty ratio (defined as the percent of people living on less than US$1.25 a day) has shifted from nearly 60 percent in 1981 to just over 40 percent in 2005. Over the same period China’s poverty statistics have gone from 85 percent to 16 percent. (The closest comparable statistic in the United States has hovered around 15 percent in the same time frame.³)

Both China and India have accomplished amazing feats in improving living standards for their citizens, but such massive increases in wealth and economic power invariably come with increases in demand—for virtually everything. As incomes rise, so does the demand for more protein-based foods like meats and chicken (a substitution pattern in which people replace cheaper wheat and root-based foods like potatoes with more expensive and protein-rich meats⁴); better-quality housing with indoor heating, water, and plumbing; and more efficient transportation and telecommunications in the form of cars and telephones.

By 2010 rapidly emerging economies were already registering double-digit growth in domestic demand—15 percent in China and 10 percent in both India and Brazil—fuelled in large part by demand pressures from their newly arriving and voracious consumers. And China alone ranked first in demand for mobile phones and cars, and second in electricity consumption.

Each of these creature comforts requires commodity inputs—such as metals like copper, gold, lead, nickel, palladium, and aluminum used in the production of the frames, batteries, and circuit boards of computers or mobile phones. To place this demand in context, as of 2010 an estimated 5.3 billion mobile phones were in use worldwide, accounting for approximately 77 percent of the world’s population and fast approaching one cell phone for every man, woman, or child on the planet today.

What does that mean in terms of commodities and resources? A July 2006 fact sheet titled “Recycled Cell Phone—A Treasure Trove of Valuable Metals,” compiled by the US Geological Survey, is revealing. It provided separate breakdowns for the 180 million cell phones then in use in the United States, another 130 million expected to be retired that year, and the 500 million obsolete cell phones sitting in drawers and closets awaiting disposal. In the aggregate, as shown in the table below, those 810 million cell phones contained over thirteen thousand metric tons of metals, with a collective net worth of more than half a billion US dollars. To put it more graphically, the sum total of all phones in use, retired, and out of circulation in the United States in 2005 was equivalent to the amount of metal contained in fifty 747 jumbo jets.⁵ And this is just the United States in just one year at a time when cell phones were in their relative infancy.

One estimate holds that there are now over 327 million cell phones in use in the United States alone—that is, over one phone for each person in the population. China and India, amongst the most rapidly growing economies in the world, together have nearly two billion cell phones in use, close to a billion in China alone. Odds are that both these nations will soon converge to mobile-phone penetration rates similar to or greater than the United States. Add to that the demand pressures from the soaring use of other mobile electronics—iPads, Kindles, laptops, and the like—and it’s easy to see that the demand pressure on metals like copper, gold, and palladium will continue to mount ever higher in the decade ahead.

Table 1.1. The weight and value of metal in US cell phones, 2005

Source: Adapted from: US Geological Survey (USGS), “Recycled Cell Phones—A Treasure Trove of Valuable Metals,” July 2006, http://pubs.usgs.gov/fs/2006/3097/fs2006-3097.pdf.

Meanwhile cars, light trucks, and the automobile industry as a whole also absorb huge quantities of metals. A typical auto draws not only on plastics (for the dashboard and cupholder), leather for the seats, glass for the windows, and rubber for the tires, but also a number of metals and minerals. According to the World Steel Association, roughly 55 percent of a car’s weight comes from steel—roughly two thousand four hundred pounds of steel per standard auto or three thousand pounds in the average SUV or light truck. Aluminum ranks second among auto metals, accounting for about three hundred pounds in the average North American vehicle. Add to that copper (the London Metal Exchange estimates 7 percent of copper consumption is linked to the transportation industry), platinum (60 percent of platinum is used in the auto industry), palladium, rhodium, lead (primarily used in batteries), tin (used in solders to fuse different metal pieces), cobalt (in airbags), and zinc (used in engineering to galvanize metals and protect cars from the elements), and a car begins to resemble a mining product as much as it does a manufacturing one.

