Chinese Energy Policy in Central and South Asia
Testimony of Professor Stephen J. Blank
Strategic Studies Institute
US Army War College Carlisle Barracks, PA 17013
Before the US-China Economiic and Security Review Commission,
The Impact of China’s Economic and Security Intersts in Continental Asia on the United States
May 20, 2009
Draft: not for citation or quotation without consent of the author
The views expressed here do not represent those of the US Army, Defense Department, or the US Government
China has exploited the current global economic crisis to intensify and accelerate its previous strategy for obtaining energy security and political influence abroad. This strategy’s tactics are quite straightforward. Exploiting other countries’ and firms’ distress, using its enormous cash reserves, and benefitting from the fact that its economy appears to be less adversely affected than others have been, China, through its oil companies CNOOC, CNPC, Petro China, SINOPEC, or through governmental agencies, is either lending afflicted firms and countries (often the same since we are dealing with state energy firms) money to obtain long-term contracts, access to energy, and other comodities at below market prices if possible, and at the current low market prices where necessary. However, these are not new tactics specially crafted for the current crisis. Rather they are the same tactics that China employed earlier. But now they have much greater effect given the current crisis and the availability of so many properties from countries and firms afflicted by it.
China’s economic activities abroad during this crisis are also not tied to energy alone. China is making strenous efforts to buy into Australia’s minerals sector in cooper, gold, and aluminum. It also recently offered a $15 Billion credit to ASEAN members and is seeking to establish a $10 Billion investment fund for Southeast Asian countries for projects connected with construction, infrastructure, energy, resources, information, and communications. Beyond those projects,
China also planned to offer 270 million Yuan ($39.7 M) in special aid to Cambodia, Laos., and Myanmar to meet urgent needs, inject $5M into the China-ASEAN cooperation Fund, and donate $900,000 to the cooperation fund of ASEAN Plus-3, the side grouping of ASEAN plus China, Japan, and South Korea.
Chinese scholars are also discusisng a free trade zone and vastly enhanced mutual Chinese-Southeast Asian investments in each other’s country, a strategy that can only enhance China’s presence in Southeast Asia’s economies. Furthermore, because of China’s relative strength and large cash reserves Asian countries like Vietnam are, according to David Pilling of the Financial times, “humbly beseeching China” for almost $15 billion of investnents in Vietnam’s bauxite. In other words China both seeks such investment opportunities and is being solicited to make them by governments who either have a large trade debt to China like Vietnam, or are economically distressed due to the current global crisis. These far-ranging investments outline a global strategy that is at work not only in Southeast or Central Asia, but also in Latin America and Africa. Across the globe China deliberately complements its economic assistance and energy acquisitions with arms sales, military support, political support in the UN and other fora like the Shanghai Cooperation Organization, conducts other investments to build up infrastructure, provides economic aid, and buys up massive amounts of agricultural and industrial raw materials.
Thus China secures the long-term access to energy and commodities it wants at low prices, gains equity access to those energy fields or pipelines, and also obtains considerable influence and political leverage over the host government. In return it allows these distressed firms to gain capital and access to China’s consumer market whose energy demand remains robust. Indeed, China’s total oil imports hit a one year high in March 2009, indicating continuing strong demand. China thereby engenders a mutually profitable but dependency-inducing long-term relationship with these energy providers and their governments. The instruments of China’s energy strategy are its major energy firms, banks, and state lending agencies and they clearly work together given the size and scope of recent acquisitions across the globe.
China’s actions also bear all the earmarks of a global strategic plan of action as the opportunity for China to use its economic power to secure unchallengeable positions in Eurasia and elsewhere presents itself. Even though China’s national oil and energy companies do not always see eye to eye with the government and even though much of the oil fields they buy produce oil that does not go to China, the confluence of energy buyouts of foreign assets and state lending to those governments as well as the breadth and duration of China’s actions over time clearly indicates a considered policy and strategy. China’s global shopping spree also reflects its persisting belief that it cannot ultimately rely upon the market to deliver energy, its determination to strike now while the iron is hot in terms of acquiring distressed properties, and its efforts to implement its concept of energy security. That concept is simple. Energy security means having reliable, long-term, and diverse supply sources that cannot be interdicted, particularly in the Straits of Malacca, and tying suppliers to China both economically and politically through long-term deals.
