By all means necessary how chinas resource quest is changing the world. I can heidi hsu on behalf of the board of directors and members of the killed so it is my pleasure to welcome you this evening. Overcast Elizabeth Economy id michael levi. Denied a senior fellow and director of Asian Studies currently the vice chair of the council on the future of china in sets of the border of the board for sustainable development. She runs the river runs flat and is published numerous articles including Foreign Affairs and Foreign Policy. She received her m. D. From stanford and a ph. D. From university of michigan. Dat the senior fellow and director of the program on Energy Security and Climate Change for the council of Foreign Relations and previously resident fellow in the Foreign Policy studies at brookings and the director of the federation of American Science as Strategic Security projects. He is the author of the power surge in the battle for americas future on terrorism in the future of arms control. With them and they in princeton of physics in ph. D. From the university of london. Please join me to welcome our authors. [applause] our format is going to be a little different. I will start by asking a few questions then we will turn it over to the audience. I would like to start by setting the stage why did you write this particular book from minerals to food or energy . First come with 80 for having us it is a pleasure to be here for being here on this night for each of us has a slightly different reason why we came to write this book. For me it began a number of years ago working on the advice rick. To be largely focused with a domestic consideration but as i began it is likely would it would be abroad but its leading to the same kind of challenges abroad. Thats was my impetus to do research around 2006 but as might tuned i sat down to write this book together it became much more it issue at the heart of titans rises have it is true for rigo world. If you look at the resources quest you can see it addresses the issues with rethink about the rise and how it transforms itself. Id what is the impact on Global Governance . Said these are the kinds of questions is biddy respects the book tries to get that through the prism. So free that is how it evolves with the challenge. For b i end up with the similar place for a a different starting place. It is great to be your first. But where i started the broad intersection of economics and international politics. If you look up at for policy during the cold war split into two areas we thought about economics it markets insecurity now we look at the United States and soviet union dealt with each other. The difference spiers but theyre not so separate it particularly with a Rising Economic power to take a broader security responsibilities in the world the to attend to clash. It i have tried to lenders to you that intersection. Talking about her last book tucci edges of energy and the consequences for Economic Security too understated how those pieces fit together, i started to appreciate id to look more broadly to get a handle on this for where economic insecurity clashes. That leads pretty quickly to china. Looking at history, rising powers tend to engender concern on the economic front and political and security front through their efforts to secure resources. Countries can do Everything Else they want to they have technology and capital but you have to deal with the resources if you dont have that you go out so with a tune to greece or of the 80s it is the inevitable part of what happens. But why so broad . In order to get us sense of what is happening look across the different resources. Coming to conclusions of very different picture of china in the world and then we both talk about this early on to get the full sense of what is happening to look at a variety of resources because the way china deals with these. How the subtitle how chinas resource quest is changing the world give us some examples of how. There are a lot but having had a bigger impact the key to the future, one of the striking face with a repeated conclusion so we focus own time did the testing on that part of the world with the possibility that china will become engaged because of the resource quest. These artists exciting things but if you drill down the biggest impact because china bias enormous amount of resources on the market but with very broad consequences. You have seen enormous rise the price of oil, oil, guest, that but not have happened had this huge demand is not the verge so rapidly from china. The consequences touch everything. But from those that would develop more resources with day big impact on consumers around the world. We pay more for our resources because of this. When i looked at the future i am very interested what will happen with the security with the path for the resources travel. We take for granted they can produce oil in west africa and joe reed with japan or any other part in respect to this Global Economy we forget it is underpinned by power in decision if you look out to the future it cannot be completely certain forbade ways that china could change the ways in the future with the underpinnings of that resource street. As i mentioned earlier with china abroad this is the way it is transforming the governments landscape. Looking at transparency you can find it is very much the ones that Chinese Companies from abroad. For example, one of the most corrupt in the of made the industry is corrupt so you could expect when Chinese Mining Companies go abroad there used to dealing in ways that involved a mislike bribes and this is what weve found a across the resources we unscathed. With the environment tidies Companies Said betty respects only reason they started to do Environmental Impact assessments of the home front. So when they first began going abroad they did to Environmental Impact assessments so for those whose own governance was not that strong of course, they did not bother in forcing and the kinds of laws to make them undertake these assessments. So it is governance in terms of the environment. Coming labor as well but Chinese Labor practices with those countries will report where chided is invested the Safety Practices are much worse they and the australians for americans it is much less than in other countries to some extent it is true it is a more nuanced than that but it is the enormous simplex of Chinese Labor and has caused a lot of tension here you find the countries react very differently they tend to pass laws which says Foreign Companies that have to hire night glading workers for what they bring in and with the wages of a foreign worker. Bebel find ways to limit its the influx of Chinese Labor