How Important Is It for Nations to Control Natural Resources - Assignment Example

How important is it for nations to control natural resources? Is China’s growth threatened if it needs to rely on foreign-owned sources of materials? Controlling the source of natural resources is very important for nations because it is the source of the components and parts that would propel their industry and economy. Traditionally, countries will even go to war when their natural resources are threatened because when the source of their natural resources are threatened, it meant that their way of living and prosperity wil be undermined. This has already changed with globalization. With globalization, natural resources are already freely traded albeit their prices may differ depending on the dictates of market forces (interplay of supply and demand). Nation states can now freely purchase natural resources from companies such as Anglo American PLC and Unocal and this has worked completely well to almost all countries. Even the largest economy in the world has depended on trade for its need of raw materials to propel its economy. China on the other hand has a huge demand for natural resources due to its rapidly expanding economy (China Defence & Security 47). It also wants to secure the source of its raw materials by a series of acquisitions and joint ventures in the past several years (Concha 139). I also do not think China’s growth will be threatened if it needs to rely on foreign-owned sources of materials. All countries have dependended on other countries for natural materials in one way or another and no country in the world has the monopoly of all resources. Even United States is dependent on Middle East for its oil requirement. This explains why there is trade and trade agreements because each country has to depend upon another for its natural resources and vice versa. What China is trying to achieve is to secure the source of its natural resoures for the expansion of economy. It is not contented of developing its own natural resources but rather would acquire the natural resources of other countries either by acquisition, joint venture or ridiculous claim such as its nine dash claim in the Pacific which is known to rich in oil and gas and offending all its neighbors in the process. Regardless how much resources China will need, there will always be a company or companies that will provide because it is an opportunity to make business. Being such, it is never a threat to China to depend on foreign owned companies with its need of materials. Even the largest economy in the world which is United States also depends on other countries for many of its materials need but it does not feel threatened by its dependency knowing that it is also a producer of other materials which other countries need for their economies. 2. Should countries have special rules for acquisitions of natural resource companies by foreign-based companies? Ultimately, it does matter who develops our natural resources (Canada2020) especially those that are critical to national interest. Foreign direct investment may be good for economy but this should not come at a price of giving away our national patrimony. This can be likened to a metaphor of a visitor coming into our house and letting him or her to do whatever he or she pleases. As a visitor, he or she should act as one and therefore should be regulated by special rules meant to be followed by a visitor in another’s house. This does not however mean that I am against all acquisitions of natural resources by foreign companies. What I am trying to say is that we should be prudent in letting foreign companies use our natural resources. Natural resources which are vital to our economy should be kept within the ownership of our citizens to secure the supply of much needed resources. For example, if a country has a lone resource of oil, it should not be given away to foreign companies but rather be developed by a local company with the help of government. If no national company can afford to develop such natural resources, then it would be the time to entertain foreign companies but on terms that are not inimical to the country such as joint ventures. For industries which are not considered as critical and is abundant in one’s country, the host country can then allow acquisitions of natural resource companies under strict environment regulation. For example, acquisition of coal mining companies can be allowed if there are already several coal mines in the country. The foreign company can instead be subject to environmental regulation such as regulation of their carbon emission of their mining practice to make sure they do not damage the environment of the country they operate in. 3. Should there be separate rules for state owned acquirers like Sinopec? I believe that it will be more prudent for countries to have separate rules for state owned acquirers like Sinopec. The rules of globalization on free trade applies only to business and this does not include deregulating purchase of natural resource companies by state owned entities especially if it belongs to another country. Sinopec, a Chinese state-owned enterprise should be watched carefully for several reasons. First, Chinese state owned companies