China is merely extending its earlier strategy that was launched about a decade ago and that has continued despite unprecedented high energy prices through 2008. That strategy and ambivalence about relying on markets reflected the fundamental security orientation of China’s thinking about energy supplies. Despite widespread concern then that China was locking up long-term assets, in fact it was buying assets that were then excluded from other competitors. Actually China’s previous sprees only got it about 2% of the global energy market in oil. However, today, as energy prices have collapsed and many major state-owned producers are in a crisis mode, China has huge cash reserves and remains relatively unhurt by the crisis. Therefore it can exploit this downturn with great alacrity to further its strategy under more auspicious conditions. Given low energy prices and widespread economic suffering in key countries, China has recently concluded major energy deals with Russia, Kazakhstan, Brazil, Venezuela, and can be expected to continue along this path. Indeed, China’s recent global investment activities show that China uses its economic power to lend money to distressed governments and/or firms and then uses that economic power and the dependency it generates to secure poltiical influence with those states. And it does this all over the world, e.g. Latin America.
Central and South Asia
China’s strategy is clear. In conditions where Far Eastern infrastructure is only beginning to appear; where the Middle East remains as volatile as ever; and China’s Straits of Malacca dilemma remains unabated, it must define energy security as having diverse suppliers, at least some of whom cannot be interdicted in the Indian Ocean by the US, Indian or other navies or other hostile forces. Yet as the Middle East remains its largest source of energy, China’s strategy is clearly both one of hedging against the future and of extending its energy and other security links abroad through economic power.
Second, China also seeks to tie Central Asian producers to it to deter them from supporting their cousins and coreligionists, Muslim rebels in Xinjiang, its own largest energy producing province. Third, to the extent that China can gain leverage over both Russia and Central Asian countries, it forestalls a Russian monopoly over Central Asia that could also be used to deprive it of energy or threaten its interests in Xinjiang as happened during the Sino-Soviet split of the period 1956-90 when Moscow sought to exploit Han-Muslim tensions there. Therefore for geostrategic reasons it also seeks to avoid excessive dependence upon Middle Eastern and African producers even as it buys ever more energy from them, seeking producers as far away as Iran who can then ship gas and oil to it overland through new pipelines that China is helping to build in Kazakhstan, Turkmenistan, and Uzbekistan and which could ultimately connect to Iran. Beyond that China ties loans to energy because it not only gets back the loans plus interest it can now tie up energy assets in long-term contracts at reduced prices for exclusive access.
Central Asia is one of the links in this chain for China clearly invests its economic resources in countries with which it has a political affinity and which enjoy a dubious reputation abroad because of their authoritarianism. We find China replicating this approach in Africa, Latin America, and in Southeast Asia where it is Myanmar’s staunchest foreign supporter. China also invests in these countries for two other reasons. Many other fields in producer states that were opened earlier are not available for sale and when China has sought to buy in major countries, e.g. its efforts to buy into UNOCAL in 2005, that action has raised a storm of disapproval from host states. But even bearing these things in mind, China’s strategy began before 2005 and works remarkably well with its geopolitical strategy. This is unlikely to be a coincidence or fortuitous event. This political dimension is another reason why China’s energy strategy is also connected to its overall foregn policy and defense strategy and may be thought of as mtuaully reinforcing aspects of its overall grand strategy.
For example China’s Export-Import Bank is lending the state-owned Development Bank of Kazakhstan $5Billion, and CNPC is lending Kazmunaigaz, Kazakhstan’s state-run gas company, another $5Billion. Moreover, CNPC is buying a 49% minority holidng in Kazakhstan’s company AO MangistauMunaigaz from KazMunaiGaz National Co. This deal enables Kazakhstan to continue its robust pace of exploration for oil, which finances its overall development plan whose long-range aim is its comprehensive economic diversification and modernization. Having received an estimated $21.1 Billion in 2008 in investment for exploration and production, it needs to keep that up during this crisis to prevent an even more severe economic contraction. Kazakhstan's state news agency Kazinform said the $5 Billion loan would help pay for the MangistauMunaiGaz deal and the construction of the Beineu-Bozoi-Akbulak gas pipeline, which will serve southern Kazakhstan. Thus Kazakhstan’s need for capital and reliable export markets plays into China’s strategy and China’s victory was clearly facilitated by its deep pockets and cash reserves. But China’s actions do not break with past Sino-Kazakh relations. Indeed, according to Kazakhstan’s President Nursultan Nazarbayev, at least since 2006, “economic cooperation has become the major motivation for pushing the overall development of the Kazakhstan-China relationship.”
