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China's dominance of the global metals and minerals sector continues to grow and its ultimate effects on the World order are worrying to contemplate from the Western point of view.

LONDON -

Not so many years ago, the U.S. used to hold a vast strategic metals stockpile to make sure supplies were available for the country's defence programmes. But with the end of the Cold War and as global tensions seemingly reduced, this was no longer felt to be necessary and, at the instigation of Congress in 1992, the stockpile has now largely been run down. Much political capital has been made of the $7 billion of sales from the stockpile over the years and a stockpile disposal program continues to this day. But perhaps the full stockpile concept should be re-examined given a potential long-term threat to supplies posed, in particular, by Chinese control of an ever-increasing proportion of global supplies of metals and minerals?

To an extent this fear of lack of access to key supplies has been brought home by Chinese control of the rare earths element sector where an earlier aggressive sales initiative by the Chinese effectively drove non-Chinese producers out of business leaving the country in control of around 90% of global production. Now the Chinese are instigating sales quotas which will leave much of the globe without adequate access to these rare metals and minerals which are increasingly key in much modern technology. While rare earths may not actually be as rare as the name may suggest, to bring new projects on from scratch is a slow, and expensive, task and not surprisingly there has been a huge boost in rare earths exploration and development.

But rare earths are a specific example where the West is already facing real potential shortages and may, to an extent be just the tip of the iceberg.

Since the global economic crisis hit back in 2008 mining companies - and smaller explorers and developers in particular - have been struggling to raise funds to develop new major projects from Western banks. Meanwhile the Chinese have been keen to secure future supplies for their huge manufacturing and metals smelting and refining sectors. And the Chinese have money. Trillions of dollars in fact.

Given that virtually all Chinese companies are controlled by the state, and the state has this huge surplus of what they see as a declining asset - the U.S. dollar - there is an enormous push from the top to move some of this huge surplus of U.S. dollars into solid assets. And the global mining sector is the Asian giant's biggest target as it not only can give it a stranglehold on key, potentially-appreciating assets (against the U.S. dollar at least), but can also secure supplies for its ever increasing manufacturing sector. Thus providing a source of continuing and ever-growing revenue from its global customers, but also providing jobs for its enormous population - at some 1.4 billion people around 3.5 times that of the U.S.

An article in the Wall Street Journal yesterday pointed out that China's investment in the global mining sector has risen more than 100 times since 2005 in terms of outbound investment and mining acquisitions and totalled around $13 billion last year. The article quotes Derek Scissors, a Heritage Foundation researcher who has built a database to track those deals, as suggesting that China's hunger for metals and minerals will be a principal driver in boosting its overall outbound investment to more than $100 billion by 2014. That's a very considerable slice of global new mining development finance. Data tracker Dealogic reckons that last year China accounted for one-third of the value of all crossborder mining mergers and acquisitions - and we would suggest this proportion will probably continue to rise.

But China may not be the only threat to global metals and minerals supplies. India currently has a population of around 1.2 billion and may soon overtake China as the world's most populous country. It is already beginning to tie down global supplies of strategic metals and minerals, but as it doesn't have China's financial clout is very much in second place in this respect.

But what does this mean in terms of Western economies? The example of the U.K. very much comes to mind where the manufacturing sector is in seemingly permanent decline, with the country now far more dependent on its financial and services sector for its global trade as white collar jobs replace industrial ones. The tensions caused by such a shift are already evident with polarisation of employment which is both geographical and potentially divisive politically.

That is already the fate in part of the U.S.A. Indeed there has to be the likelihood that the decline in the country's manufacturing sector accelerates with more and more industry moving offshore. This is both a result of overt capitalism, as pursuit of profits by any means drives industry to areas of the world where this can be accomplished at lower cost, as well as the enormous growth and need or industrial advance in nations like China which gladly accepts its opportunity of global manufacturing leadership.

Of course this all comes back to strategic advantage. China has no reason to rock the boat at the moment. It is doing very well thank you as it controls ever more of the world's supplies and takes manufacturing away from the world's former leaders. The U.S. owes its world dominance to its success as an industrial power as a wealth generator, but this position is now rapidly being eroded in favour of the Chinese.

Of course the ultimate outcome will be that China, given it continues to follow its current path, will become totally dominant as an industrial nation leaving the former leader, the U.S., trailing in its wake as the U.S. in its turn did with the old European industrial economies.

Further down the road there are other outcomes to consider. The U.S., largely because of its industrial dominance and wealth, is also the world's leading military power. That is also unlikely to continue given the structural changes in society and the erosion of its manufacturing strength vis-a-vis China. If China controls strategic metals and mineral supplies, it can ultimately control the growth, or decline, of U.S. industry and thus the growth, or decline of U.S. military power!

So, maybe the U.S. should return to stockpiling key metals and materials as it did during the Cold War - but to meet the China challenge in this respect, the stockpiles would need to be bigger, and even more comprehensive than in the past, and it is doubtful if any U.S. Administration nowadays has either the will, or the money, to do this. The world order is changing and there seems little the West can do about this but hope China uses its seemingly inevitable ultimate dominance for the global good.