There is a major new issue looming in global geopolitics which has so far attracted little attention from either policymakers or pundits. It is the emergence of China as the world's largest consumer and importer of many industrial raw materials. After several years of robust growth, China has displaced the United States as the dominant market and price setter for copper, iron ore, aluminum, platinum and other commodities. This development has occurred so quickly that governments have not yet had time to ponder its implications. But just as the need for commodities has driven the foreign policy of Britain and the United States on many occasions since the mid-19th century, so now will China's need for commodities force it to develop a new strategy for foreign policy and security policy. China's appetite for raw materials will also have profound implications for the foreign policies of the United States, China's Asian neighbors, and the countries in the Third World that will soon emerge as China's primary suppliers. Economic factors have long played a role shaping foreign policy and security policy. The transformation now occurring in China's economic status is likely to be as transforming an event in geopolitics as America's arrival as a world power during the early decades of the 20th century.

Few would argue that China has not emerged as one of the world's economic powerhouses. It has enjoyed several years of output growth in the 7-9 percent range. In late 2003 its year-on-year growth of industrial production was 18 percent, while export growth exceeded 40 percent. China's share of world exports is now approaching 6 percent and will probably overtake Japan's this year. The great growth engine of China during the past two years has been capital spending. China's investment share of GDP is now approaching 45 percent, the highest in the world. During the east Asian economic boom of the early 1990s, some countries had investment-to-GDP ratios as high as 42 percent, but most developing countries today are clustered in the 20-30 percent range. China's investment spending is so robust that it raises disturbing questions about the allocation of capital: the country may create so much excess capacity that profitability declines. But in contrast to east Asia six years ago, China's investment boom is unlikely to produce a financial crisis because it is being financed primarily by domestic savings. The Chinese savings rate is so high that the country is still running a modest current account surplus, despite one of the highest investment rates ever recorded in world economic history.

As a result of this boom, China has developed a voracious appetite for raw materials. Its commodity imports cost $140 billion last year, and its trade deficit on them was $100 billion. China's imports of iron ore have increased from 14 million tons in 1990 to 148 million in 2003. China's imports of aluminum have shot up from 1 million tons to 5.6 million tons. Imports of refined copper have risen from 20,000 tons in 1990 to over 1.2 million tons last year. Imports of platinum have leaped from 20,000 ounces in 1993 to 1.6 million last year. Imports of nickel have risen from zero to 61,500 tons during 2003. The impact of China's raw material demand on global trade has been so dramatic that shipping rates have quadrupled during the past 18 months.

There are now some commodities in which China is a larger consumer than the United States. In late 2003 China accounted for 20.6 percent of global copper demand compared to 16 percent for the United States. In 2005 China will probably account for 21 percent of global aluminum demand compared to 20 percent for the United States. China also accounts for 35 percent of global coal production, 20 percent of zinc output, 20 percent of magnesium output and 16 percent of phosphate output. This is all the more remarkable given that China's real GDP is probably half of America's. And since the real incomes of China's people are only now rising to levels that generate large demands for material goods such as autos, appliances and houses, its consumption of raw materials is poised for explosive growth.

Steel is a sector in which China has emerged as the world's dominant player. China's steel production is now running at 220 million tons per annum, more than the United States and Japan combined. Since it is also importing 40 million tons, China's steel companies are planning to add another 200 million tons of capacity during the next few years. The stock market capitalization of China's steel industry is now $41 billion compared to $11 billion for the United States, $50 billion for Japan, and $12 billion for Korea.

The growth of China's steel industry is highly correlated with the country's pace of urbanization. As the experiences of the United States and Japan have demonstrated, urbanization creates tremendous demand for raw materials. Between 1900 and 1970, America's urban population grew from 30 million to 154 million. At the same time, America's per capita steel consumption increased sixfold. Between 1950 and 1970, Japan's urban population increased by 70 percent and per capita steel consumption increased eightfold, reaching a peak 20 percent higher than America's. As China is currently only 40 percent urban and 60 percent rural, there will be huge pent-up demand for steel to build new cities and expand existing ones.