Automobiles are, in fact, aggregates of processed commodities—and thus also resource depletions—and although the car market has sagged generally with the global economy in recent years, they remain hugely in demand in the fastest-growing markets. Since 2004 unit car sales in China have grown at an average annual rate of over 20 percent; Beijing, China’s administrative capital, sees around two thousand additional cars come onto its streets every day. In all, China is expected to account for about 60 percent of all auto sales to the BRIC nations in the years immediately ahead, but sales growth should be brisk in Russia, India, and Brazil as well. A Boston Consulting Group report estimates that total auto purchases across all four BRICs will account for about 30 percent of global sales by 2014.

As much as it exacerbates metals and mineral depletion, rising demand for middle-class preferences also means pressure for oil and energy. Somewhere over one billion people traveled on airplanes in 2011, making fifty thousand flights a day, or roughly eighteen million flights a year. And these estimates are for commercial flights only: private jets and military aircraft usage is not included. If you consider that a Boeing 747-400 ER jet, on average, burns through five gallons (nineteen liters) of oil per mile, the impact on global oil supplies of hundreds of thousands of miles covered on millions of flights is enormous. Consider, for example, this one data point: the Singapore to Newark, New Jersey, route is the longest commercial travel route: an approximately ten-thousand-mile (sixteen thousand kilometers) journey that lasts roughly nineteen hours. At five gallons a mile, the aircraft needs fifty thousand gallons to go the distance—one way. Again increasing demand on the world’s resources.

Throughout the book we will continue to look at how other resources (land, water, energy) seep into our day-to-day living, but suffice it to say, with the population and wealth dynamics at play, the demand for natural resources around the world will continue to rise dramatically.

AN URBAN WAVE

Income growth impacts commodities indirectly too by spurring urbanization. The relative prosperity of cities attracts wave after wave of migrants from rural areas. Significantly greater prospects for employment (e.g., in manufacturing or construction, as opposed to tilling the land in subsistence agriculture) and better quality of life (indoor plumbing and sanitation, televisions, washing machines, and electricity) are a huge draw. The knock-on effects on commodity demand are clearly evident: more consumer goods and better living standards directly translate into more demand for resources.

In the “State of the World Population 2007: Unleashing the Potential of Urban Growth,” the UN Population Fund noted that “in 2008, the world reaches an invisible but momentous milestone: For the first time in history, more than half its human population, 3.3 billion people, will be living in urban areas. By 2030, this is expected to swell to almost 5 billion.” Much of this urban shift will be felt across the developing world, whose cities and towns will make up 81 percent of urbanites by 2030.

In the poorest regions of the world—Africa and Asia (despite marked improvements in aggregate wealth, there remain enormous pockets of poverty across Asia)—urban populations will double between 2000 and 2030.This is equal to the accumulated urban growth of these two regions during the whole span of history—duplicated in a single generation! To put a finer point to the matter, over the twentieth century the world’s urban population grew from around 220 million to 2.8 billion—an eleven-fold rise (or an over 1,000 percent increase). Today, globally, the world is adding people to urban areas at the rate of 60 million each month.

IT’S ALL ABOUT CHINA

China’s pursuit of global commodities is spurred by its seemingly insatiable demand for the array of resources needed to drive economic growth and reduce poverty. And given China’s sheer size, what happens in China has broad implications for the path of global resource demand more generally.

Although it is true that population dynamics and unprecedented wealth increases are not the sole domain of China (other economies across South America, Africa, and Asia are meaningfully adding to the world’s middle class and, thus, demand-pressure for commodities), China stands apart in the scale of its demand and its very deliberate plan to search for global resources. For instance, combined/aggregated statistics mask the salient point that China’s urbanization path is more aggressive and more rapid than in most other countries.

Take India, for example, home to the world’s fastest-growing urban populations. In 1950 17 percent of India’s population lived in cities, compared to only 13 percent in China. Between 1950 and 2005, however, China urbanized significantly more rapidly than India, ending up with urbanization rates of 41 percent and 29 percent, respectively. This trend is set to continue.

Looking to the future, the McKinsey Global Institute forecasts that China will add 400 million people to its urban population by 2025, so that urbanites will account for 64 percent of China’s total population; in India urban rates will soar to 38 percent of its population as 215 million people move to the cities. Meanwhile, over just one decade (between 2008 and 2018) the number of new urban residents is projected to increase to at least 160 million in China, compared to 100 million in India, 50 million in Indonesia, and around 20 million in Brazil and Nigeria.

