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China's global strategy for energy, security and diplomacy
Drew Thompson, Jamestown Foundation, China Brief
4/27/2005

Next month is the 50th anniversary of the Bandung Conference, where Chinese Premier Zhou Enlai and Indonesian President Sukarno set out to carve a space for Asian and African countries based on principles of mutual interest, respect for national sovereignty and non-alignment with either the United States or the Soviet Union. In 1955, an economically and politically isolated China aspired to economic self-sufficiency through a closed, planned economy that was not dependent on imported food or other raw materials.

Today, social and economic changes at home are forcing China to modify its approach to international relations. In the 21st century, Beijing may be forced to depart from the Bandung spirit and the strategies put forward by Deng Xiaoping to "never take the lead" (bu chu tou) and "bide our time, build our capabilities" (taoguang yanghui). The growth of its domestic economy and increased integration with the world will compel China to exert itself and take a larger role in regional security and economic issues. At the same time, it is becoming clear that China's leaders feel that they can longer bide their time, but must capitalize on strategic opportunities and use diverse diplomatic and economic resources to ensure that national interests are protected.

This is increasingly evident in China's efforts to secure a steady supply of energy and raw materials from around the globe. While this process has been on-going since the early 1990s, China's commercial activities abroad have become increasingly evident. Depending upon your viewpoint, this is either alarming evidence of China's pending economic "threat" or a natural process stemming from China's economic development and "peaceful rise." Under the "threat" scenario, China will either consume the world's increasingly scarce resources or flood consumer markets and take jobs, while a "peaceful" paradigm envisions a manageable China which could be shaped into a global status quo player with an interest in ensuring global stability and economic growth.

Increasing Demand Prompts a Global Quest for Energy

In 1993, China became a net oil importer, and energy demand and imports have increased steadily over time with the growth in import volumes significantly exceeding reported GDP growth. In 2003, China's imports of oil increased 30% over 2002, surprising global energy analysts and Chinese economic planners alike. That same year, China surpassed Japan to become the second largest importer of petroleum after the United States. In 2005, China's oil imports are expected to grow by 10 percent to about 7 million barrels a day. The trend of increasing reliance on energy imports and growing import volumes is projected to continue for the foreseeable future, driven by rising numbers of cars on the road, greater energy consumption by consumers and industrial growth.

China's growing investments in and deepening political relationships with energy producing nations around the world reflects its perceived "energy vulnerabilities" and a desire to ensure energy security by diversifying supply beyond Middle Eastern sources. Since the early 1990s, China has invested steadily in upstream oil activities around the world, including exploration, pipelines and refinery facilities in a number of countries. More recently, Beijing secured long-term purchasing agreements in Africa, the Middle East, South East Asia and the Americas.

China's earliest and most successful oil-investments in Africa are in Sudan. After initial investments in the mid-1990s that included sending large numbers of Chinese engineering and construction teams, Sudanese oil began pumping in 1999, becoming China's first successful overseas effort to produce significant output. Sudanese output now accounts for the majority of China National Petroleum and Gas Company's (CNPC) production. CNPC even has production agreements in Chad, a country that has diplomatic relations with Taiwan. CNPC recently also made headlines around the world when it was revealed that they had collaborated with the Russian government to provide a loan of $6 billion dollars for long-term energy contacts. The Russian government apparently utilized the capital to purchase Yukos assets in an opaque maneuver that characterizes many of the deals cut by Chinese state owned oil companies.

Chinese energy and trade investments have also made a significant impact in Libya, where China signed a $300 million, 10 million barrel crude purchase agreement in 2004. In Algeria, the CNPC has agreements to explore for oil and provided loans so Chinese telecom companies can upgrade Algeria's telecom systems. China has also cemented ties with Angola, which exported 25% of its output to China in 2001. Angola's future exports are unlikely to decrease after China provided a 17-year, $2 billion oil-backed loan last April which the Angolan government will utilize to rebuild national infrastructure ravaged by years of civil war. Consistent with Chinese foreign assistance strategies, Chinese construction and engineering firms will execute many of the projects, such as building the finance and foreign ministry buildings in Luanda and rehabilitating railroads.

The Middle East still accounts for the majority of China's imported oil, with Iran contributing approximately 14 to 15% and Saudi Arabia accounting for approximately 16% of China's imports. China Petrochemical Corporation (SINOPEC) also recently signed a 25 year agreement with Iran worth $70 billion to import liquefied natural gas and invest in exploration and production projects. The deal makes China the number one importer of Iranian energy.