The urbanization factor is producing explosive growth in China's demand for cement as well. China has been the world's largest consumer and producer of cement since 1985. It represents 40 percent of world cement production and already has an intensity of per capita use higher than America's. In fact, China's cement consumption is over 640 million tons per annum, a level six times higher than U.S. consumption.

China's steel boom has also changed its role in the world coal market. As a result of the robust domestic demand, China's exports of thermal coal have fallen from 80 million tons in 1991 to 74 million tons in 2003 and numbers potentially as low as 55 million tons this year. China is also now importing coking coal rather than exporting it. Given that China was an important coal exporter, the result of these declining sales has been large price increases. World thermal coal prices rose by 20 percent last year and are likely to increase another 40 percent this year.

China has large reserves of some raw materials but is very dependent upon imports for others. It has 54 percent of the world's manganese reserves, 23 percent of lead reserves, 22 percent of silver reserves, 12 percent of coal reserves, 11 percent of vanadium reserves, and 6 percent of copper reserves. China is also a growing factor in the market for agricultural commodities, having recently displaced Japan as the number-two market for rubber imports. Despite U.S. trade sanctions on imports of its textile products, China increased imports of cotton from the United States by 700 percent during 2003.

China's appetite for food imports is likely to expand because of increasing urbanization and water shortages. China is trying to feed 20 percent of the world's population on 7 percent of its arable land. It currently employs 370 million people to produce as much food as 2 million American farmers. The amount of land being harvested has declined from 90 million hectares in 1998 to 76 million last year. There is also a serious water shortage in the north, where grain production is largest. China has four-fifths of its water in the south, while two-thirds of its cropland is in the north. Water per acre of cropland is therefore only one-eighth of that in the south. The supply of water is also being depleted because of diversion of water from rivers to cities, the depletion of underground supplies in aquifers, and the increasing pollution caused by industrialization.

After a remarkable expansion of grain production from 90 million tons in 1950 to 392 million tons in 1998, China's grain harvest has fallen in four of the last five years--dropping to 322 million tons in 2003 (a decline in output exceeding the entire grain production of Canada). Production of rice and corn has declined as well. As a result of the increasing constraints on China's agricultural production, the World Bank is forecasting that China's net grain imports will rise to 14 million tons in 2005, 19 million tons in 2010, and 32 million tons in 2020. The USDA is forecasting that China's grain imports could be as high as 57 million tons in 2020. In February and March of this year, Chinese trade delegations came to the United States and signed contracts to purchase 1.38 million tons of wheat for delivery in 2003-04 and a further three million tons during 2004-05. China's imports of soya during 2003 also exceeded production for the first time ever. At present, China's food imports represent about 4 percent of domestic agricultural value-added, very similar to the ratios for other developing countries such as Brazil, India and Indonesia. China's ratio of imports to agricultural value-added will probably rise to 15-20 percent during the next twenty years, producing a growth rate for food imports of at least 24 percent.

The other commodity market where China is rapidly emerging as a major factor is oil. The International Energy Association is projecting that China's oil demand will rise to 6.2 million barrels per day (bpd) this year from 5.49 million last year. As a result of this surging demand, China has displaced Japan as the world's second-largest oil consumer and will become a progressively larger importer in the future. China became a modest oil importer during the mid-1990s and in 2000 imported about 1.3 million bpd. Analysts expect this number to rise to 2.5 million bpd in 2005 and 3.3 million bpd in 2010. By 2030 China's oil imports could reach 7.3 million bpd compared to 6.8 for Japan, 14.6 for Europe, and 24.3 for the United States. China is also making plans to import large quantities of liquid natural gas (LNG) from Australia, Indonesia and Iran.

China's oil demand is being driven by the industrial boom and rapid growth of car ownership. Private auto sales have increased from only token levels ten years ago to 2 million per annum recently. It is estimated that China could have 28 million private autos by 2010. As a result, autos could account for 40 percent of China's oil consumption in six years compared to only 10 percent in 1995.

Despite the large increases in demand, China's per capita consumption of raw materials is still very modest compared to America. In 2002 China's per capita consumption of copper was less than one-third of America's, while per capita consumption of aluminum was only one-fifth. It would not be difficult to imagine scenarios in which China could account for 30â€"40 percent of global metal consumption by 2025, as per capita consumption moves closer to the global average.

