The United States has incurred a trade deficit of over a trillion dollars with China since the decade began. As a result, the Chinese government has accumulated vast reserves of dollars. A prevailing fantasy in Washington is that Beijing will keep using these dollar reserves mainly to buy U.S. debt, so that Washington does not need to mend its spendthrift ways. But there are plenty of other ways the Chinese can use their dollars, and some of them will be unsettling to U.S. policymakers. For instance, the Wall Street Journal reported yesterday that China Investment Company, Beijing’s $300 billion sovereign wealth fund, is negotiating to take a major stake in Virginia-based power-generation firm AES.
One place where a clear pattern of purchases has emerged is Australia. Various Chinese entities have been trying to buy up resource companies that control large deposits of iron ore and other strategic materials. China produced five times more steel than America last year, but its domestic reserves of iron ore and metallurgical coal are not sufficient to sustain high levels of production over the long term. So barely a month goes by that some new deal isn’t announced. In August Yanzhou Coal Mining Company offered to buy Felix Resources for $3 billion, PetroChina signed a $41 billion deal to import natural gas from Australia, and the Australian government stepped in to block Chinese investment in a rare-earth metals company called Lynas.
This month, the Chinese are offering to buy an Australian uranium project and two more iron-ore companies. You could argue that China is doing the same thing any other growing industrial power would do, securing access to resources and technology vital to its future economic growth. But the fact that most of the Chinese suitors seeking to buy offshore assets have close ties to the Beijing government raises political and military questions that did not come up when Japan made similar moves a generation ago. As Australia and other resource-rich countries warm to the growing Chinese role in their economies, Washington will probably have a harder time winning their support in diplomatic disputes with Beijing.
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