Nevertheless this deal exemplifies the way in which China can now exploit the stricken condition of countries like Kazakhstan whose banking system is all but insolvent and where foreign investment has fallen by half since 2008. Indeed this deal gives China control over about 15 percent of Kazakhsan’s total oil output and other Chinese firms have already been there for some time. Furthermore Kazakhstan’s national nuclear power company Kazatomprom has begun mining uranium fields in southern Kazakhstan in a joint venture with Chinese nuclear power companies. Terms of the deal also call for Kazakhstan to provide China with more than 24,000 tons of uranium by 2020. More recently, the China Guangdong Nuclear Power Group (CGNPG) and Kazakhstan’s state nuclear agency, Kazatomprom, have agreed to form a joint enterprise that would build atomic energy stations in China. Thus Chinese Prime Minsiter Wen Jiabao recently outlined a four point proposal for enhancing bilateral partnership that emphaiszed first of all maintaining the growth of bilateral trade, and second, fulfilling previous agreements and giving priority to cooperation in the energy and resource sectors. Then comes cooperation in investment and finances to ensure smooth implementation of construction projects. Finally both sides should promote cooperation in infrastructure.
This strategy of gaining critical access to Central Asian energy neither occurs exclusively in Kazakhstan, or even Central Asia nor only in regard to hydrocarbons. Apart from lending Kazakhstan money China is also building power plants in Tajikistan and Kyrgyzstan and pipelines in Turkmenistan that will then go on to Uzbekistan so that it can buy gas from these countries at lower than normal prices. It also is mining iron ore in Kyrgyzstan from what is apparently Asia’s largest source of iron. Not surprisingly the Kyrgyz government is encouraging further Chinese investment in its coal mining, non-ferrous metals, precious metals, and infrastructure sectors. Kyrgyz officials also want China to import electricity from the Kambarata power station that Russia is building to prevent surplus capacity and under production. Buying hydropower makes sense for China which has increasingly been pledging infrastructure assistance and cash to Central Asian states through the SCO, e.g. helping Tajikistan build dams and roads. Moreover, China can become a handler or middleman, e.g. wiring Central Asia into Pakistan and Afghanistan and picking up huge transit and construction fees. Likewise, in the past few years China has invested heavily in Afghanistan’s energy and mineral resources, which have been found to be abundant, with a view to building pipelines either directly to China or possibly through the port of Gwadar and Pakistan to China. As many analyses suggest, China ultimately hopes to ship Persian Gulf oil from Gwadar overland through Pakistan to Xinjiang in China.
Beyond that oil pipeline it is also considering a major infrastructural investment there to make it into an overall energy corridor where it sets up an oil reinfery and Gwadar Port Energy zone that also accomodates other energy industries, and creates the basis for oil and gas exploration projects in Pakistan from which the latter will benefit as well. Indeed, a comprehensive examination of Pakistan-China relations underscores the trend to deepen what had been essentially a security and geopolitically driven relationship with a strong energy and economic component comprising energy, trade, and investment by China in Pakistan. Despite enormous Indian concern about China’s naval strategy of using Gwadar or Myanmar’s ports for military purposes, that task appears to be beyond the Chinese Navy’s current and foreseeable capabilities as a the PLAN admits, and the main purpose of Gwadar and other similar port projects appears to be for energy transmission and infrastructure.
Thus much of its investment in energy and infrastructure abroad in Central Asia seems to be connected or could easily be connected with its efforts to open up the port of Gwadar. Were this port to be established as a hub it could spare China the necessity of going through the Straits of Malacca and become the hub of a network of pipelines from Iran and the Middle East, if not also South and Central Asia, to China. Indeed, China’s so called string of pearls strategy in the Indian Ocean that combines large infrastructural developments in and around Myanmar and Pakistan with military construction of what appears to be potential naval bases, not only is viewed as an effort to project naval power into that Ocean through available ports or bases, but also as a way of bypassing the Straits of Malacca and creating strongholds of economic and political influence tying these areas to China through energy and infrastructural investments. When and if the infrastructure tying these ports to China is completed these projects could create long-lasting economic and political relationships dominated by China and that ensure that Middle Eastern and African energy supplies need not be at risk in the Straits of Malacca.
In another example in early 2007 China loaned Tajikistan several million dollars without interest. In return the Tajik government then signed a political or cooperation agremement with China foregoing recognition of Taiwan, tightening security linkages, and postulating an identity of interests with China on a bilateral basis outside of existing linkages between them through the SCO. Similarly once the loan to Kazakhstan was announced, Chinese Vice Premier Wang Qishan indicated that it should lead to further bilateral cooperation in business and politics while President Nazarbayev of Kazakhstan indicated his suppport for Chinese investment in Kazakhstan and entrrpeneurial activity that carried out mutually beneficial cooperation. The different nuances in these remarks indicate what is at stake here, i.e. Central Asia’s economic independence. Although these are only a few of many such examples in Central Asia and elsewhere, they underscore the tactics by which China is advancing its overall strategy for Central Asia in energy and other domains.
