2022-09-19 11:52:43 Voices

What does resource wealth, including oil, gas, and nonfuel minerals, mean for a country? Because minerals are crucial for meeting the soaring global demand for energy and industrial inputs, it has long been believed that mineral deposits are a blessing for the host country. Since the 1980s, however, researchers have increasingly found that resource endowments are paradoxically associated with sluggish development, deindustrialization, and other economic problems. Moreover, resource-rich countries often suffer from weak political institutions, corruption, social conflicts, even civil wars.

These counterintuitive phenomena, known popularly as the “resource curse,” have given rise to a heated debate about whether rich natural resources are actually a net benefit for a country. Scholars point to oil-rich countries in the Middle East, Africa, and Latin America as typical examples of the resource curse. But curiously missing in the resource curse debate is the case of China.

Although often overlooked relative to other resource-rich countries, China is a major producer of minerals such as coal, iron, and rare earth metals. China has experienced a sustained resource boom since the turn of the millennium, with its mineral industrial output increasing from 357 billion yuan ($43 billion) in 1999 to 1.65 trillion yuan (at 1999 prices) in 2017.

One reason China has been relatively understudied is that this boom is highly regional, with national data obscuring just how important resource extraction is to local economies in certain areas. At the boom’s peak in 2010, China’s mineral industrial output accounted for 7.84% of national GDP. Although that figure is not high by global standards, in particularly resource-rich areas such as Shanxi province, Qinghai province, and the Xinjiang Uyghur Autonomous Region, mineral industrial outputs constantly accounted for 20% to 30% of provincial GDP throughout the 2000s and 2010s. These high ratios are comparable to typical oil-rich countries in the Middle East and North Africa, where oil’s share of GDP fluctuated between 11.7% and 32.6% between 1990 and 2018, according to World Bank data.

China’s resource boom came with both benefits and costs. On the one hand, the economies of many resource-rich regions exploded. As the poster child of resource-driven growth, the city of Ordos in Inner Mongolia rode its coal, natural gas, and rare earth deposits to become the richest city in China in 2011, with a higher per capita GDP than even Hong Kong. On the other hand, resource-rich regions have also struggled with many typical symptoms of the resource curse, including corruption and social conflicts.

As the poster child of resource-driven growth, the city of Ordos in Inner Mongolia rode its coal, natural gas, and rare earth deposits to become the richest city in China in 2011.

So, does China’s experience confirm or reject the resource curse hypothesis? Sidestepping this dichotomous framing, I decided to rephrase the question. Instead of asking whether resources are a curse, I asked to whom resources might be a curse. That is, rather than look at the host country or region as a single unit, I proposed to disaggregate society into different stakeholders — namely capital, labor, and the state — and examine how they are each affected by resource wealth in distinctive ways.

In the resulting book, “China’s Contained Resource Curse: How Minerals Shape State-Capital-Labor Relations,” I argue that the resource sector can be characterized as pro-capital and anti-labor. Whereas mining businesses — capital — have benefitted hugely from resource wealth, local citizens — labor — have not only been marginalized, but have also borne heavy financial and health costs due to the negative environmental and socio-economic impacts of mining activities.

From the perspective of capital formation and economic development, resource revenue is indeed a blessing. It can be converted into capital and further invested to propel economic growth. Resource capital, represented by the mining businesspeople known in China as kuang laoban, or “mine bosses,” have emerged as the biggest winners of the country’s resource boom. They have not only become rich personally but also formed a new class with strong incentives to fortify and expand their business empires.

Contrary to the common impression that kuang laoban squander their money, I found they actively sought out lucrative business opportunities and invested in other industrial sectors including construction, manufacturing, and real estate. As a result, resource revenue not only led to more investment in the mining sector but also boosted investments in other sectors and economic growth overall — although sometimes, as in the case of the housing bubble, these investments could be highly speculative.

It is from labor’s point of view that resource abundance much more strongly resembles a curse. Although mining jobs are slightly better paid than some other industries, these wages barely reflect the many hidden health and safety costs inherent to the profession.

Due to their weak bargaining power, mine workers suffered from inadequate labor rights and frequent labor disputes. Meanwhile, outside the resource sector, local citizens in resource-rich regions not only faced shrinking job opportunities as the mining industries came to dominate the local economy, but also suffered from a variety of mining-related environmental hazards, such as air, water, and soil pollution, land collapse, and water shortages. All these negative impacts imposed heavy financial and health costs on local citizens and led to the suppression of labor income in resource-rich areas.

The unfair distribution of the benefits and costs of the resource boom between capital and labor has caused increasing inequality and aroused widespread popular grievances. As conflicts accumulated and threatened regime stability, the Chinese state became actively involved.

Local governments in resource-rich regions have all scrambled to find solutions to these issues, either reactively or preemptively. My research identified a variety of local strategies. Some local governments played the middleman, mediating between the mining companies and local citizens to settle their disputes. Some encouraged or required mining companies to hire locals for mining jobs or mining-related services, such as the transportation of mineral resources or environmental restoration in mined-out areas. Some mobilized mining companies to provide public goods for local communities such as paved roads, schools, and other infrastructure. In many regions, tax and non-tax revenues from the mining sector were redirected to finance local social welfare expenditures such as health care, social security, and environmental protection.

To give just one example, in the mid-2000s, the coal-rich Shanxi provincial and sub-provincial governments started to require coal mining companies invest in non-coal businesses to create job opportunities for local citizens. This also functioned as an industrial strategy to diversify the regional economy.

These locally designed coping strategies, some quite innovative, boil down to creating redistributive mechanisms to allow the local labor force, who lose out in the resource economy, to share part of the resource wealth and thereby prevent them from turning against the state. Nevertheless, it is worth noting that these strategies were not always effective, as the results often hinged on the results of bargaining between the government, mining companies, and citizens. Given the rather weak bargaining power of common citizens in face of big mining companies and the widely observed collusion between local officials and mining businesspeople, the compliance of mining companies in implementing the redistributive measures is not guaranteed.

Far from a one-sided narrative of blessings and curses, resource wealth generates bifurcated impacts on capital and labor. While a blessing to the economy, it can be a curse to the people who live and work in mining areas. Thus, our focus should not be on whether the resources themselves are a net benefit or a burden, but on the ability of a given state to adjudicate disputes and balance the interests of these two groups. The Chinese example suggests that the state can play an active role in ameliorating the resource curse, but only if it has the capacity and proper incentive structure to do so. It is this state capacity and incentive structure that sets China apart from the rentier states in many resource-rich developing countries.

Editors: Cai Yineng and Kilian O’Donnell; portrait artist: Zhou Zhen.

(Header image: A coal mine in Wushan County, Chongqing, 2020. Wang Changzheng/VCG)