Does the world have an adequate supply of raw materials to satisfy Chinese demand? The world is well endowed with some minerals but could experience shortages of others if current growth rates of consumption persist for another decade. According to industry analysts, the world currently has 85 years of bauxite reserves, 55 years of iron ore reserves, 14 years of copper reserves, and 11 years of zinc reserves. The potential scarcity of copper could encourage more competitive bidding by global mining companies--including China's--for reserves.

China could be especially vulnerable to copper shortages because it satisfies only 18 percent of its consumption with domestic supplies. China is becoming a huge consumer of copper for the same reason it has done so for steel. Construction is the largest consumer of copper, accounting for 36 percent of global demand, followed by electronics (27 percent) and a variety of durable goods industries, such as autos. China has already made one investment in the Zambian copper industry and is searching for others. As a result of its domestic supply shortage, the odds are high that Chinese companies will scan the world for new deposits to develop in order to ensure an adequate supply for the domestic market when global supply conditions tighten during the next decade.

China's need for raw materials has led to large price increases during the past two years for iron ore, steel, copper, soybeans and other commodities. Since October 2001, the Economist's "All Items" index of commodity prices has increased by 59 percent. The prices of industrial raw materials have jumped by 73 percent. These price gains are not yet dissimilar to those that occurred during the cyclical economic upturns of the late 1980s and mid-1990s. In real terms, commodity prices are still far below their previous peaks. But if the global economy recovers further this year, there could be larger price gains.

China's demand for raw materials has also created concerns about commodity shortages in some sectors. Companies in North America and Europe have become concerned about steel supplies. In the United States, scrap-metal dealers have appealed to the Commerce Department to restrict exports of scrap metal to China because of the large price increase caused by Chinese demand. The Nixon Administration used to restrict exports of commodities during the high-inflation era of the early 1970s, but the current administration will be reluctant to ration exports to China at a time when the United States is running such a large trade deficit with the country, opting instead to let China reallocate commodity supplies by driving prices higher.

Options

These developments will, in turn, lead to a variety of political and economic consequences. First, like previous Great Powers, Beijing will develop a foreign policy and military strategy to protect its access to raw materials. As its trade ties expand with commodity exporting countries in Latin America, Africa and the Middle East, China will want to ensure that they are reliable suppliers of critical raw materials. While the sheer growth of trade should help to promote good political relations, there are a number of ways in which China can be expected to hedge its bets.

As the experiences of the United States and Great Britain have shown, the capability to project military power outside the near abroad is essential to securing access to natural resources. Though it has been over 500 years since China last deployed naval vessels far from the country's territorial waters, if it becomes dependent upon raw materials from regions as diverse and complex as those mentioned above, it will have to develop the forces necessary--most importantly a blue-water navy--to protect its interests in these strategically vital areas.

China's current involvement in Sudan demonstrates both the type of situation in which China might find itself in the future and Beijing's potential response. China has already deployed 4,000 troops to Sudan to protect its investment in an oil pipeline developed with the Malaysian firm Petronas. China is concerned that Sudan's ongoing civil war could disrupt the pipeline, so it has moved to ensure the project's security. While there has been little international attention focused on China's role in the Sudan, it could set an important precedent.

China may also attempt to enhance its political relationship with the commodity producing countries in various parts of the world by promoting bilateral free trade agreements (FTA). Beijing, for example, is now holding talks with the Australian government about a potential FTA because of Australia's large reserves of natural gas, coal, iron ore and other raw materials. And at a recent Africa-China summit conference in Addis Ababa, China pledged to boost its two-way trade with Africa to $30 billion by 2005 from $12.4 billion during 2002. China intends to broaden its imports of oil and a variety of other commodities as well as to promote more investment.