CNPC’s Future Plans
CNPC, in its own words, has been making acquisitions in Eurasia non-stop. Indeed, it recently announced a detailed plan to “strive to build five cooperation zones coveing Central Asia, Africa, South America, the Middle East, and the Asia Pacific region within eight to ten years.” Ultimately its overseas oil and gas buisiness would amount to 200 million tons of oil and gas annually. As this plan does not include the loans for oil plans that have already started so it represents a new campaign. Indeed, Central Asia is the most important zone for foreign energy cooperation, another sign of the intertwined nature of energy, strategic, and political considerations in China’s energy policies. Apart from expanding holdings in Africa and Latin America, the efforts in the Middle East should be strengthened to make it the company’s future key development zone. Meanwhile efforts should also be made in the Asia-Pacific for producing both natural gas and Liquefied Natural Gas (LNG). That last point has particular relevance for China’s energy ties to Myanmar, a major gas and oil supplier.
CNPC has also indicated that this is an auspicious time for such bold plans since energy demand will grow while China already imports most of its oil. Moreover, CNPC aims to become an integrated internatonal energy company with six oil and gas business centers in Asia, America, and Europe. Meanwhile the value of investment becomes more apparent as global economic growth slows down and both energy and assets decline in price. CNPC estimates that Central Asia has 8% of world oil and 5% or world gas and that negotiations are not that tricky since states like Turkmenistan are approaching China. Thus in Central Asia CNPC emphasizes the need for going beyond the already estimated 40BCM of gas to be transported through pipelines from there to 50-60BCM annually and transmitting 20 million tons of oil annually through the pipeline from Kazakhstan. Apart from the oil pipeline from Russia discussed below, CNPC wants to finish a pipeline that annually transmitts 30BCM of natural gas from Russia. This means a priority on finishing pipeline deals, wrapping up their financing, and their construction from Central Asia and Russia. Therefore we can expect an even greater Chinese energy drive and footprint in these areas, for example, CNPC also wants to establish a heavy oil and LNG shipping company to control those products from the wellhead to China itself.
CNPC also believes that with the breakthrough in Sino-Russian talks there are no longer strategic obstacles to getting oil and gas from all four of these major strategic routes (Central Asia and Russia, South America, Africa, Asia-Pacific) and also expects breakthroughs on the Sino-Burmese pipeline this year. CNPC also announced its tactics, i.e. merger and acquisition efforts with closely monitored and selected targeted oil and gas companies and assets , i.e. small to medium sized independent oil companies suffering from financial difficulties but with future potential, as well as sophisticated oil and gas assets. Second, it will also target larger oil and gas firms for mergers and acquisitions to expand its overseas oil and gas business.
Although most of China’s energy imports still come from the Middle East; Beijing is clearly and rapidly seeking to diversify its suppliers on a global basis: Venezuela, other Latin American countries, Africa, Russia, and Central Asia. Neither will China slacken the pace of acquisitions anytime soon. As noted above, CNPC’s program will not stop. It recently announced its intention to invest up to $44 Billion in oil and gas projects in 2009, especially in core projects like the ongoing Kazakhstan-China oil pipeline that will send China 15 billion tons of oil a year from 2011-2034. We can expect that other projects in Central Asia, e.g. the gas pipeline from Turkmenistan, will also be moved further to completion and that Chinese firms and the government will continue searching for distressed energy firms that they can acquire at cut-rate prices to gain global and regional leverage among suppliers and governments.
Russia
Other Chinese companies are equally active, PetroChina, which holds CNPC’s non-politically sensitive assets, will soon start building to build a pipeline from its terminal in Daqing to the Russian border that will connect to the pipeline Transneft is building to ship Rosneft’s oil to China. The pipeline will cost China 10 Billiion Yuan ($11.34 Billion Hong Kong dollars). and represents China’s contribution to the Russo-Chinese oil project announced in February and completed in April, 2009 where China loaned Rosneft and Transneft, two immensely leveraged firms, $25 billion to commit them to build the pipeline from Taishet to Skovorodiono in Eastern Siberia from whence the oil will then go to Daqing. From 2011-2034 China will receive 15 milliion tons annually from Russia which is now tied, against Russia’s past preference, to a single consumer at the end of its pipeline, a situation that it has successfully blocked everywhere else.
Both sides claim that this agremeent represents a win-win deal for them. Moscow now argues that the conclusion of this deal will create a reliable, stable sales market for oil from eastern Siberia to the Asia-Pacific region and that the rest of Russia’s pipeline to the Pacific Ocean, the East Siberian Pacific Ocean (ESPO) pipeline will soon open and start selling gas from the terminal at Kozmino Bay. While this pipeline will start carrying 30 million tons of oil annually it ultimtely will carry 80 million tons of oil annually.
