China, Oil and Global Politics

Philip Andrews-Speed, Roland Dannreuther

• Publisher: Routledge
• Year: 2011
• Print ISBN: 9780415603959
• eBook ISBN: 9781136732348
• Topic: Business
• Subtopic: Energy Industry
• Index: Business

China's rapid economic growth has led to a huge increase in its domestic energy needs. This book provides a critical overview of how China's growing need for oil imports is shaping its international economic and diplomatic strategy and how this affects global political relations and behaviour.

Part One is focused on the domestic drivers of energy policy: it provides a systematic account of recent trends in China's energy sector and assesses the context and processes of energy policy making, and concludes by showing how and why China's oil industry has spread across the world in the last fifteen years. Part Two analyses the political and foreign policy implications of this energy-driven expansion and the challenges this potentially poses for China's integration into the international system. It examines a number of factors linked to this integration in the energy field, including the unpredictabilities of internal policymaking; China's determination to promote its own critical national interests, and the general ambition of the Chinese leadership to integrate with the international system on its own terms and at its own speed.

The highly topical book draws together the various dimensions of China's international energy strategy, and provides insights into the impact of this on China's growing international presence in various parts of the world.

1   Introduction

China, Oil and Global Politics

China needs oil and needs oil in ever-increasing quantities. Until 1993, China was an exporter of oil; since then, its demand for oil imports has grown steadily and inexorably. Net imports of oil reached 150 million tonnes in 2004 and 220 million tonnes in 2009, some 55 per cent of the nation’s total oil consumption, and are projected to rise to 400–500 million tonnes per year by 2020. China will, in the process, overtake the United States as the largest net importer of oil. Oil is not the only commodity that China is importing in increasing quantities. Gas is another critical energy commodity that is being imported from abroad. But similar markedly upward trajectories for imports are found with numerous other primary commodities, such as timber, minerals, cereals, rice and soybeans. This surging demand for imports reflects the extraordinary growth, particularly during the 2000s, of China’s economy. It also reflects the reality that China is emerging as one of the most important power houses of the global economy along with the associated need to meet the increased wealth and levels of consumption of China’s 1.3 billion population. This surge in commodity imports, mirrored by the expansion in China’s exports of manufactured goods, is one of the most visible and concrete expressions of China’s emergent rise to great power status.

Oil does have a particular domestic and global significance compared to other commodities. In the first instance, ensuring that China has sufficient supplies of oil at a reasonable price represents a major domestic challenge for the Chinese government. Certainly, oil is not the only or the most important of China’s energy inputs. Here, pride of place goes to coal, which currently still provides nearly 70 per cent of China’s overall energy needs and which is still mainly sourced from within China. But oil, its supply and price, is a sensitive popular issue since it remains the principal fuel in the transportation sector and the hopes and expectations of most Chinese, as elsewhere in the world, rest on car ownership and in enjoying the sense of freedom and prosperity that such ownership provides. Oil prices, particularly when they rise as sharply as they did during most of the 2000s, also remain the most visible expression of a more challenging energy security environment. For energy-importing states like China, this becomes a major political test for the government.

A further particularity of oil is its geopolitical dimension. Oil is different from other commodities in the extent to which its production, supply and distribution are marked by geopolitical tensions and sensitivities. This is a function of both the high value that oil has in the global economy and the distribution of much of the world’s energy supplies in unstable and geopolitically contested parts of the world. To a degree surpassing other commodities, oil excites considerable strategic nervousness and suspicion. And as China is driven to secure ever-increasing quantities of oil from different parts of the world, so the anxieties and suspicions of other countries about China’s intentions and ambitions grow. For those seeking to interpret the meaning and significance of China’s rise, China’s global search for oil becomes an ever-important factor in the equation. For China itself, the hunger for oil and how this leads the Chinese government to engage more intensively with regions of the world where it hitherto had only limited involvement inevitably brings new foreign policy choices and dilemmas. As China charts its course towards great power status, the vulnerability, both perceived and actual, to oil imports inevitably enforces choices about what sort of great power China wishes to be. That being said, dependence on oil imports need not prevent a country from being a great power though it can constrain its freedom of action, as the case of the United States demonstrates.