Brazil, for example, is very excited about the potential for developing a "strategic partnership" with China. Brazil views a close relationship with China as a pillar of its foreign policy because it wants to promote a network of alliances with other developing countries to challenge American hegemony. The Brazilians believe China can play a major role in such a system. China actually regards itself as an emerging superpower, not just a developing country, but it will accommodate Brazil's ambitions because it plans to expand massively its trade with Brazil. Chinese firms are planning a $2 billion investment in Brazil's aluminum industry and a $1.5 billion investment in the steel sector.

China has already moved from being Brazil's 15th-largest trading partner in 1999 to being its second-largest last year because of large increases in imports of soybeans and iron ore. Brazil hopes to boost its China exports to $10 billion by 2005 because of demand for many commodities, including dairy products, cotton, tropical fruit, fish and coffee. Brazil also has the potential greatly to increase its output of soybeans. In 2003 China accounted for one-third of global trade in soy products and 20 percent of soy oil. As a result of China, Latin America now sends a rapidly growing share of its exports to east Asia, including 13 percent of pulp sales, 13 percent of steel, 43 percent of iron ore, and 26 percent of copper. As a result, Chile also plans to launch FTA talks with China.

China's need for petroleum could also transform its relationship with Russia. Trade between Russian and China is booming. It is likely to reach $22 billion this year, a level four times higher than it was five years ago. The countries are also planning infrastructure investments that could further enhance trade. In February China announced that it would embark upon a 15-year project to build a railroad that would run 870 miles from eastern Russia to Dalian, a seaport in Manchuria. China is anxious to develop corporate relationships with Russian energy companies to obtain petroleum. The Chinese also attempted to purchase a medium-sized Russian oil company, Slavneft, in 2002, but the deal was blocked by the Russian government. (The delegation from the Chinese National Petroleum Company was arrested when they arrived in Russia.)

China's ambitions in Russia, however, are complicated by the fact that Russia is highly insecure about its eastern frontier. The Russians fear that China could someday threaten their eastern territory because much of it was controlled by China before the conquests of the 19th century. There is also a huge imbalance of population. The Russian provinces in the Far East have lost 2 million people during the past decade, while it is estimated that 3 million Chinese have crossed the border. There are also 127 million people in the three adjoining Chinese provinces. At present, 66 percent of Russia's oil production and 91 percent of its gas production comes from fields in western Siberia. But oil analysts estimate that eastern Siberia and the Russian Far East could contain 110 billion barrels of oil.

During 2003 China and Japan competed for the right to develop an oil pipeline in Russia for their respective markets. The Chinese formed an alliance with YUKOS while the Japanese focused on the government pipeline monopoly, Transneft. YUKOS agreed to sell China 300,000 bpd starting in 2006, an amount triple the level of China's oil imports from Russia in 2003 and six times higher than in 2002. When the Chinese chose YUKOS as a partner, it was regarded as Russia's most successful and transparent oil company. Since then, YUKOS's star has fallen with the decision of Vladimir Putin to arrest its CEO Mikhail Khodorkovsky, for meddling in politics. The Russian government has subsequently announced that it will support the construction of an oil pipeline following the proposed Japanese route but with a branch extending to Daqing, China's largest oilfield. The new pipeline will stretch over 4,000 kilometers and run close to the border of the autonomous region of inner Mongolia, where the branch to Daqing will peel off. Russia will be able to satisfy the new demand for oil only by developing deposits in eastern Siberia closer to the Chinese border. Although China perceives that Russia stole land from it during the 19th century, it has not yet begun to demand the return of lost territory. Indeed, the greater risk to Russia's territorial security could ultimately prove to be American and European trade policy. Beijing currently plans to pay for its commodity imports by exporting a growing volume of manufactured goods. If the United States and Europe attempt to curb China's exports, Beijing will have no way to pay for its rapidly growing imports of oil and other raw materials. In such a scenario, China could decide that the most attractive way of securing adequate energy supplies would be to reclaim lost territory in the Russian Far East with large oil reserves. Russia could thus become the casualty of protectionist trade policies in North America and Europe.

While Russia has been ambiguous about its relationship with China, Kazakhstan has given China a warm welcome. The Chinese National Petroleum Company has invested $700 million in oil development. China is about to spend $3 billion on a new pipeline from Atasu to China's Xinjiang Autonomous Region. The three section trunkline of over 3,000 kilometers will ultimately be able to deliver 20 million tons of Caspian Sea crude to western China. As Kazakhstan currently exports 70 percent of its oil via pipelines passing through Russia, it is anxious to develop new markets.