In 2010 China already had forty cities with populations of a million people or more. By 2020 it plans to add around 225 fully functioning new cities, each to be inhabited by at least one million people. This is part of a government-sponsored phased migration program that will see many more Chinese move from the rural outskirts to urban areas in a much more orderly and systematic way. China already has plans to roll out roughly 170 new mass transportation systems in the next several decades, linking the vast landscape vertically and horizontally and enabling the mass movement of people and goods across a vast network. The implications for commodity demand to support this urban infrastructure are tremendous.⁶

FROM DEMAND TO SUPPLY

China has nothing if not lofty ambitions, and these are what fuel its rampage on global resources. To meet this challenge, China has already, between 2005 and 2011, engaged in over 350 foreign direct investments valued at more than US$400 billion, much of which is in natural resources. To put this in perspective, for those three hundred weeks (the six-year period) Chinese spending averaged US$1 billion per week (more on this later). If China’s strategy comes to fruition, its execution will require a lot of arable land, a lot of usable water, a lot of energy, and a lot of minerals.

However, though critical, taken in isolation, demand dynamics are only half of the equation. The risk is that commodity demand will expand more quickly than the world supply can accommodate. The inevitable result would be recurring shortages of key materials, and it is these shortages that could foment global conflicts. If global supply of the full spectrum of resources can keep up with projected increases in demand, there is not much to fret about. But if commodity supply can’t meet demand, then the imbalances place the global economy as a whole on a precarious path. So where does the world stand on the supply side of natural resources?

As noted earlier, the factors driving commodity demand are in a sense universal, impacting all commodities—land, water, energy, and minerals. However, given the distinctive nature of each of these resources—for instance, their sources, whether they can be moved, the ease of trading, and their uses—their supply dynamics are necessarily unique. Thus, the issues governing each must also be individual in nature.

However, as we shall see, the world’s most important commodities have one crucial thing in common: they are increasingly becoming scarce, as the earth’s (finite) natural resources supply has not adequately kept up with the rising demand. China continues to play a central role in placing inordinate demand on the world’s finite supply as well as a central role in gaining access to the flow of the full range of commodities. To set China’s approach in context, the following two chapters focus precisely on the special factors influencing the supply of land and water and oil, gas, and minerals, providing a snapshot of the global supply of each resource.

Chapter 2

The Resource State of Play: Land and Water

IN FEBRUARY 2011 Zhou Shengxian, China’s environment minister, acknowledged publicly that “the depletion, deterioration and exhaustion of resources and the deterioration of the environment have become serious bottlenecks constraining economic and social development.”

The Chinese minister’s alarm will have certainly been borne of a thorough appraisal of the world supplies of the most important resources—arable land, water, energy, and minerals. In order to see what he saw, a similar-style global stocktaking is crucial. Having analyzed the dynamics driving global commodity demand in the previous chapter, this chapter is our first foray into understanding the state of global resource supply.

More specifically, this chapter (on arable land and water) and the next chapter (on energy and minerals) provide a snapshot of the world’s resource supply, and detail where the most important resources lie and in what quantities. Of course, the global resource landscape state is constantly in flux, evolving, and dynamic due to both natural (depletion effects) and man-made interventions (such as mining, tilling land, and extraction). Nevertheless, such an exercise does set in context the supply pressures the world faces and, as we discuss later, defines China’s very deliberate and systematic approach to securing global commodities.

Let’s begin by taking stock of land.

TERRA FIRMA

Over 29 percent of the earth’s surface is composed of dry land, with the remaining 71 percent under water. Land measures approximately 13 billion hectares, or an area about sixteen times the size of the United States. Of that, just 11 percent (or 1.4 billion hectares) is arable—that is, suitable for crops. The other 89 percent—including mountains and deserts—is often prohibitively harder to exploit for food production.

Geographical determinists like Jared Diamond have argued that a country’s wealth depends on its environment and topography—in essence, the land. The fact that certain environments are easier to manipulate than others and that those societies that can domesticate plants and animals with relative ease are likely to be more prosperous than those that cannot places an inherent value on land. A country’s climate, location, flora, fauna, and terrain all affect the ability of people to provide food for consumption and sustenance, and this ultimately impacts a country’s economic growth.