but they will say tidies labors are much harder workers. Itts other workers are very uneasy talking about africa or Southeast Asia would do the interviews that we did tidies officials said they like to see me in abeyance with labor unions. The Chinese Workers would work seven days a week 80 hours a day. It is this kind of difference. So in many respects with issues of labor and environment in a transparency how they work at home is how they work abroad. I would love later tear talk about the way that this is changing so there is a lot of pressure on china because you see better practices cubby and to tide of the home front and how china behaves abroad and this is a positive turn to trent but and other way that it is transforming the landscape. To come back to the strategic resource i want to go to a point you make about china obviously not being tough first abridging power looking for resources but how was it different they in the english experience or the United States . One of the interesting things about the work that created cowberry both took a piece of the puzzle. My background is primarily china so i took that part and he took the other powers part. But what was fascinating was to look back but that is where refocus to see there are many strains of continuity how would approach the quest to 18 back centuries. It is surprising some of the things we discovered there was a strong degree of state control so the Chinese Government was always very interested to dictate what would be grown. So they try to pass laws that say the laden dishes to viable for grain. And then to date back centuries with that tidies mindsets to be selfsufficient but 15 years of doha in china dates back for a silver a and would is expensive with the land grab is it a little bit different it is probably the degree of Central States cover great control that contracts all the way through history tuned china. Let the flag one other example if you look at the right teague said this country about the rise of japans and resources particularly oil and iron ore is similar. The evolution led first to buy on the International Market that invested abroad to improve their security, that creates a lot of tension and but eventually they start to work themselves out vacancy peace is reemerging. Were not at the end yet but trying to procure a thing this by investing abroad but now more rationalized approach. The striking thing that you see with japan is there are big fears because the state is so dominant it would take the world the way as we want markets to cover of the Global Economy with the distribution of resources. It turns out Global Markets are extraordinarily powerful difficult to undermine a global market. Lido that japan did not take away the global oil markets. And said china through the efforts would fundamentally break the coble markets of governing for resource traits. But they procurer boast of the resources it has driven the us in a more marketbased direction. Essentially before it started to write this book to put be commonplace but the one schaede that happened is that china be cousin had so then the small producers of competing is centrally to liberalize the iron ore market going from a system dominated by the negotiating table this is another important lesson. Chide is your best to do with the government kids accomplish its goals tied it can change the world. There is the important distinction. Just because they to accomplish what they want to it does not be they do not have an impact. The news article with some reference wherever you go there are chinese businesses also in the same article a reference to the fact that American Companies are not doing so well because the United States is more interested in humanrights issues and Fair Elections a and the chinese dont bother with that. Tell us about the specifics how chided deals with the resources. Something else we found surprising there is the sense that china is in africa gobbling up resources to develop a resource pipeline but china is the fourth largest source of direct investment in in many respects speaks to a much bigger aspect is through trade as opposed to an investment so that bears remembering in that holds true. We have read about the chinese land grab chided is a distant third after canada in to the United States. So some surprising facts that change your impression how much china is gobbling up the resources that other countries are also not participating but your question about africa in particular the biggest challenge is that china went with a long history of the engagement dating back to the 60s of longstanding ties with an old friend of china and when china began at was the uptick of resources to fund debt much easier to strike deals at the very top what the government is comfortable with with a massive diplomacy and of large entourage and other ministries to travel to africa and with that trade and investment deals id with tens of billions of dollars with those resources her rarely much of it was not realized but the way that they structured these deals are problematic because it was not to spare. Also exports of labour was problematic. Year and more recently china against its own best wishes to the rhetoric was a radio colonialist. Neo colonial. To go into africa to do the act exact same thing. Seoul to address that dissatisfaction by established the special Economic Zones where they try to develop big factoring for africans. Not clear having much success yet. Some Companies Find it difficult but the companies are not interested so they are in service such ids companies. They take off the way african and petraeus the way they wanted but it is one effort to address the problem. They are trying to improve the corporate responsibility. With Environmental Issues the since it does not care without it was doing so beddybye industries have established with laws hamper regulations to try to govern these enterprises that we will not lead to any but the. But it is a strong incentive for you cannot go public. A lot of Chinese Companies find ways around the regulations so it is a positive trend with the effort to address with a backlash. To give three a quickie sales of what is happening with china and africa. If you go to mozambique to the Foreign Ministry you will notice the of proof is consistent with the deep political relationship and longs to be a relationship that china has with mozambique. The biggest element these days is natural gas. But if you went there one year ago the chinese would not have a presence. The Italian Company in the american company. By . Because there is a technological edge that companies have with the ability to do exploration and Resource Areas but today we have the Chinese Oil