Other regions that could be vulnerable to Chinese territorial claims are the Senkaku Islands (the Chinese call them the Daiyous) and the Spratly Islands in the South China Sea. It is widely perceived that both sets of islands could provide access to large oil reserves. In the 1970s Deng Xiaoping declined to pursue territorial claims in China's neighborhood. He said that conflicts over the islands should be "left for the next generation." In November 2002 asean and China concluded a treaty that called on all claimants to avoid actions that might heighten tensions in the flashpoint region. This was further reinforced last winter by a non-aggression pact with ASEAN. But in recent months, Beijing has once again begun to speak out about its claims. It has criticized Vietnam for attempting to give oil drilling rights to foreign companies and promoting tourism on the Spratly Islands, and it recently allowed a group of Chinese nationalists to land on the Senkaku Islands and plant a flag. The Chinese were promptly arrested by the Japanese police and then sent home to a hero's welcome. The new regime of Hu Jintao has been constantly stressing to other Asian countries that China's emergence as a great power will not threaten them, but China's concern about securing adequate oil supplies could encourage Beijing to become more assertive again over territorial claims in regions which adjoin large oil supplies. As with Russia, the ultimate determinant of how far China will go in pursuing its claims may depend upon western trade policy. If the United States and Europe make it difficult for China to pay for oil imports with exports of manufactured goods, China could decide to pursue a more aggressive foreign policy to obtain oil from disputed territories.

A second potential development is China's likely emergence as a more important player in financing the development of natural resources. The Chinese regard ownership as an important element of control. In the United States, for example, they purchased cutting rights over large tracts of timberland nearly 25 years ago. The big Chinese oil companies are now investing in oil development projects in Indonesia, Latin America, Africa and Australia. China's steel industry has made large investments in Australia's iron ore mines and is planning to develop a joint venture to produce steel in Brazil. The Chinese bought a Zambian copper mine during the late 1990s. The government of Papua New Guinea has invited Chinese firms to bid for a major nickel development project and to acquire a large shareholding in a pipeline that it wants to construct in Australia.

In the past, the largest corporate players in the development of global commodity production have been companies from the United States and the Commonwealth, especially Canada, Australia and South Africa. These companies are currently holding negotiations with China about both investing in new Chinese projects as well as forming joint ventures with Chinese firms to develop mines in other countries. Rio Tinto has several joint ventures with China in Australia. BHP recently announced plans for a 25-year iron ore supply contract to China which will include large Chinese investments in its mines. Four Chinese steel companies will own 40 percent of the mines. As a result of China's obsession with the issue of control, the odds are high that China will emerge as an important partner, if not full owner, of many new natural resource projects.

Chinese firms could also emerge as competitors with American and European firms. Saudi Arabia, for example, recently allowed Chinese firms to invest in its new natural gas industry while excluding American firms from the project. The Saudis were attracted to China because it could be a huge market and there were no tensions over issues such as Israel and terrorism. China also supplied intermediate range ballistic missiles to Saudi Arabia several years ago and collaborated in a Saudi-financed project to develop nuclear power in Pakistan. If the U.S. relationship with the Saudis continues to deteriorate, China could emerge as a more important player in providing them security. President Hu Jintao recently conducted a tour of Algeria, Egypt and Gabon to discuss plans to purchase more petroleum from each country and to expand Chinese investment. In July 2003 the China National Petroleum Corporation spent $350 million acquiring several oil refineries in Algeria. China also just announced plans to purchase 2.5 million tons of LNG per annum from Iran starting in 2008. This project is worth $20 billion and is the largest LNG contract in the world.

