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Edge on China


The New Silk Road: China’s Energy Strategy in the Greater Middle East

May 8th 2011

China Topics - China energy sources 2008
China's Energy Sources (source: US EIA)

Since China became an energy importer in 1993, it has adopted a “go out” strategy to procure energy assets abroad. Enabled by the Shanghai Cooperation Organization (SCO), Beijing is reviving the strong economic connection between China and the Middle East; for centuries, the trade carried along the Silk Road was important to the economies of both areas. Along much the same route as the Silk Road, and along the sea trade routes between China and the Middle East, Beijing is building a modern grid of pipelines, roads, and railways for its enegy supplies, in addition to addressing maritime concerns.

Snapshot of Current Energy Consumption

In August 2010, a report from the Paris-based International Energy Agency stated that China had become the world’s number-one energy consumer, surpassing the United States. Specifically, China consumed 2.252 billion tons of oil equivalent in 2009—about 4 percent more than the United States, which consumed 2.170 billion tons of oil equivalent. (The oil equivalent metric represents all forms of energy consumed: crude oil, nuclear power, coal, natural gas, renewable sources, etc.)

China’s energy consumption mix is different from America’s, however—domestic-supplied coal remains the country’s dominant source of energy. This situation is likely to persist given that China holds the world’s third-largest coal reserves (estimated at 114.5 billion short tons of recoverable coal), placing after the United States and Russia.13 Nevertheless, Beijing is taking steps to reduce its level of greenhouse gas emissions and expand its share of clean energy, with the goal of increasing natural gas to 10 percent of its overall energy mix by 2020. These efforts include investments in wind, solar, hydroelectric, and nuclear power.

China has enjoyed double-digit annual growth for the past decade (with the exception of the 2009 global recession). This has been fueled not by consumer demand, but by energy-intensive heavy industry and infrastructure construction, particularly the steel, cement, and aluminum industries. Growing demand in the transportation sector has increased energy usage in the steel and aluminum industries as well, along with other manufacturing sectors.

In May 2009, the U.S. Energy Information Administration released its annual report International Energy Outlook 2009 with Projections to 2030. One section compared China’s projected net increase in industrial use through 2030 with a group of countries from the Organisation for Economic Co-operation and Development (OECD). China led all nations with an estimated increase nearly nine times that of the OECD as a whole.

The “Go Out” Strategy and Taiwan

In 1993, China became a net oil-importing country, and the Chinese Communist Party (CCP) regime began looking to Africa and the Middle East for potential supplies. Today, the country’s top oil suppliers are Angola, Saudi Arabia, and Iran. As for natural gas, the resource has traditionally played a minimal role in China (at only 3 percent of the country’s energy mix) and has been domestically supplied from regions such as Sichuan province, Shaanganing province, Xinjiang Uyghur Autonomous Region, Qinghai province, and some offshore fields in the South China Sea. Foreign imports began to trickle into the country in September 2006, however, when the Guangdong Dapeng liquefied natural gas (LNG) terminal went operational. And given the government’s plan to increase its natural gas mix and reduce greenhouse emissions, such imports will continue to increase, namely via Central Asian/Caspian Basin pipelines and LNG shipments from Australia, Indonesia, Malaysia, and Qatar.

In short, the westward direction of China’s energy policy has been driven in part by economic rationale—heightened demand for energy imports since 1993 as well as organic economic growth and integration with neighboring states in Central Asia. Because China became increasingly dependent on external energy supplies to feed its economic development and thereby preserve the CCP regime’s legitimacy, Beijing formulated the top-down “go out” (zouchuqu zhanlue) energy-based foreign policy in 1999, aimed at procuring energy equity abroad.

Yet the regime was hesitant to rely on maritime energy routes given the bumpy nature of Sino-U.S. relations and the large-scale presence of U.S. naval patrols along these routes. In particular, Beijing feared that a potential military clash in the Taiwan Strait could result in a naval embargo on energy supplies. China also faces a “Malacca Dilemma”—currently, 80 percent of its oil imports pass through the Strait of Malacca, a chokepoint that is vulnerable to both piracy and any U.S. blockade efforts in the event of conflict off Taiwan. In response to these risks, Beijing has been increasingly militarizing its energy security policy and building up naval capabilities to protect its global interests. In line with President Hu Jintao’s New Historic Missions strategy, which underscores the People’s Liberation Army (PLA) role in safeguarding national interests overseas (Xin shiji xin jieduan wojun lishi shiming), China is expanding its naval presence throughout the Gulf of Aden and Southeast Asia.

