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Chapter
1
Introduction: Why Domestic Dynamics Matter
One of the most important events in the international political economy (IPE) at the beginning of the 21st century is China’s energy diplomacy. This movement coincides with the rise of China and turbulence in the world energy market. Thanks to its economic reform, China has been experiencing fast socio–economic development for about three decades and become the second largest economy in the world. Accordingly, the country’s energy consumption has been rapidly growing and its domestic production no longer satisfies its appetite. In consequence, China is increasingly dependent on overseas energy supply to keep its economic prosperity. Recently, the Chinese government has been actively engaging energy exporting countries around the world and Chinese national oil companies (NOCs) are expanding their outward direct investment (ODI) in overseas energy assets. Thus, Beijing is playing a more prominent role on the world stage; and Chinese NOCs are emerging significant players in the international energy arena. This new phenomenon has received increasing attention worldwide.
1.1 Why do domestic dynamics matter?
Some observers are eager to find out the implication of China’s energy diplomacy for the international community. Does this development pose a challenge to the world political and economic order? Does China follow a mercantilist approach in competing with the other players in the energy market? What is the impact of energy diplomacy on China’s international relations? How should the West respond to China’s energy diplomacy? To answer questions of these kinds, there is a small but growing literature on China’s energy diplomacy. Many analysts have examined the issue on the inter-state level to discuss China’s energy security, China’s energy diplomacy, Chinese NOCs’ overseas investment, as well as the economic, political and strategic implication of this movement for the rest of the world.1
Although these studies are informative, their focus on state to state interaction has not explained an important question — what is the key momentum of China’s energy diplomacy? As to the answer of this question, conventional wisdom tends to regard China’s energy security concerns as the motivation and view Chinese NOCs as agencies of the Chinese state. Its assumption is often like this: Beijing’s energy security considerations drive energy diplomacy and ODI in energy assets abroad, which affects the international community. However, such mercantilist logic is too simple a characterisation, or even a misperception. In particular, it overlooks the critical domestic dynamics of the phenomenon — the interaction between China’s national interests and Chinese NOCs’ corporate interests.
Indeed, it is outdated to adopt a state-centric view to explain the current Chinese foreign policy, without paying attention to various domestic forces. Marc Lanteigne noted that the conventional perception of Chinese foreign policy being decided by a centralised leadership in Beijing is no longer as valid as it used to be. The number of actors who participate in the formulation of Beijing’s foreign policy has grown within the Chinese government as well as increasingly outside it.2 Robert G. Sutter also observed that the number of people in and outside of the Chinese government with an interest and influence in China’s foreign policy making has grown substantially since the Maoist period.3 In addition, Zhao Suisheng wrote that although China’s foreign policy making is still highly centralised, the process of foreign policy information processing, deliberation and decision making and the management of foreign relations are no longer controlled by a handful of individual leaders. Non-governmental actors like foreign policy think tanks, social groups and public opinion have become increasingly important in the process of China’s foreign policy making.4 Notably, Chinese NOCs are among the social groups that exert considerable influence on Beijing’s foreign policy making. However, the conventional wisdom about China’s energy diplomacy underestimates the role of these firms while overestimating that of the state. Thus, it does not provide a comprehensive explanation of the motivation of China’s energy diplomacy.
As a result, many existing analyses and policy suggestions on this phenomenon are based on misleading perceptions, which may cause unconstructive consequences. As Kenneth Lieberthal and Mikkal Herberg pointed out, Washington’s response to China’s energy rise has been relatively counterproductive. ‘Compounded by China’s own lack of transparency, U.S. reactions have suffered from a poor understanding of China on many levels’, such as the complex interests motivating the country’s worldwide quest for energy, the goals and relationships characterising China’s energy institutions and Chinese NOCs and the linkage between energy and other issues in China.5 Erica Downs also noted that the mercantilist perception of China’s energy issues may exacerbate the bilateral friction that both Beijing and Washington want to avoid; and ‘treating China like a mercantilist state may prompt it to behave like one’.6
Therefore, it is necessary to have a more comprehensive understanding of the momentum of China’s energy diplomacy, particularly the long-neglected domestic dynamics — the interaction of national and corporate interests. This research attempts to make a contribution in this regard.
1.2 The contribution of this study
In brief, this study explains the Chinese government’s national interests and Chinese NOCs’ corporate interests behind China’s energy diplomacy and examines the measures and resources with which the government and the NOCs interact with each other, which have a profound influence on the development of the movement. In this way, this research aims to make an informed contribution in the following six areas.
1.2.1 The political economy of contemporary China
The Chinese government’s energy diplomacy is a type of political behaviour, while Chinese NOCs’ overseas expansion is an economic or business activity. How the state and the firms’ respective interests can be realised and how the two players interact with each other are important questions of the political economy of contemporary China. These two issues are the focus of this study.
1.2.2 Chinese foreign policy
Energy diplomacy is a new but increasingly important component of Chinese foreign policy. This research will not only show the development of this phenomenon, but also take a further step towards explaining the key national and corporate interests behind it.