Companies to buy into part of that development but they are still not operators. Matter how deep that relationship is the technology in bin restrict capacity to produce the resource you cannot do it yourself up political connection is a limited amount. Not to overstate how much china can do by itself. In cbs some Chinese Companies had absolute nightmare. There is one Small Company that had a disastrous experience all sorts of people seem to get shot, and nobody likes them they dont like the plays much with the ongoing the festering issues but when i was and cbo last year i went to visit with the chinese ambassador. Instead they said if youre interested to buy this company i wanted to be sold to you because i want nothing to do with this anymore. You think we control everything. That could be true with the big Oil Companies the with powerful political players coming to the smaller players particularly in their resources they are not government or state owned enterprises, but the administrative capacity to control them the same fate is true with antidash. With limited Institutional Capacity to be careful to understand what china and huge cant it cannot do to get the Chinese Companies to play by the book. To the developing world if you will. Talk a little bit about their investments in places like canada or australia and the United States for that matter and how that differs from their approaches elsewhere and the reaction to it particularly if the differencdifferenc s of any between the u. S. Response and that of canada or australia. So the first overseas chinese touring investment wasnt in africa three at it wasnt in latin america and it wasnt in canada. Theres a long history of chinese overseas Resource Investment in these countries. If you look at australia it has plenty of experience not just with china but with the japanese for an American Investments of these countries have welldeveloped policies. Each has its own quirks. I think you caricature them the australians are much more willing to try to make reciprocal deals. There are much more willing to talk about trading access to this or that piece of australian resource for reciprocal access to the chinese market. In canada they have been very handsoff but until things have kind of come to a head. This happened last year over an attempt by the chinese to take over drove a very big National Debate and at the end of it the canadian government said we are proving this but this is basically at and is less there are certain circumstances we are going to be approving further Chinese Investments in this one particular strategic sector in the canadian oil set there. Whether that will hold or not remains to be seen. The United States hasnt been challenged as much yet but the u. S. Is becoming a much more destination for Chinese Investment in resources particularly in oil and gas. The u. S. Is going to have to grapple with this and maybe lives you want to talk about it. Actually what i found interesting was that the Chinese Companies look at canada australiaustrali a and the United States very much as sort of i dont know the golden apple. They are the most desired cell access to these markets is the highest priority and in many respects they understand the practices that they bring to invest here have to be of a higher order and actually its a good way of forcing change on Chinese Companies. So that desire to move up in the investment value chain has actually proved to be quite useful. I think when the chinese are looking for example atlanta acquisitions which they are doing right now in the United States, there is a lot of interest in chinese buying farms and accessing u. S. Land especially because of the dire situation in terms of chinas soil contamination so they are very interested in highquality land. They are looking at the productivity levels of u. S. Agriculture which they say are 100 years ahead of china in terms of agricultural productivity. This is really astonishing so as the chinese are coming here going to australia or going to canada they are both challenges in terms of raising their own practices but also significant opportunities to buy into better practices to buy into highend technology so i think its a good way to force change back on china in fact. I would add one little bit to this. Last year or the year before when a variety of Chinese Companies were looking at investments in u. S. Shale gas and oil there was a quiet message sent that if those companies were also going full set of into iran to take the place of western companies that were moving out because of the sanctions the United States might not look as favorably on these investments in u. S. Resources. So the increasingly attractive set of Resource Investments in the United States if we handle them properly can actually give us political leverage around the world when it comes to how the chinese. I will ask one more broadbrush question to our audience. Lets go back and talk about chinas neighborhood a little bit. You mention mongolia briefly but theres also a different relationship with Central Asian republics and South Vietnam for instance, burma, myanmar and of course the whole issue of the south china and East China Sea. Can you address those sorts of things in a very quick trip around the block so to speak . Let me take a 30,000foot respective and michael may want to talk a little bit more about the resource aspect of it. I think its a fascinating case study in many respects when you look around asia and chinas very different relationships that are merging in this point in time. Central asia now where china seems to be, not only its own physical backyard but also its own political backyard. There is scarcely a set of countries where china is more politically in tune with some of the authoritarian states of central asia. As they are developing their pipeline structure they are also willing Stronger Political relations with these countries. The Shanghai Cooperative Organization for example tighten security ties. In contrast you see many Southeast Asian countries right now under quite a bit of stress. China has called it this dime and decade with relation to Southeast Asia and its priority is moving away as we are we are looking forward for the next 10 years of chinese leadership moving away from its emphasis on u. S. China relations trade the number one priority is going to be its region and promoting positive relations. What they have done is try to develop a bifurcated policy to move ahead on the economic front but on the security front take a tough line and that is why we see all these challenges in vietnam and the philippines and the South China Sea not to mention the East China Sea with japan and taiwan has well. I think