China Diversifies

For the first part of this decade, China took the strategy of importing minerals from Australia and exporting consumer goods to the United States. But with the US strangled by debt and not buying China has been diversifying.

In recent years, China has been expanding its influence in Africa. Securing cheaper sources of minerals. This has involved selling arms to regimes that the rest of the world imposes sanctions. Of course European colonisation of Africa involved slavery, much worse than the current dictators’ violence. Even in countries that are more democratic, other companies can’t raise the funds to bid so China is able to snap up resources cheaply.

China has also been diversifying its export markets, most notably is South American countries like Brazil. These have not been hit as hard as the credit crunch. They, like China, have mostly suffered from reduced exports to the US. Luckily these countries produce food, which is a resource China needs to import. Especially, more western style foodstuffs like meat. Helping to ensure the ships are full travelling in both directions.

Unlike the US consumer who is brand loyal and happy to pay extra for a label, these new markets are more willing to buy Chinese brands. Chinese companies who have developed products for the low income domestic market will thrive in these low income export markets. Without having to pay brand royalties to US companies will mean more profit for China.

This diversification is why China has been promoting the idea of a global reserve currency. Having to price contracts in US dollars when neither party uses US dollars just creates transaction costs.