Adelphi Paper of 2002

These oil-related geopolitical challenges are not new or newly discovered for China. Indeed, we first explored the strategic implications of China’s energy needs in an Adelphi Paper that was published in 2002.¹ We believe, as authors tend to do, that most of the conclusions we drew in that earlier study have stood the test of time. However, we admit that we (along with others) failed to predict the extraordinary economic growth of China in the mid-2000s. We similarly failed to predict the rapid rise in oil prices during this period and the way in which China’s growing imports contributed to this rise. As such, energy security has gained an increased global salience, which was generally unexpected at the beginning of the decade when many openly predicted that we would be entering an ‘era of cheap energy’. Also, though we explored the geopolitical implications of China’s search for oil in Russia, central Asia and the Middle East, we failed to anticipate that China’s energy drive would become truly global, extending deep into sub-Saharan Africa and Latin America.

The conclusions that we drew from the Adelphi Paper in 2002 generally tended to accentuate the positive while recognising the difficulties and constraints. We noted the internal incoherence of domestic energy policy-making, the lack of coordination between the multiplicity of competing actors and the weakness of state capacity, and the tendency to promote more strategic and statist, rather than market-driven and more efficient, solutions. But we also assumed that the general trajectory of China’s policy learning was positive and that greater experience and understanding of the policy options, drawing not least from advice and expertise from abroad, would promote a more capable and effective policy framework. On the international front, we tended to position ourselves among the ‘liberal optimists’, to use the category set out by Friedberg, and which emphasised the generally pacifying impact of China’s integration into global energy markets and the implausibility of the more alarmist accounts of how China’s international energy strategy would almost inevitably lead to conflict and war.²

Although our basic outlook remains positive, we have become notably less sanguine, or perhaps more accurately more uncertain, about the implications of China’s energy drive in terms of domestic stability and global security. Domestically, the striking fact that in the mid-2000s China’s long-term secular decline in energy intensity – the amount of energy used for overall economic production – was reversed is indicative to us of a wider and more serious set of problems that the government has faced in articulating and implementing an effective energy strategy. The policy urgency of confronting this seemingly inexorable growth in energy-intensive industrial activity has only been heightened by domestic and international expectations for the government to respond to the challenges of environmental degradation and climate change.

The difficulties that the Chinese leadership has faced in meeting these demands presents a picture of a government that is more constrained and less autonomous than our previous study suggested. The fragmented nature of the structures and systems of governance continues to place significant constraints on the leadership’s ability to formulate and implement energy policy and other domestic policies in a coherent and sustained manner. Many policies appear to be short term in nature and ad hoc reactions to events or to pressure from domestic interest groups. Many long-term policies encounter obstacles, which constrain implementation or result in unintended consequences. As a consequence, outside observers are frequently taken by surprise by policy announcements, by the success or failure of policy implementation, and by the outcomes of policies. Such is the scale and rate of growth of China’s economy and energy sector that relatively small changes from expected trends can cause significant disturbances in both domestic and international energy markets.

On the international and geo-strategic level, we still argue that the pacifying effects of a liberalising and integrationist energy policy agenda remains the most probable potential outcome, which should help to increase trust between China and the West. But we also now recognise that China’s strategic orientation includes alternative possible options, such as balancing against the West with, for example, Russia, or seeking a regional hegemony over neighbouring regions such as central Asia and Southeast Asia, or even a neo-imperial option as Chinese companies extend Chinese political interests into parts of the Global South such as Africa and Latin America. Predicting China’s foreign policy course, as refracted through its drive for oil, is thus more problematic and complex, dependent on a number of unpredictable interactions and feedbacks, than our earlier study suggested.

