IMO an increasingly common feature of Chinese commerce is a phenomenon I call the corralling/ kettling of trade. Under this approach to commerce, which is in many ways a natural extension of the Chinese preference to deal through trusted networks, Chinese entities bypass the global market place and deal exclusively with each other. This practice serves to corral all aspect of trade within a Chinese fence and outsiders out. It enables, China generally, to obtain its supplies of commodities at prices it chooses, rather than at world market prices.
In March 2011 China's Industry Minister Miao Wei said that his country's government would buy foreign iron ore mines to better control iron prices and wean itself from the grip of the world's major miners. Mr Deng Qilin, president of Wuhan Iron & Steel, told The Australian newspaper that his company is aiming to supply itself with ore, moving away from the “monopolies” of Australia-based BHP Billiton and Rio Tinto and Brazilian giant Vale. He set a target of three to five years to become self sufficient. This practice, which gives China a much higher level of certainty over both the price and supply of commodities, will potentially have drastic consequences for current non-Chinese firms. Western capitalism is based on the concept that there are producers and consumers, buyers and seller who exchange goods in a market place.
Mr Qilin may have a less than hospitable view of multinationals companies, labelling them monopolies, but focussing on this hostility risks missing the deeper consequences of corralling. By purchasing and developing massive copper mines in South America and supplying itself with their copper at prices and terms of their choosing, China will not only increase its own commercial and strategic security, it will simultaneously progressively remove itself as a customer for other mines and miners.
The overall effects of corralling will be the removal of a major players from world trade and potentially the plummeting of commodity prices. Firms that previously sold their commodities to China will have to find other customers, if they can. Just as China did not set out to deliberately enrich the rest of the world by trading with it, by adopting a strategy of building invisible trade fences there is a very real risk that while China flourishes inside these fences those outside will become impoverished.