its a very interesting set of little economic and Security Dynamics which i think are quite challenging for china in many respects. The last thing i will mention is the whole overlay of the water issue which we havent touched on yet that actually affects all of these neighbors. Whether we are talking about chinas relations with india or central asia and in particular kazakhstan and Southeast Asia in the may khan river, how china which sits and controls the headwaters of pretty much most of the important rivers going through these regions how it allocates and how it manages its Water Resources is absolutely critical to the future of future water security and industrial development, of all of its neighbors here. We have seen china probably in no move progressively to be more willing to talk about rings like Water Quality and monitoring and disasters but not really to discuss water allocation. So theres a lot of concern. From the region over chinas plans to dam rivers in the may khan that has seven major dams already in planning 20 more. It is quite significant and it has implications for countries like get mom. That is a huge issue. Kazakhstan similar issues of water allocation and river diversion. India both damning and alarms about diversion would seem to be overblown. I will make one more point because i think this actually is a very interesting case for china now where you have a country where china has certainly been the largest source of investment in recent years. With the government transition, the relationship with china is now quite fraught and i think its a testament and certainly for the chinese public and chinese ngos and i think even for some in the chinese leadership its a lesson about what can happen when you strike deals with officials but fail to engage the general population. So the pretty significant backlash that china is facing is really causing in some sectors of Chinese Society ready significant rethink about how they should be engaging in their resource diplomacy. So i think its a very interesting case. We will have to see how it moves forward but i do think its having an impact in some sectors of Society Society about how china should. Im not going to go below the 30,000foot level and going to go to the 40,000foot level briefly. Its striking because when you typically have discussions about resources and security and International Relationships the questions revolve around the politics of the middle east are the hot spot of the day in this or that corner of the world. We have rightly drilled down on the region right around china. That is one of the things that i think emerge through our research in the book that the closer you get to china the more cute he potential security challenges are. Its for a fairly simple reason. China does not have enormous physical global reach at least not on the same scale in the same weight that the United States does. And so you can imagine clashes in the south and East China Sea because its capable of operating there and so are a lot of other city inevitably have the potential for friction. China doesnt have the ability to protect significantly far from sure some middle east even in the horn of africa where they have a little bit of Counter Piracy still not big scale stuff. And so if you do want to see where the big tension points are going to be around china the intersection of resources and security over the next decade at least its in its backyard in those places that lives is talking about. Thats where you want to focus. Not so much where we traditionally look to think about resources and security. Thank you. Now lets turn to our audience for questions and we will need just a moment to reposition the camera and then the microphone, where will the microphone be . The microphone will be right over here on the side of the rim. So wait just a moment. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] now lets go to questions from our audience. Please give us your name and ask a brief question so we can get to as many as possible. Im retired from foreign service. China did make an offer to purchase the [inaudible] chevron purchased the union and my question relates to how cyclical the chinese resource quest is because right now the undisputed source of Natural Resources or its affiliate for china landlocked zambia or wartorn sudan that when you talk to executives of ehp they are lamenting the lower price for iron ore and cowan so one. When do you expect the outlook for the chinese for Natural Resources in the foreseeable future . Thank you. It very much depends on obviously what happens with the chinese economy. The chinese economy is clearly in transition and slow to 7. 7 growth rate it appears this past year but more to the point the effort, the push within the Chinese Government is to rebalance the economy away from this adjustment led growth to a Services Economy to boost his consumption within the chinese economy which would suggest continued slowdown in its demand for many resources. However at the same time the Chinese Government is talking about urbanizing another four or 500 Million People into urbanized as people means to build roads and buildings and apartment houses and a lot more infrastructure. That should in fact cause a pretty significant uptick or at least maintain a level of relatively constant demand for many of these resources. In many respects i think what we are looking at is the question of how successful is the Chinese Government and doing what it says its going to do in terms of balancing away from investment led growth and the second part of course is how much progress china makes on improving the efficiency of its resources and conservation of resources. These are sorted to an object thats, this leadership as well and if that makes significant progress on that again i think in some cases we will see a diminution of resource demand at least in terms of the growth of demand that from mike respective much of this remains up in the air and we need to wait to see how the trajectory of chinese Economic Growth progresses. These are the same goals that the previous leadership had a decade ago and we have made very little progress. A good measure, at least part of the answer to your question is what the Chinese Government does moving forward. Let me add one small thing. If you look at the record of the 2000 what drove high prices was not growing chinese demand in the abstract and it wasnt an absolute shortage of resources around the world. It was the surprising rapidity and the growth of chinese demand and the difficulty of Resource Producers to keep up the pace. Its that surprise that cause prices to blow up. We are at a point now where expectations have reset. No one