Aim and Structure of the Book

The aim of this book remains, as with our earlier work, to provide an accessible but theoretically-informed account of the global strategic implications of China’s international energy strategies, primarily as they relate to oil. Our focus on oil is driven by our belief that oil is a powerful prism through which to understand the dilemmas facing China in terms of formulating and implementing an effective energy policy, and in how to project this internationally. Given the centrality that oil plays in China’s foreign policy, it also provides a powerful prism through which to assess China’s rise and the potential implications of that rise for global politics. We also address issues relating to natural gas where they impact on China’s wider international energy strategies. The book does not dwell on the challenges of climate change, except in so far as China’s energy policies reflect such concerns.

In order to carry out an effective analysis of China’s international oil and energy strategies, it is essential to start by examining the domestic energy sector and the domestic drivers for an international energy policy. Thus the book has two main parts. The first part focuses on the domestic energy policy context, how oil fits into the general energy-related interests and objectives of the Chinese government, and the reasons why Chinese oil companies are increasingly looking overseas for their markets. We start with the assumption that all politics is ultimately local and that this is arguably even more the case for a country of the size and magnitude of China. The principal domestic challenge for the Chinese government, and for which its legitimacy depends, is symbolised by the need ‘to keep the lights on’, something that it singularly failed to do in 2004 with numerous outages at that time. Energy supply in sufficient and adequate quantities is vital not only for meeting the basic needs of the population; it is also critical for ensuring China’s economic growth and for doing so in a manner, which ensures that this growth is environmentally sustainable. Clearly the fact that China has become increasingly dependent on and vulnerable to energy supplies from abroad is itself a significant and legitimate source of concern for the government. But, ultimately, it is the domestic context and the need to meet the energy demands of the Chinese population that dominates the strategic calculations of the Chinese leadership and the Chinese Communist Party (CCP). The legitimacy of the state and the ruling party depends ultimately on their capacity to deliver this vital input to China’s economy.

Chapter 2 provides a systematic account of China’s energy challenges and policy priorities, with a focus on the period since 2002 when domestic energy demand started to rise sharply after the slowdown associated with the Asian financial crisis. It shows how the government has sought to maximise domestic production of energy as well as raising imports in order to assure an adequate supply of energy. At the same time, the government has radically strengthened measures to encourage energy efficiency and energy conservation. Chapter 3 seeks to explain the nature of China’s approach to energy policy and to the measures employed to implement policy. This chapter identifies the importance of the agenda setting process, it examines how ideas, beliefs and traditions contribute to shaping policy approaches, it explains how the very nature of the energy sector constrains the government’s freedom of action and it identifies some of the key parties to the energy policy processes. These considerations provide the basis for an examination of the key features of energy policy-making and implementation in China, which are covered in Chapter 4. We highlight the relative predictability and path-dependency of long-term policies against the unpredictability of short-term decisions, the challenges imposed by such rapid and sustained economic growth, the tensions between different objectives of national energy policy, and the discontinuities between different parts of the energy sector. Taking such factors into account cautions against too literal a reading of the rhetoric of the Chinese government and the corresponding need to test this rhetoric against actual results.

Chapters 5 and 6 provide a link with the second part of the book and give an overview of the historical evolution of China’s international oil and gas strategy, identifying the main actors driving this policy, their aims and objectives, the progress made, and the trends and outlook for the future. The particular focus of Chapter 6 is on the corporate strategies of the Chinese oil companies who have been at the forefront of this intense international engagement, and the ways in which the Chinese government have facilitated their foreign economic activities and investments.

The second part of the book shifts its focus away from domestic politics and the perspective of the Chinese oil companies to the foreign and global context and how China’s international energy strategy fits into and influences China’s foreign policy and how this in turn impacts on external perceptions of China. This part of the book assesses the broader international implications of China’s energy-driven expansion and how this is defined by, and helps to define, China’s foreign policy. Chapter 7 provides an overview of China’s foreign policy towards the West and then addresses the ways in which China’s energy needs help to promote integration and its peaceful accommodation as a rising power but also highlights the main constraints and limitations to this integration. This complex relationship with the West, as viewed from the international energy perspective, is then theorised and it is suggested that China seeks to maintain multiple policy dimensions or alternatives in its attempts to ensure its energy security against a potentially antagonistic West – these include the option of ‘balancing’ against the West, the prospect of asserting a regional hegemony, and the aim of gaining a truly global presence and foreign policy through intervention in far-distant regions such as sub-Saharan Africa and Latin America.

