Leadership: China Buys An Edge The Old Fashioned Way

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November 20, 2014:   On November 6th the Mexican government cancelled a contract allowing a Chinese firm to build (with several Mexican partners) a high speed railway from the capital to the north. This would cost $3.75 billion with most of the money coming from China. The government implied that the cancellation was caused by suspicions that the Chinese used bribes to get the deal done. In reality it appears the bribe demands came from the Mexican side and one reason for the cancellation was media reports that the wife of the Mexican president had business relationships with one of the large Mexican construction companies involved with the high speed railway project. China protested the cancellation but is known to tolerate and even encourage bribes to ease the way for Chinese firms to get profitable contracts in foreign markets.

Mexico has encouraged more Chinese investment in Mexico, mainly because there is a huge trade imbalance between the two countries. China ships ten times as many goods to Mexico as Mexico does to China. The imbalance is running at over $50 billion a year and causing growing hostility towards China.

China uses investments and trade to aid its foreign policy. For example. while the Philippines seeks closer military relationships with Japan and the United States because of Chinese aggression China is offering to increase economic investments in the Philippines. China sees cash as another weapon in its campaign to assert control over offshore areas that belong to the Philippines. For example China has been a major lender to Venezuela and has provided about $40 billion. Most of these loans are repaid with Venezuelan oil. China currently imports 500,000 barrels a day of Venezuelan oil and half of that is to pay for loans. China buys about a third of Venezuelan oil exports and is concerned with the falling production and growing unrest, as well as the prospects of getting all the loans repaid.

Russia is being forced to depend on China for tech and cash it can no longer get from the West because of the growing sanctions. As much as Russian leaders loathe and fear NATO, many also resent being forced to grant China access to Russian markets, raw materials and military technology in payment for help coping with the sanctions. Russian leaders believe they can handle China and Chinese leaders believe their economic power will give them unprecedented control over Russia. Someone has miscalculated here and it is as yet unclear who. While China gains more raw materials and export markets along with improvements to its locally developed weapons, Russia is forced to halt its efforts to diversify its economy away from dependence on raw materials exports. The diversification depended on Western tech and investment. That has been halted for the moment and the Chinese can’t replace it. Many Russians see this as a bad decision and that helps fuel the growing popular opposition to the government.

Specific Chinese exports also support foreign policy. Thus China is now the fourth largest exporter of weapons in the world. This is largely due to the efforts of China's largest arms manufacturer, NORINCO (Northern Industries Company). Founded in 1980 NORINCO is the major supplier of weapons to the Chinese armed forces and one of the largest arms exporters in in the world. By 2003 NORINCO had sales of $10 billion a year and now that is over $62 billion a year. Despite the dominance of NORINCO, there are hundreds of smaller arms and military/police equipment manufacturers who find lots of customers in China and abroad. But NORINCO, partly because of its size and mass production capability and partly because of its government connections, gets most of the big ticket or large volume business.

NORINCO has frequently been caught, and sanctioned for weapons and other military equipment to countries banned from receiving the stuff by international sanctions. These sanctions make it difficult to purchase high tech manufacturing equipment (and other essential goods) from the West. Despite that NORINCO still has a well-deserved of selling to anyone, anywhere who can pay and is not in trouble with the Chinese government.

 

 


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