is surprised by the rapidly growing chinese resource consumption. Which makes it tougher for prices to go fire far higher than people expect. If you look over the next decade instead of surprises that may be more likely on the downside in terms of lower demand for resources than people expect. Just like unexpectedly high demand can create disproportionate shortterm increases in price unexpectedly low demand can go way on the equilibrium on the downside. If i were a betting man i would focus on those kinds of possibilities. I wouldnt be confident in them. June parsons. My interest is actually in security for the Oil Resources that chinas demands and the path of getting those resources to china whether its mollica streets and their relationship with indonesia, malaysia and so on and their recent aggressive stance in the South China Sea and now the East China Sea and the dynamics of what thats going to do in the region. What is your take on that . You so im glad you put it in that context. A lot of discussions about oil in this south and East China Sea focus on the resources that may be on the scene but when you drill down the set of forces in the focus of attention goes well beyond that and in particular goes to control of the ceilings. Those areas are highly relevant for oil supplies but often not in the way that tend to assume. I will leave most of the southEast China Sea to lose but something about the moloch as straights. For Chinese Security planners the u. S. Ability to control that critical choke point for oil supplies and also for oil and gas supplies is still a very large threat looming over them. They would be foolish to ignore it. The United States does have the capacity to stop the access and if you look at what china does at home not just in trying to build pipeline routes and alternative sources of supply but in stock piling in other steps like that, clearly a concern and clearly trying to protect not just their economy but their ability to actually fuel the Chinese Military during a clash. It takes a lot of fuel to fight a significant conflict in the region. So this is a significant driver but the reality is that even projecting china to as far as the sea of moloch a its a stretch and until china builds up the physical capacity to do that there will be a strong pull to play that much closer to china and to deal with, to deal with their much closer than more highpriority tendencies. One of the things we conclude in her book is in many respects the past is not prolonged and particularly when it comes to china things can change very rapidly in ways that are also unexpected in the security arena is one where we both agree that things can change rapidly and in ways that not only arent expected and what we are seeing in the east and South China Sea is precisely that. Fundamentally the conflict between china and its Southeast Asian neighbors in taiwan in the East China Sea is not really about the resources as much as it was about sovereignty and nationalism. And those are forces that are in some ways much more difficult to control and china has happened to them for purposes, for domestic purposes allowed them to sort of blossom at certain points and tamping them down. Now they are at a point where its very difficult. They have a pretty high setpoint so i think its going to be difficult to find their way to take a step that from what is a pretty contentious in some ways attentional flashpoint kind of situation i think particularly with japan but also the philippines and vietnam. You can see this in rising nationalism in all these countries. So i think part of the problem too is International Law here does not provide a very concrete guidance. It provides concrete guidance but unfortunately concrete guidance that supports at least two different claims in different ways. That is the United Nations law of the sea so i think the concern is yes for the resources not only the oil and gas but also to sureties which has become a particularly hot issue now. But also this issue that ties into the sovereignty and the nationalism. Hello. My name is devin jones and agriculture is my passion so a heard you bring that up. My question is in the u. S. Farmers like myself we often grow certain crops and my question is this china trying to move in to say the latin americas for countries like urzua because they can grow crops longer than us and different time constraints. Basically they strategically want to focus on the u. S. Can get the land here or unilaterally try to get into those areas also . I spent some time in brazil and it was really interesting because again i think there was a lot of hype surrounding Chinese Investment in agriculture in brazil. There was a study that came out recently actually that pointed to the fact that about twothirds of Chinese Investment not just in agriculture but acrosstheboard in brazil had yet to be realize that theyre there was this huge number i think 70 billion announced back in 2007 and fully twothirds of that has yet to be realized. When i was in brazil i was looking specifically at the agricultural issue and it was quite fascinating. It was highly and realized investment. Why . There were a number of reasons. First what the brazilians would say is its a matter of how the chinese do business at home but they cant do business that way in brazil. Brazil needs a strong state capacity sewers and china if an official wants land you simply expropriated and somehow you buy it because they dont technically own at the farmers so they would travel to brazil and sates the local officials we would like this land. Just sign this piece of paper and handed over. The resilient officials said no matter how may times they tried to explain this to the chinese they dont have the power to sign away the land in their respective provinces. The chinese didnt seem to understand some part of it was they were approaching this in the wrong way. Second the brazilians pass much more restrictive investment laws when it came to land and they say this was not designed specifically in response to the chinese sort of moved in but in fact they will acknowledge that is certainly raise the issue of new ways for them. Clearly there was some concern about this big push from china into brazil on the land front. Land is a very sensitive issue. It brings up again all sorts of feelings of nationalism and people stealing our land and controlling our land. That is not just in brazil but a lot of places that we looked at. A funny story, when i was meeting with some persily and Business People they said theres there is this constant flow of local officials so from chinese local areas traveling to brazil to meet and to talk about potential land investments. They said