Can the available land adequately support the world’s population in the years to come? Population density—the number of people per unit of area of land—is a less useful measure than the density of people per unit of arable land.¹ For instance, with the current world population of roughly seven billion, 1.4 billion hectares of arable land means that if land were evenly distributed, every five people would share a hectare (or ten thousand square meters) of land, equivalent to roughly two American football fields. Stretch the global population out to nine billion by 2050, as many forecasts do, and now six people will be sharing a hectare. Clearly, at some point this becomes an end game.

In reality, of course, things don’t work out this smoothly. The world’s population is anything but evenly distributed. Some countries have a lot of arable land to dedicate to food production, whereas other countries have relatively less. Despite having the world’s largest population, China has only around 12 percent arable land, and India, with roughly the same population, has over 50 percent arable land.

The ratio of arable land to population density is not the sole determinant of a nation’s capacity to feed its people. Land use and the underlying quality of the arable soil play an important role too. China’s use of its arable land as a source of food competes directly with its use as a place where people and government choose to establish homes and cities.

Between 1997 and 2008 the area of arable farmland in China fell by 12.31 million hectares—that is, a loss of around 1 million hectares per year—much of it attributed to the growth in urban centers. Other studies have found that as much as one-sixth of China’s arable land is polluted by heavy metals and erosion, whereas desertification has left more than 40 percent of the nation’s land degenerated. All in all, this is not a happy picture. Less available land equals less domestic food production, and this equals significant food demand pressures. This is why China has embarked on aggressive land purchase and lease schemes well beyond its borders, particularly in fertile lands in Africa and South America.

The two tables that follow depict the skew in the global supply in arable land. Although Asia and Europe have the largest amount of arable land, they also have the highest population densities, at 200 and 130 people, respectively. On a relative basis this means that there is less arable land available for growing crops and agricultural produce as well as animal husbandry than in, say, Africa, where nearly 8 percent of land is arable and population density is comparatively low, at around 60; South America, with around 7 percent arable land and a population density of 70; North America, with 11 percent arable land and a population density of only 30; or Oceania (Australia and New Zealand), with 6 percent arable land and a population density of just 10 people per square mile.

These statistics would suggest that China should look to North America and, particularly, the United States, with almost as much arable land as China and Brazil combined, to help fulfill its food needs, and to an extent, that has been the case. In 2010 China surpassed Canada to become the number-one export destination for US agricultural and food produce; soybeans alone accounted for more than half of the nearly US$18 billion in US-China agricultural exports, followed by cotton, animal feeds, and hides. But China neither wants to become beholden to America for its food sustenance nor do Chinese leaders believe that they can meet food needs solely through imports. The Chinese are looking for land abroad on which to grow their own crops, and here North America and the United States present problems, especially when it comes to land ownership and property rights.

Table 2.1. Arable land by region

Source: FAOSTAT Land Use Database, http://faostat.fao.org.

Table 2.2. Arable land: Top-ten countries

Source: FAOSTAT Land Use Database, http://faostat.fao.org.

Property rights endow a government, corporation, or individual with the exclusive right to determine how a resource is utilized; by extension land rights pertain to the use of land. According to the 2011 International Property Rights Index, the existence of property and land rights across South America and Africa is markedly low. Specifically, over 60 percent of the countries ranked in the fourth quintile or bottom 20 percent are in Africa or South America, compared to the United States, which ranked in the top 20 percent in the world.

More simply put, a lot of land across developed economies such as the United States is already spoken for, with access and ownership held in private hands. In less developed regions like Africa and South America, however, land ownership largely remains concentrated in the hands of the state. The state plays a central role in parceling out and granting access, often as lease-holds (where land “ownership” is granted for a specified period of time, and reverts to the owner—in this case, government—when the lease expires) rather than freehold terms (which grant free and unencumbered land ownership rights to the holder), to parties that desire land access. There are, of course, privately held farms in poorer economies, but the relatively low per capita income levels mean that land ownership tends to be concentrated in the hands of the wealthy few. All in all, it is far easier for China—and other countries—to negotiate terms (tenure, investment amounts, etc.) for access to significant swathes of arable land with one controlling host entity (in the form of the host government) than numerous small/individual owners.