Third, China's huge demand for raw materials could produce a sustained improvement in the terms of trade with the developing countries. Since World War II, the developing countries have often suffered from declining commodity prices, especially during periods of recession in the U.S. economy. There were major developing-country debt crises during the early 1980s because of a severely restrictive U.S. monetary policy that depressed commodity prices. Russia defaulted on its debt during 1998 because of a large drop in the oil price that crippled tax revenues. In the future it is possible that Chinese monetary policy might play a more critical role than American monetary policy in determining commodity prices. What remains to be seen is whether China will be more sensitive to its global monetary role than the Americans were in the past.

Fourth, China will emerge as an important factor in the conduct of monetary policy by the g-7 countries. During the past year, China's boom has produced a 25 percent increase in America's crude-materials price index. In the past such large increases in commodity prices might have provoked the Federal Reserve to raise interest rates. But the Fed has not tightened in part because China's exports of manufactured goods are helping to restrain America's consumer price index. Wal-Mart, for example, is now purchasing $14 billion of goods from Chinese companies and $26 billion from American, Japanese and Korean companies using China as an export base. The import of low-priced goods from China is limiting the ability of American firms to raise prices despite rising raw material costs. But at some point, rising commodity prices could cause higher inflation and force central banks to raise interest rates. In the past, the G-7 central banks focused primarily on their own business cycles and the American economy. In the future, they will have to take account of how fluctuations in the Chinese economy are affecting global commodity prices.

During much of China's history, it was difficult for western countries to pay for their imports of silk and porcelain because China did not want western products. (The British introduced opium in order to reduce their trade deficit with China.) In the modern era there are no such constraints on China's trade. In contrast to the era before the industrial revolution, China has an immense appetite for both manufactured goods and commodities from the rest of the world, and it plans to expand exports of manufactured goods in order to pay for these imports. The great risk to this equilibrium is trade policy in the industrial countries. Some countries want to impose trade barriers on Chinese imports. The U.S. Treasury is calling upon China to revalue the country's currency in order to reduce its export competitiveness. China has joined the World Trade Organization (WTO) in order to demonstrate its willingness to open its own markets, but WTO entry does not guarantee that markets will always remain open for China's exports: the United States and Europe have reserved the right to declare trade emergencies and unilaterally constrain Chinese exports of textiles as well as other products.

China's response to the demand for exchange rate revaluation has been a dramatic increase in currency market intervention in order to promote exchange rate stability. During the past year, China has purchased $100 billion of U.S. government securities in order to maintain a stable exchange rate vis-Ã -vis the dollar. China is not unique in pursuing such a policy: Japan has also spent nearly $300 billion during the past year attempting to maintain a stable exchange rate for the yen against the dollar. The east Asian countries have become so concerned about currency stability that they are prepared to finance 50-60 percent of America's budget deficit.

In fact, it would not be an exaggeration to suggest that the financial underpinning of the Bush Administration's economic and foreign policies is the ownership by east Asian central banks of vast quantities of U.S. government debt. These banks now have $2.1 trillion of foreign exchange reserves which are nearly 90 percent invested in U.S. government securities. Indeed, it is the willingness of the east Asian central banks to fund the U.S. budget deficit which has permitted the Bush Administration to pursue a highly expansionary fiscal policy without any adverse consequences for the domestic bond market. The Bush Administration is so concerned about manufacturing job losses that it does not want to acknowledge its unusual financial dependence upon east Asia, but the reality is that their currency intervention has become a de facto form of burden sharing for the Bush foreign and defense policies. China is anxious to maintain a stable exchange rate because of concerns about the stability of its financial system and the fact that it has lost ten times as many manufacturing jobs as the United States during the past six years due to the restructuring of its state-owned enterprises.

CHINA'S ECONOMIC takeoff and new role in the global commodity markets has occurred so quickly that the United States and other countries have not yet fully come to terms with it. All are extremely sensitive to the risk of job losses resulting from China's export growth, but they have not devised a strategy for coping with the larger consequences of China's new role. There are many questions that loom. If China accounts for 30-40 percent of global metal consumption in 15 years, what will be the consequences for commodity prices and trade flows? Will China become the dominant trading partner of countries as diverse as Australia, South Africa and Brazil? If China assumes such a role, will it attempt to develop a larger blue-water navy to protect the ships providing critical supplies of oil, iron ore and other raw materials? Will China become a major investor in developing countries in order to finance the development of new natural resource projects? Will China follow in the footsteps of the United States and Britain by intervening in the domestic political affairs of countries vital to its national interest? Will China offer arms supplies to developing countries in order to enhance its access to their commodity production? Is the intervention in the Sudan only the first step to a much larger Chinese military role all over the Third World?