really they were never interested in investing in land. It was just that all of these localities have an overseas investment in travel budget and everybody likes to go to brazil. You go over and have a good time and meet with a few people and leave but they were never really and truly interested in investment. The last point i will make in the chinese make this point is that its really investable to invest in brazil. A lot of the infrastructure they want in terms of roads and highways to get soybeans or whatever else it might into the port sent out simply doesnt exist. Brazilians do not make it easy for Foreign Investment into brazil and brazilian officials themselves what knowledge this. They have gone out on a couple of overseas tours to try to attract Foreign Investment but at a hard time because their laws simply dont assist with that. I think there are a number of reasons why yes the chinese have definitely gone to brazil but no they really hadnt realized that kind of return on their investment that they had anticipated. Hello. My name is stephen. Im really adjusted in this intersection of economics and security. He said that is kind of the rod thing and i was wondering what would a more narrow picture of this intersection look like and what are the implications for overall governance . Thats a great question. I think there are a bunch of narrower areas where the two intersect because Economic Security like most things. Resources is an obvious place to another place where we are struggling with that intersection is cybersecurity right now. Foreign investment is often in that space. There are a lot of these pieces were economics and security meet. Its a tough governance problem first because every country handles it differently. Every country is a different role for government in its domestic markets which leads to different views on how the two relate internationally and bureaucrabureaucra tically we are not all that well set up in neither others. The u. S. Government does have pieces that try to do that and we have approved in recent years adding he chief economist at the state department. They have a deputy of National Security adviser for economics. We have people that are supposed to build bridges but you still need some kind of coherent vision for how the pieces fit together in some sort of if not consistent than at least somewhat consistent way of thinking through tradeoffs that cut across these areas if you want to have a parent policy. I dont think we are there yet greatly till with this us on an issue by issue basis and we fight these things through. This intersection is going to become more difficult and more prominent rather than less over time and again you see that whether that is sovereignty issues in the southEast China Seas or are the cybersecurity issues we are dealing with now for all of the energy and security concerns that we have. This combination is good not going to separate itself. We are not going back to another iron curtain where security is here and as they are. Thank you. Hi. Ella joe from the brookings institution. If i may have a question for each author. Liz could you talk more about the food energy and water nexus in china and you see that as a major constrainconstrain t on chinas rise and what are they going to do to address that keeping in the matrix and mike you talked about other countries pattern of Energy Resource acquisition but china has 10 times more the population of japan. Chinas natural gas imports are supposed to reach 63 in a 19 rise from 2013. Do you see the sheer scale that chinas going to bring this pattern and especially the security of the nation . Will kind of International Structure do you see being put in place to mitigate complex . Thank you. Speak to big questions. I will try to be reasonably brief for a significantly large question but look, when i was doing the research for my first book i talked to a lot of local officials in china. It was really interesting for me to learn and asked a number of officials what is the most serious challenge if face a decade ago oftentimes they wouldnt Say Something like corruption. They would say water. Water is the number one problem that they were concerned about particularly in the northern part of china. Basically you are looking at roughly the precipitation the southern part gets but even in Southern China because of Water Pollution the in the water issue is quite serious. These are also dramatic things like the yellow river stops running and it doesnt reach out through shanghai anymore and you can see those 16,000 dead pigs floating down the chevy terrys of the river. Theres a lot of dramatic sides of water turning green or black or whatever the colors from pollution but fundamentally it is an enormous pressure on the chinese system. It does affect exactly as you say the potential for Energy Development in the developmedevelopme nt of shale gas and fracking. The chinese are in just a not only investing in United States its own reserves. One of the challenges, not the only challenge that requires enormous amounts of water for simply doesnt have so in some cases the type of Energy Development that china wants are limited by its water constraints. China has for many years undertaken a lot of different experiments with Water Pricing and want her conservation. Its working on desalination plants but they are expensive and they take time to develop. There are still a campaign mentality so diverting rivers not only from the water that would go to the other countries that even within china taking water and making a move north to the yellow river. You know what the people say in tea and sing we dont want the water from the south because its all polluted so there are a lot of challenges not to mention as youve raised the agricultural issue. Not only is china soil contaminated because of the heavy metals and the toxic dust bets is from its factories but when its water is contaminated thats a different and second problem. And then of course last i will mention the Health Consequences of chinas Water Pollution which have only recently probably not past five to 10 years really moved to the floor of chinese consciousness. There is a, chinas research and United States published a study a year or two ago that talked about 400 cancer villages in china so places where the rates of cancer much higher than the north because of this Water Pollution. Across the full spectrum of those developments on Health Issues and i would also add social unrest when it comes to the environments. The number one source of social unrest in china is the environment. This water issue is absolutely absolutely you hit the nail on the head when you talked about chinas scale and one of the