But there is more. A 2009 joint report of the OECD and the UN Food and Agricultural Organization (FAO) estimates that only 32.5 percent of arable land across the world was actually in productive use, with much of the rest lying fallow.² Only 48 percent of potential arable land in China itself is in use. The United States, which for all intents and purposes is food self-sufficient, has only 53 percent of its potential arable land in use. But in both the United States and China this unused arable land has often been effectively claimed by other uses such as urbanization. The real prize here is the continent with the weakest infrastructure or property rights: Africa, home to fully one-third of the earth’s remaining untilled arable land.

Logically, then, one might expect Beijing to be looking toward Africa as a kind of subsidiary food basket for the Chinese people, and to an extent that is happening, with recorded Chinese land deals in a range of African countries—from Democratic Republic of Congo to Mozambique, Tanzania, Zambia, and Zimbabwe. For completeness, however, it is worth stressing that the land grab is not just the domain of China.

In its publication “The New Colonialism: Foreign Investors Snap Up African Farmland,” Der Spiegel highlights multiple instances of relatively richer nations locking in growing rights in poorer countries. The Sudanese government, for instance, has leased 1.5 million hectares of prime farmland to the Gulf States, Egypt, and South Korea for ninety-nine years. Egypt plans to grow wheat and corn on 840,000 hectares in Uganda. And beyond Africa Kuwait has leased 130,000 hectares of rice fields in Cambodia. In a similar vein the South Korean conglomerate Daewoo struck a deal with the government of Madagascar, an island off the east coast of Africa, that would have granted Daewoo full access and a ninety-nine-year lease to a tract of undeveloped land half the size of Belgium. Under the specs of the plan Daewoo was going to utilize 75 percent of the acreage to grow corn and the remainder to grow palm oil, but subsequent political unrest scotched the deal ultimately. China’s effort during the 2007 global food crisis to lease 2.5 million acres of the Philippines—to grow crops that would be sent home—also succumbed to local political pressure, but the chase goes on.

LAND REGISTRY

The land deals being struck are not just government-to-government trades. Corporations, private individuals, and investment funds of all types and from all over the world are accessing land and staking claims. Given the vast amount of untilled arable land in Africa, governments like China, South Korea, Japan, Qatar, Saudi Arabia, and Kuwait are investing and accessing land all over the continent—all hoping to gain access to this valuable asset. Financial investors and funds have gotten into the act too, betting on global food pressures to drive up the price of land, grains, and other soft commodities required to feed billions of people and satiate demand.

The global land competition is not just about food security either. In fact, a large proportion of the land deals involve crops grown for uses other than food. Increasingly land leases are also being negotiated to produce biofuels and ethanol products meant as alternatives to oil. This puts food and energy in direct competition, given that the grain required to fill a twenty-five-gallon (ninety-five-liter) fuel tank with ethanol could instead feed one person for an entire year.

As World Bank president Robert Zoellick has put it, “While many worry about filling their gas tanks, many others around the world are struggling to fill their stomachs. And it’s getting more and more difficult every day.” The demand for fuel in rich countries is now seen as competing directly for food in poor countries. In the short term this trade-off worsens the global food supply picture, and over the long term it exacerbates food shortages, which contribute to more hunger and forces the price of food higher. But so long as farmers—particularly farmers in poorer countries struggling to eke out a living—can make more money by switching out of food production to biofuels, they probably will. And so long as they do that, total global food sources will continue to shrink relative to a growing global population.

In a world of finite arable land, anything that detracts from food production points naturally to one direction for food prices—up. Having now conducted a due diligence of the global stock of arable land, we now embark on a similar exercise to glean the worldwide supply of another commodity—water. Bearing in mind that water challenges are, as we shall see, at the center of China’s resource woes.

TAPPED OUT: THE PROSPECTS FOR WATER

Land and water go hand in hand. Or they don’t. When the former is the case—when arable land is plentiful and water is sufficient to keep the crops growing, the animals watered, power flowing, and production chugging along (water has many uses in modern society), life is good. When arable land is insufficient, governments have to go shopping for other sources of food sustenance, either as agricultural imports or as foreign staging grounds for domestic agriculture. When water is insufficient, the stakes are higher still, because water, unlike food, is not easily transportable, yet it is the basis of the sustenance of life.