At the same time, the regime has hedged against maritime risks by building overland pipelines, railways, and roads to carry energy supplies from the Middle East. Over the years, various journalists, policymakers, and scholars began to refer to this “go out” approach as the Silk Road Strategy. Chinese officials have in turn co-opted this narrative in order to evoke common historical ties along the Silk Road as they pursue expanded relations with countries in Central Asia, the Caucasus, and the Middle East. Although the Silk Road terminology has not become an official part of the CCP’s declaratory policy, China’s recent overland and maritime endeavors follow much the same routes as the ancient Silk Road and the sea routes, which were, in premodern times, less used than overland routes.

Role of the Shanghai Cooperation Organization

In 2002, when Hu Jintao took over the Chinese presidency, he and Premier Wen Jiabao decided that the security of petroleum and other scarce resources was crucial not only to sustained economic development, but also to China’s national security.18 In 2003, Wen commissioned seven small research groups to prepare an unprecedented long-term national energy security strategy. And in 2005, the State Council established a National Leading Energy Group headed by Wen. At the same time, the three major state-owned energy corporations—the China National Petroleum Company, Sinopec, and the China National Offshore Oil Corporation (CNOOC)—began to step up domestic exploration activities, build strategic reserves, and take a “neo-mercantilist approach to acquiring direct control of overseas energy production and supplies.” On January 27, 2010, the State Council reorganized the Leading Energy Group and announced the establishment of a National Energy Commission (NEC) under Wen’s leadership, with twenty-three members from the Ministry of Foreign Affairs, Ministry of State Security, and PLA General Staff Department, headed by Gen. Zhang Qinsheng, former chief of military intelligence (see table 1). Beijing’s inclusion of the foreign affairs, security, and military intelligence apparatus in the NEC reflects the regime’s deep concerns about energy security.

To address these concerns, Beijing has turned to the Shanghai Cooperation Organization as a means of transforming the traditional portion of the Silk Road across the Greater Middle East into an “energy road.” Established in 2001, the SCO consists of China, Russia, and the four Central Asian republics of Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan, along with four observer states (Iran, Pakistan, India, and Mongolia). Over the years, China has used the SCO to achieve economic integration with the Central Asia/Caspian region. In doing so, it has sought to meet three main goals: (1) pacifying the restive Xinjiang province, home to significant Muslim- Uyghur separatist forces (who call the area “East Turkestan”); (2) diversifying energy sources from the Persian Gulf and hedging against any maritime energy embargoes; and (3) projecting Chinese hegemony across Eurasia. Chinese scholar Guo Xuetang echoed this view, arguing that the SCO must be further strengthened in order to promote economic integration, cooperation on energy, military, and security matters, as well as stability against extremism, terrorism, and separatism (the latter three elements referring primarily to the Muslim-Uyghur issue in Xinjiang). Toward these ends, Guo suggested working with Russia to bring Afghanistan and Turkmenistan into the organization, and using SCO coordination to build an oil pipeline from Kazakhstan to Iran via Turkmenistan.

In particular, China’s strategy toward Central Asia has centered on using financial means to create dependency, building on increased oil/gas and politico-military cooperation. Beijing has already signed several military agreements with Central Asian states and, in doing so, moved into Russia’s sphere of influence. According to Thrassy Marketos, an official with the Greek Ministry of Foreign Affairs, Moscow has neither the resources nor the will to meet China’s challenge in that region. He also argued that China’s next goal would be to see U.S. troops move out of the region, creating a favorable vacuum for China to fill without significant challenges from Russia. Similarly, Robert Manning, director of long-range energy and regional/global affairs at the U.S. National Intelligence Council, predicted that Central Asia would become China’s space by 2030 rather than remaining a post-Soviet space.

In light of its ongoing strategic shift, China will likely leverage its increasing political, commercial, and military influence more proactively to protect its energy interests. Just as the state-controlled Russian energy firm Gazprom weaponizes energy by cutting off gas supplies to target countries when it disapproves of their foreign policy, Beijing also perceives energy as a weapon to be used for coercive purposes. This view goes hand in hand with China’s unwillingness to rely on unfettered international markets for its energy supplies— as much as possible, the regime seeks to control the routes by which energy reaches China.

Christina Lin, a former visiting fellow at Washington Institute with expertise in energy security, Chinese military doctrine, relations between China and the Middle East, and other issues, wrote the article (of which this is part 2) for the Institute.

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