points we emphasize is that this is the way in which china can be very different. You do have to be careful in distinguishing among different resources because chinas scale is a bigger deal in some places than in others. Let me give you two examples where the scale might not be so consequential as you would expect. The first actually is in some parts of food world because while chinas particular Development Model needed to consume a disproportionate amount of iron ore bauxite and so on it does consume a disproportionate amount of food. It consumes a lot of food and drives a lot of concern for food demand. Its a piece of a much bigger trend. The second area is gas. You pointed out gas. For china gas imports are largely discretionary and since the gas market isnt particularly robust i would a surprised if china chose to become heavily dependent on imported natural gas. I say discretionary because china to the detriment of its environmeenvironme nt has an alternatialternati ve should natural gas and that is cold. And domestic coal for the most part traded when chinese policymakers have an option they seem to definitely be choosing the domestic coal over imported natural gas so yes its a low lopez and small within the broader context. Japan and korea are still the major given chinas rise we can go on for a long time but let me fly three basic pieces. Two of which are things i would not put in a security space. The first is the more the rest of the world can do to restrain its consumption the fewer security spillovers there will be from chinas resource quests. So we control a lot of the pieces of that puzzle. We reduce the pressures. Prices are lower and everything is generally calm her. Second we can reinforce markets. To the extent that markets decide where resources go and it develops them rather than political negotiations you are going to take some of the security challenges out of the equation so when they we have decisions about exporting our own resources or when we have decisions about Foreign Direct Investment into our resource opportunities we obviously have to keep security in mind but we also should remember that we are helping set the framework that china might operate in the first person who asked the question talked about the aborted unocal deal. That sent a message to the chinese that you cant rely on the markets. We have got to make sure that again taking into account all the other pieces that we need to to the extent we can we send a signal that we actually can. The third pieces on the military front. The fastest way to accelerate chinas appetite for an expansive military presence driven by resources is for us to step away rapidly from our own commitment to providing security on an equal basis for everyone which is something we do today. Its unusual in history. We provide security for resources coming out of the middle east for example. Even if they predominately traveled to asia increasinincreasin gly travel to asia and increasingly traveled to china but we still remain better off when we do that. Rather than fighting the chinese to essentially take our place. Those are the three i would exercise. Hello my name is andre ray and my question is china has gained so much popularity in their growth and the rise of power over the past couple of years so my question is what are they doing differently than what the u. S. Is doing or is it just a case in point that they are doing what we have done and are doing and we just want to see if they are going to do it better and what strategies they are going to implement to ensure its better than what the u. S. Has done . I dont know in my travels if i went to anywhere that thought they were more pots popular than the United States. We might disagree with the premise of your question. If her hats we have been doing this research around 2006, maybe 2007 i think you might get an on target but i think increasingly there has been not only in terms of chinas resource quest kind of a backlash among publics in many quick countries around the globe. This is not limited to one continent to where reuse find resource rich countries you find significant fortunes of populations that are discontent with the way china does business in that reflects badly on china. In fact the ministry of Foreign Affairs i met with a couple of officials one who was the number two in charge of latin america and africa. They said its very difficult for them. They spend a lot of time now out in countries. Its kind of many consulates to deal with particular problems that a stateowned enterprise or factory may have with the labor force of some kind of environmental problem. A very challenging set of issues constantly trying to make up for whatever bad practices of their firms are doing and as mike alluded to earlier not only the stateowned firms. It could be the 4500 miners in ghana for example all from villages that the Foreign Ministry has to go out and try to negotiate some kind of happy settlement. So i think again that decade ago or a little bit less than then probably would would be right but today the vision is different particularly within chinas backyard the conditions are different. Part of the reason that the u. S. Did that or the rebalance was not only welcomed but in some ways i would say initiated by actors in the region was because of the concern over chinas risa was going to behave within the region particularly on the security front. So i think probably i see sort of the popular perceptions of china these days a little bit differently. That is not to say many leaders across the country including critical leaders here, you can go to any state and find governors traveling to china seeking Foreign Investment. Still there is an enormous amount of interest in bringing Chinese Investment not only to the United States but pretty much everywhere. So dont get me wrong. In that sense theres a lot of interest but i do think the image of china has been somewhat tainted by its practices over the past decade. Speak to build on that very briefly and this goes back to something important was said earlier about the distinction between chinas ability to work with the country at large. Often leaders are very excited particularly if they can get a sweetheart deal on an investment but Chinese Companies tend to deal with the broader population. This is actually a case where the western firms can raise the bar. One of the in places you often find infrastructure consultants and contractors and others that can do things like help you deal with that with the local people and understand what they actually want. Do they want housing . Do they want services for health . When those pieces are in place because of other Companies Often because those other