1.2.3 China’s global business
Chinese NOCs are among the Chinese transnational corporations (TNCs) that have emerged in the recent years to increasingly participate in global competition. This study will trace the NOCs’ history and demonstrate the motivation and performance of their ODI and transnational operation, shedding light on China’s expanding global business. Notably, there are similar corporate interests and considerations between the NOCs and some other big Chinese state-owned enterprises (SOEs) regarding their involvement in global business.
1.2.4 State–SOEs relationship in China
During the economic reform period, both the Chinese state and Chinese SOEs have undergone transformation. The analysis of interaction between the government and the NOCs in this research will add to the understanding of relationship between the Chinese state and Chinese SOEs. Although this study focuses on the government– NOC relationship, there are similar dynamics for the state’s interaction with other big SOEs in China.
1.2.5 China’s energy issues
This research will explore the roles of the government and the NOCs in China’s energy policy making, as well as the interplay between them on some energy issues. Apart from the NOCs, there are other important energy SOEs in China, such as those dominant in the coal, electricity and nuclear industries. They play more or less similar roles to the NOCs in China’s energy affairs.
1.2.6 The link between IPE theories and the study of China
This research will test the empirical evidence of the domestic dynamics of China’s energy diplomacy against the three mainstream IPE theories, so as to show their merits and shortcomings in explaining the phenomenon, before discussing the new diplomacy idea’s inspiration for conceptualisation of the interaction between national and corporate interests behind China’s energy diplomacy.
1.3 Some key terms
There are some key terms, such as energy diplomacy, the domestic dynamics, the government and the NOCs, which need clarifying here.
1.3.1 Energy diplomacy
Energy includes many categories like coal, oil, natural gas, hydropower, solar power, wind power, nuclear power, etc. This research will focus on oil and natural gas, as they are China’s most deficient and needed energy resources, as well as the main resources that China searches through its energy diplomacy.
As for diplomacy, it can be understood in the narrow or the broad sense. In the narrow sense, diplomacy is exclusively a state or governmental behaviour. This is the traditional definition. In the broad sense, however, diplomacy goes beyond the state’s domain and includes transnational activities of non-governmental actors such as corporations. This is a relatively new and expanded definition.
Accordingly, in the traditional and narrow sense, China’s energy diplomacy only means the Chinese government’s diplomatic activities to engage energy exporting states. In the newer and broader sense, China’s energy diplomacy includes two aspects. One is the traditional aspect of the government’s energy related diplomatic activities. The other is Chinese NOCs’ ODI and transnational operation. Such a broad sense of diplomacy is more comprehensive than the traditional definition, as it sees both the role of the state and that of the firms in China’s global search for energy resources. It will also be reflected by the conceptualisation of this study in the next chapter. This research will draw on Susan Strange’s idea of the new diplomacy as the general theoretical framework to examine the interaction between the Chinese government and Chinese NOCs. This idea also views diplomacy as a broad arena including state–state, state–firm and firm–firm interactions.
Therefore, this research will distinguish between the broad and the narrow sense of energy diplomacy. This book will refer to the broad sense as China’s energy diplomacy or energy diplomacy, which includes both the government and the NOCs’ behaviours; and the narrow sense as the Chinese government’s energy diplomacy or Beijing’s energy diplomacy, which is restricted to traditional state behaviour.
1.3.2 The domestic dynamics
This study’s exploration of the domestic dynamics of China’s energy diplomacy will focus on the interaction between the Chinese government’s national interests and Chinese NOCs’ corporate interests.
1.3.3 The government
There are the central government and various levels of local governments in China. This research refers to the Chinese government or the government as China’s central government led by the Chinese Communist Party (CCP).
1.3.4 The NOCs
There are different oil companies in China, including SOEs and other types of firms. Among the SOEs, some are owned by the central government, the others by local governments. This study refers to the NOCs as the oil companies owned by the central government. It will focus on the three leading NOCs — China National Petroleum Corporation (CNPC), China Petrochemical Corporation (Sinopec) and China National Offshore Oil Corporation (CNOOC).
1.4 The argument
China’s economic rise has led to the dramatic expansion of its appetite for energy resources, especially oil and natural gas. Consequently, China’s domestic energy production is not able to satisfy its demand; and the country is increasingly dependent upon foreign energy supply. In accordance, China’s energy diplomacy has been rapidly developing recently, searching for oil and natural gas resources worldwide. The Chinese government has been actively engaging energy exporting states; and Chinese NOCs have been fast conducting ODI and transnational operation in many energy rich areas in the world.
The author argues that the convergence of national and corporate interests is the key momentum of China’s energy diplomacy. Both the role of the Chinese government and that of Chinese NOCs are important and neither should be underestimated. On the one hand, energy diplomacy contributes to China’s national interest, as it improves China’s energy security and international relations, which are beneficial for the maintenance of the CCP’s political legitimacy. On the other hand, energy diplomacy contributes to Chinese NOCs’ corporate interests, as it helps these firms access overseas investment markets, generate greater profits and fulfil their long-term development strategies. The government and the NOCs are two partners in the movement. They need each other’s critical activities to re...