Exploiting Opportunities in the Americas

In the past three years, China has aggressively pursued energy and raw material agreements in the Americas, raising concerns among some in the United States who see China's efforts as potentially challenging the United States' historic dominance in the region. Aside from exploring potential partnerships with Canada, Brazil, Columbia, Peru, Ecuador and Bolivia, China has shown its ability to leverage an opportunity by building relations with staunchly anti-American Venezuelan president Hugo Chavez. China has signed multiple oil exploration and purchase agreements after exchanging state visits over the past year. President Chavez, who has made no secret of his concern about his country's dependence on oil exports to the U.S. and built his popularity at home by tapping anti-American sentiment, is likewise leveraging China's interest in energy to boost trade ties and secure credit lines to invest in infrastructure including transport and telecommunications.

Political-Economic Nexus

Chinese oil, construction and telecom companies are increasingly demonstrating that they seek economic as well as political returns on investments that further Chinese foreign policy goals. Unlike Western public companies, Chinese corporations seek more than just profit for their shareholders. These Chinese companies, backed by senior political leaders, government financing and foreign aid, are willing to invest in countries with high political risk. Many of the agreements announced by Chinese firms are judged economically questionable by many international analysts. Politically, the Chinese government considers these investments a vital diversification of supply to ensure that their energy needs for the next several decades will be met as demand increases and domestic production declines. By investing in exploration, extraction, refining and transportation infrastructure overseas, China increases its perceived sense of security. Beijing is counting on the ability to physically direct deliveries from the well, regardless of developments in world trading markets, or long sea lanes of communication which its navy is unable to protect.

International Concerns

China's active quest to build relationships and secure energy supplies around the world has received increased attention in the United States and Japan, prompting some to worry that China's proactive diplomacy and growing energy consumption could lead to future conflict. Japan, which is entirely dependent on imported oil, is particularly concerned about China's growing national strength and military buildup. The recent intrusion and detection of a Chinese submarine in Japanese territorial waters, coupled with diplomatic conflicts over potential energy deposits in the East China Sea and access to Siberian energy, have further propelled an anti-China sentiment in Japan which Prime Minister Koizumi has capitalized on to increase his popularity at home. The United States, preoccupied with the global war on terrorism, is also becoming concerned that Chinese diplomatic advances, particularly in Asia and the Americas, could marginalize the U.S. presence in these regions where it has traditionally taken the lead.

China's typical approach to diplomatic relations refuses to address governance, human rights and other political issues in relationships with other nations. This has led some to argue that China is an obstacle to promoting more responsible behavior from countries such as Iran, Sudan, Libya and Angola. China's myopic approach to locking up barrels through commercial and diplomatic relations (while ignoring corruption and human rights abuses) frustrates efforts of donor nations and organizations that are working to instill good governance, accountability and transparency. But China's no-strings-attached assistance and opaque commercial transactions which do little to encourage these countries to improve their governance systems might be a short-sighted strategy. Encouraging good governance and stability with trading partners will benefit China in the long-term by building more durable societies and economies that will someday become better markets for Chinese consumer products, and by fostering governments that contribute to global and regional security. The latter being ultimately linked to China's most fundamental core interest: economic growth and domestic stability at home.

China has continually expressed its intention not to seek hegemony or disrupt international balances, but simply to maintain its "peaceful rise". However, not all are assuaged by its reassurances. While China may not significantly degrade Japan's economic influence or the U.S. strategic position in the near-term, China's opaque transactions and unstated intentions are a cause for concern that China is treating the United States and Japan as regional competitors. For example, China's promotion of an East Asian Summit scheduled for November of this year has so far excluded the U.S., which remains the dominant economic and strategic force in the region. This behavior fuels the feeling in Washington that Beijing is attempting to marginalize the U.S. and ultimately push it out of Asia. Reinforcing this notion, Taiwan (which was not invited to attend the 1955 Bandung conference either) risks being another regional powerhouse excluded from the meeting over ideology.

Conclusions

China's sheer size and rapid economic development is causing social and economic challenges around the world. How China handles itself in its foreign relations will affect how the world views it, either as an obstacle to peace, or a status quo nation that has a vested interest in supporting international systems and global good governance. China's quest for energy to fuel its domestic economic growth is not inherently a detrimental event for other major oil importers. However, developed nations should reconcile different approaches to international partnerships and encourage China to promote transparency, good governance and responsible behavior with its partner nations. As a nation with a growing stake in globalization, China will increasingly see that its core interests extend beyond its domestic economy and are largely aligned with developed nations. As such, China's strong relationships with nations such as Iran and Sudan present an opportunity for the U.S. and Europe to work with China to bring about behavior change in difficult and marginalized nations and bring them into the world community.

Drew Thompson is Assistant Director at the Freeman Chair in China Studies, Center for Strategic and International Studies in Washington, DC.


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