The following three chapters explore whether these various potential strategic options are in fact being pursued by China in its international energy policy. Chapter 8 examines whether China is encouraging an anti-western balancing policy through its development of close energy and foreign relations with a number of energy-rich revisionist states, most notably Russia but also with Iran. Chapter 9 assesses how the drive to secure oil and gas from its immediate region, and the problems of ensuring secure transportation of oil from the Middle East, are helping to consolidate a strategy of regional hegemony, which seeks to exclude or minimise US and western intervention, as well as to limit the influence of the other major regional powers of Japan and India. Chapter 10 examines the remarkable expansion of Chinese oil companies into sub-Saharan Africa and into Latin America and assesses whether this has always been seen to be supportive of China’s broader foreign policy goals, particularly as many local actors have begun to criticise the Chinese engagement as ‘neo-imperialist’.

The main argument of the book is that China is pursuing all of these strategic options simultaneously and with varying effect, so that it is not possible to provide a simple picture of a China inexorably integrating with the global international economy and the West, nor of a China seeking definitively to balance against the West or to challenge the West through hegemonic expansion. The picture is more complicated and requires an understanding of the complex interaction of domestic energy policies, external perceptions of these policies, and the ways in which these intersect with regional and global politics. However, what certainly is the case is that the drive for gaining access to oil supplies, and the sense of vulnerability due to the need to import ever-increasing quantities of oil, are vital strategic interests, which are independently shaping and directing China’s foreign policy and the ways in which China is emerging as a rising power. How China is perceived and understood, as well as its actual behaviour, will be strongly linked to its domestic and international energy policies.

Part 1

Energy policy, the government and China’s oil industry

2 China’s Energy Challenges and Policy Priorities

Introduction

As it formulates national energy policy, any government has to balance four key priorities: the need and cost of securing energy supplies to support economic growth and development; the desirability of raising the technical and economic efficiency of energy production and energy use; the political obligation to address the energy and economic needs of poorer sections of the population; and the growing requirement to invest in measures to protect the environment and improve the manner in which natural resources are exploited.

Only rarely can a government of an energy-importing country enjoy the luxury of having a resource base, an energy sector and an economy that provides for a convergence of these four objectives at a low cost to society. In most countries a tension exists between these priorities. As a result, government has the responsibility to rank the respective priorities and to decide how to manage trade-offs where conflicts exist between the priorities.

The aims of this chapter are to show how security of supply continues to be China’s top priority for national energy policy through an examination of the evolving supply and demand balance, to illustrate the nature of the measures that the government has been taking to secure energy supplies and to constrain demand, and to examine the consequences of these measures.

The Long-Standing Challenge of Meeting the Demand for Energy

Ensuring a sufficient and reliable supply of energy to support economic growth and development has been a long-standing challenge for China’s government. After Liberation in 1949, one of Mao Zedong’s first economic priorities was to expand domestic oil production. This was achieved, first, through the development of the Yumen field in the north-west of the country and, later, by the discovery of the giant Daqing field in the north-east.¹

The same challenges faced the new government that took power in the late 1970s with the explicit intention of modernising the economy.² Indeed, the problems underlying China’s energy sector remain almost unchanged thirty years later: namely, to raise the domestic capacity to produce primary energy and transform it into useful energy; to transport that energy to the end-users; to improve the efficiency of energy use; and to limit damage to the environment.

Though these general challenges may be applicable to most developing c...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright
• Contents
• List of figures
• List of tables
• List of abbreviations
• 1. Introduction: China, oil and global politics
• Part 1: Energy policy, the government and China’s oil industry
• Part 2: Energy policy and China’s foreign policy
• Notes
• Bibliography
• Index