companies are held to Higher Standards by their own governments the chinese can increasingly come in and take advantage of the same tools to work well in these countries. You can have two different views about that. One can be the chinese are able to perform better on a competitive races but the other is this is better for the people for the Chinese People where they are investing. Hi. I am from marymount university. My question is to what level can china alleviate economic sanctions placed on countries. I will use iran as an example. Iran is that it significant economic sanctions placed on it regarding its world market and its export and import of goods and china has become you could call it a release valve or iran. They sell a lot of oil and fry resources to china in return for a market to sell its own goods and to do business. So that has raised issues in the west and its not just iran. So to what extent does that go to and what does it do for the relationship between the west and the country in question and china . I think its useful to look at the trade sanctions and the investment sanctions separately. The trade sanctions, it has been complicated. Not just by the financial sanctions but sanctions but if we are going to be honest thing we have to accept have to accept is the sanctions probably would not have been put in place had we not expected china to be able to continue to buy iranian oil. There is an enormous fear and policymaking circles that the sanctions would essentially cut off oil and tank western economies. The hope was the world would be well supplied and iran but have lower revenues. I dont think we quite got that but that was the theory so its kind of nuance. They have been ultimately able to have import to the extent they want to. On the investment front i think its been really interesting. First the chinese have two somewhat restrained themselves in and stepping in but in a lot of cases even when they have looked a step in and fill the gap left by western countries they havent been able to. Sometimes thats because there are rains have been a nightmare to work with. They have had endless negotiations and there hasnt been a deal but in a lot of cases because there is this or that widget that they need it comes from europe, comes from United States. They cant get access to it so we still live in a world where a lot of the hightechnology parts of the Global Supply chains are in western countries. That is one of those pieces that could change substantially over time. We tend to focus on the operators when we look at how the world of Resource Investment works. We look at the exons in the ehps and so on and we say china has their own but its often that next layer of the suppliers and the contractors that china doesnt have the gift western countries more leverage but in a way that might dissipate over time. I will elaborate on the question a little bit more with regards to your response. Go ahead. Thank you. In that case where the technology is in the west and just not available to other countries, do some of these countries look to china to fill that gap or are they looking at other ways to get technology that is restricted to them . Right now china turns to western countries to get that technologtechnolog y so no country has been able to turn to china in the absence of cooperaticooperati on from the west and i think thats something that could change in the future. But you have this balance. China cant be autonomous and everything particularly if it wants to develop its economy in the way that it needs to and has to rely on International Markets and it relies on the comparative advantage. Now will chinese leaders come out of this experience with iran and say we need to do the following things differently lacks perhaps someone of things i think we dont do enough this look at to kill her acute instances where policymakers are particularly focused on the resource issue and try to understand what they yet from it to give you another example the libya crisis. There was a lot of panic in china a lot of distrust of markets would resolve the flow of oil in the aftermath of the libya crisis in a way that was fair to everyone. If our Intelligence Community is in trying to understand the lessons that china ultimately took away from that about the need to have their own supply arrangements any of that i think they are missing a big thing that they should pay more attention to. Thank you very much. A very brief question. See my name is Caitlin Antrim and im the director of the rule of Law Committee for the oceans. China in its near a broad ax like a coastal state of the 1960s trying to control access,d yet at the same time they look to the law of the Sea Conventions freedoms and ensuring access to cobalt in, oil from the golf, passage of the straits of malanga, access to gas on the russian Continental Shelf iron ore from norway and researchers from the deep ocean floor. On one hand they are taking an antagonistic attitude towards the widely accepted law of the Sea Convention and in another they are both demanding and dependent on the freedoms incorporated in that. How do you see this going . Will china be able to continue these two opposing attitudes indefinitely . Will they have to accept one or the other, be strong locally or get the freedoms that they need locally . I think if you look back in chinese history you will find the chinese very comfortable with the contradictions. I dont think theres any problem navigating those two separate scenarios. I would also point out that from their perspective to a large extent but they are trying to do is defensible under the law of the sea especiallespeciall y the East China Sea because they have the idea of the Continental Shelf. In their view of understanding the law of the sea they are sort of claim extends far past what for example the japanese recognize under law of the sea. They may see it is not quite such a great contribution as you are laying out is certainly the neighbors do. I think more than that china has just shown an unwillingness in many instances to sit down and negotiate for example in the South China Sea with a range of players in the way that they want and i think that is problematic as well. Personally i dont think they recognize that contradiction nor do i think they will have any difficulty holding it in their head. I think thats right on the money. Lives, mike, dr. Elizabeth economy and dr. Michael levi director of energy and Climate Change at the council on Foreign Relations in their new book by all means necessary. Thank you both for being with us tonight and thank you all for joining us for this discussion about this very important issue. [applause] [inaudible conversations]