The United States has clashed with China in the past over its policy in the Middle East. During the late 1990s, China offered to sell military technology to Iran in order to enhance its access to energy supplies. The United States protested, and China ultimately backed down. But as a result of China's new circumstances, the temptation will be strong for China to pursue a variety of diplomatic strategies for enhancing its access to raw materials. The challenge for the United States will be to demonstrate that it can accommodate China's need for raw materials and play a cooperative role in helping Beijing to assure adequate supplies. The United States has always supported a policy of open sea lanes and protection of private property, and it should now reassure China that it will use its own military forces to assure the safety and security of Chinese vessels and others carrying critical raw materials. The United States should also attempt to collaborate with China in developing a common policy for third world countries. As with the Sudan, it is not difficult to imagine countries as diverse as the Congo, Papua New Guinea or even Saudi Arabia turning to China for help in suppressing rebellions or protecting political elites. In the past, the United States would have reacted adversely to the deployment of Chinese troops anywhere. But as a result of China's new role in the global commodity markets, the United States will have to recognize that China has new security concerns that it should attempt to manage rather than simply reject.

China announced a major breakthrough in its third world relationships in April when it said that it would join the Nuclear Suppliers Group (NSG). China's application to the forty-nation club is an important recognition that it is in China's interest to be seen working with other leading countries in regulating the transfer of nuclear technology and material. China also wants to improve its own access to nuclear technology from the United States because of its plans to increase the role of nuclear energy within China. As a result of this decision, China will no longer be able openly to offer Middle Eastern countries access to nuclear technology as a quid pro quo for oil supplies.

In the 1950s and 1960s, the Chinese relationship with the Third World was heavily influenced by the 1954 Bandung summit conference in Indonesia. At that summit, the leaders of newly independent countries of Asia and Africa pledged to work together on behalf of a non-aligned Third World. During the 1960s China helped Zambia to cope with Rhodesian trade sanctions by constructing a railway from Dar es Salsam to Lusaka. In the future, China will have a different relationship with developing countries. It will become both their primary export market and an investor in their natural-resource industries. China's negotiations with them over commodity contracts will have a major impact on their terms of trade and national income. If commodity prices fall sharply and they experience recessions, they might blame China; in the past they would have blamed American imperialism.

AT PRESENT only a few things appear to be certain. The transformation apparent in the commodity markets during the past year is likely to persist for some time. China will increasingly become a more important influence on commodity prices than the old industrial economies of North America, Europe and Japan. China could drive commodity prices higher as it develops larger reserves of oil, grain and other critical raw materials. When investment in China finally slows down, commodity prices will decline. But as China is unlikely to experience a full-scale recession anytime during the next decade, there will be a steady--if not always spectacular--growth in its demand for raw materials. Indeed, by the period 2015-20 China's share of global metal consumption could be 50 percent larger than America's.

Such a large change in the composition of global commodity demand and trade flows will have political consequences. China is going to develop far more intimate relationships with many developing countries than have existed before. It is going to redefine its national security strategy to include protection of critical raw material supplies. It is too soon to speak of a new era of Chinese imperialism in the Third World, but China will certainly play a more influential role in the affairs of many developing countries. The domestic political environment in the United States has pushed trade into the spotlight at the expense of a long-term strategy for managing the consequences of China's requirements for strategic resources. The United States can regard China's new role as an opportunity for cooperation on many geopolitical issues or as a further threat to its own economic interests. There is no way to predict exactly how policymakers will respond to these developments. At this point only one thing is certain: China's new role as the world's largest consumer of many industrial commodities will force everyone to rethink assumptions about foreign policy, military policy and even the conduct of monetary policy during the early decades of the 21st century.

 David Hale, a global economist, is the founder of Hale Advisors, LLC and is also chairman of the board of China Online, LLC.

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