does not have a good record in complying with environment related laws that regulate the natural resource industry that would make it sustainable. If we are going to examine their own backyard such as Beijing and Shanghai, it is heavily polluted with smog in such a short period of time because of their wanton disregard for the environment in their industrial practice. Second, it can be likened to a legalized invasion if another country would acquire a local natural resource company without any special rules. And we should be especially wary if we are dealing with China particularly in natural resources because again, China’s record does not speak well when it deals with natural resources. It can get overly agressive in getting what it wants. It is known to resort to flex its military muscle and saber rattling when disputes will arise that involves natural resources. We can infer on how China dealt with the gas rich islands in the Spratley islands whereby Chinese government resorted to saber rattling by sending its troops and navy instead of settling it peacefully with other claimants (Perlez). When another claimant, which is the Philippines raised the issue to UNCLOS (United Nations Conventions on the Law of the Sea) to be settled peacefully which is the proper venue to do so, China instead ignored it by stressing its unilateral validity of its claim of ownership of the islands (Cordero). This is significant to this question because we will be dealing with the same entity that sent troops and its navy in the Pacific in settling of what is really natural resource dispute. Sinopec is no ordinary company and it is an extension of the state and therefore should be taken as the government of China and not as business entity. If disputes will arise with the natural resource company that involves China, it will not be a remote idea that China will resort to military solution in what is supposed to be an industry and trade issue. 4. If China’s growth slows, what will be the impact on commodity prices? To understand better how the growth or decline of China’s consumption will affect commodity prices, we have to understand how the law of supply and demand works first. This understanding will provide us the insight how the The law of supply and demand states if there is an increase in demand and the level of supply remains, then the price of commodities or goods will increase. And if supply increases without the corresponding increase in demand, the price of goods and commodities will subsequently decrease (Please see the graph in the Appendix.). Applying this to China’s growth slow down, it would mean that its industries would require less natural resources for its raw materials. When the need for the raw materials in China is reduced, it could affect commodity prices for its sheer volume and is enough to make a dent or influence the price of commodities. China consumes 47 percent of the world’s cement output, 37 percent of world’s cotton, 30 percent of world’s supply of coal, 26 percent steel and 21 percent of world’s aluminum. This volume suggests that China dictates the demand of commodities in the world and consequently, its prices albeit inadvertently (of course it do not like the price of commodities to rise, but its consumption drives the prices of commodities up). Thus, in the event that China would require lesser natural resources for its industry, demand will also subsequently decrease and it follows that with a declining demand with the same level of supply, then commodity prices will go down. This explains why economic indicators in China are being monitored by commodity traders and speculators because it gives them an idea on the demand of China on commodities. If the economic figures are encouraging, they know that China’s demand for resources will continue to increase because China’s expansion will continue. But if it shows an economic slowdown, they know that its demand for resources will also decrease and it follows that commodity prices will also decline. Appendix This graph shows how price will change when the level of demand increases or decreases. Source: http://www.google.com.ph/imgres?um=1&hl=fil&sa=N&tbo=d&biw=1600&bih=815&tbm=isch&tbnid=dgkniHtVsZ-aSM:&imgrefurl=http://www.quicksprout.com/2012/08/16/how-to-manipulate-the-law-of-supply-and-demandand-make-a-lot-more-money/&docid=lsfHz_zhqO0EBM&imgurl=http://www.quicksprout.com/images/supplyanddemand.jpg&w=480&h=480&ei=oK0aUbvEOuiNiAemy4Ew&zoom=1&ved=1t:3588,r:8,s:0,i:102&iact=rc&dur=2442&sig=117669631697952777114&page=1&tbnh=179&tbnw=179&start=0&ndsp=28&tx=116&ty=53 Works Cited Concha, Velasquez, Jose Roberto and Pichler, Bernhard. “CHINAS INCREASING ECONOMY AND THE IMPACTS ON ITS ENERGY STRATEGY”. Estudios Gerenciales, 26.117 (2010):131-143, 13p Cordero, Jean Madaraog. “Philippines raises dispute with China to UNCLOS”. January 29, 2013. Retrieved from http://apdforum.com/en_GB/article/rmiap/articles/online/features/2013/01/29/philippines-china-unclos. February 12, 2013. China Defence & Security Report Q3 2009.”China Defence & Security Report”, (2009):1-69, 69p Perlez, Jane. “China Sends Troops to Disputed Islands”. July 23, 2012. Retrieved from http://www.nytimes.com/2012/07/24/world/asia/china-sends-troops-to-disputed-islands.html. Read More