However China now possesses ample opportunity to gain equity assets in both Kazakh and Russian firms and influence state policy directly in these petro-states. Worse yet, according to Western analysts, Moscow is actually selling the oil to China, when all the costs, including the loans and interests are calculated, at a price that is estimated as being between $11.40. to $22 a barrel. Formally the two governments announced that the price of this oil would be based on a formula based on the floating price of Brent crude oil when it arrives at the projected Kozmino Bay terminal. But there is no pipeline to Kozmino Bay and no clear idea who will pay for it. Despite Russian optimism, it is quite unclear whether or not Japan will make the huge investment necessary for this pipeline to materialize. Thus for now energy flows to Kozmino Bay will be only those carried by the Russian railway system, a grossly overpriced and inefficient way of transporting oil. However, given the absence of financing for that pipeline, the greed, mismanagement, high labor costs, and endemic corruption of the Russian energy industry and the failure to announce a price for the oil being shipped to China let alone that which will be shipped to Kozmino Bay, skepticism about such announcements is warranted.
While Chinese anlaysts may not be happy about this pricing arrangement, we can be relatively sure one or another side will seek to renegotiate it once prices move dramatically up or down. Russia may think that it got a stable market and the first major step in it is efforts to diversify its energy supplies eastwards, but in fact this deal was made out of Russian weakness and not only will China gain access to upstream Russian energy assets, it also evidently was able to induce Moscow to reorganize its organizational process for negotiating energy deals with China, a sure sign of its superior leverage. Moreover, China certainly intends that this deal will remain stable and lead Moscow to provide it with even more oil, gas, and electricity.
In other words, despite Russian satisfaction that it has a stable market that Rosneft and Transneft were saved, and that it can now ship oil to China; it appears that China got and will get more and more out of this deal than Russia and has increased its leverage over Russia. China has essentially effectuated a major victory over Russia and will gain access to equity in hitherto excluded Russian firms apart from its leverage over Russia. Russia may proclaim that it could become China’s largest oil supplier in 15 years (a prospect this author finds to be unlikely), but in fact Moscow and Astana must accept not only Chinese equity positions in their energy firms, Russia also must accept outcomes that it has successfully rejected everywhere else and get less for its products than the market now charges. Russia also must find financing to build oil and gas pipelines from Siberia to the Pacific Coast, and given its own shoddy record of construction and the games it has played with Japan, this is by no means a certain proposition.
Since many of Russia’s decisions here represent a reversal of past Russian priorities, i.e. building a pipeline to one Asian party alone and not to the Pacific where it could supply all of Northeast Asia and the US, the Sino-Russian deal is impressive testimony to China’s heightened power as a result of its past growth and the current crisis and to Russia’s decline due to its leadership’s unrelenting cupidity and mismanagement. Apart from ensuring large oil shipments through the pipeline to itself, China is abetting Russia’s reorientation of its energy strategy away from Europe if that materializes and has clearly induced Moscow to approach it again concerning the project of a gas pipeline from the Altai to China for 40BCM a year of gas. Gazprom has now repented of its past decision to abandon this pipeline and has approached CNPC to participate in retail gas sales in China as a quid pro quo for favorable pricing.
Iran
Since 2004 China has signed several major oil and gas deals with Iran which is already supplying over 15% of China’s energy needs. The most recent deal for $3.2 Billion was signed on March 15 where China will help develop the South Pars field, part of what is believed to be the world’s largest natural gas reservoir. But beyond energy considerations these deals meet China and Iran’s overall foreign policy objectives. These deals are not only instrumental in ensuing China’s continuing receipt of large quantities of oil and gas, they also meet Iran’s desire to replace Japan with China as its main Asian energy importer. Thus Iran has warned Japan in the past that if it backed out of energy deals due to Western pressure it would turn to China. Iran’s foreign policy since 2001 has also been driven mainly by Tehran’s “Ostpolitik”, a policy placing primary emphasis on securing Russian, Chinese, and Asian support for its programs Indeed, Iran seeks broader cooperation with Russia not only on nuclear issues but on a gas cartel and on all security issues in the CIS, or at least so it claims. And it clearly seeks to be a major supplier to China to earn its political support and help break Western sanctions. Indeed, Iran points to such deals as signs that US claims that foreign energy firms are shunning Iran are baseless and that US opposition to energy deals with Iran can be overcome.
Therefore these deals compromise the unity of the P-5 (permanent members of the Security Council) and the negotiations between the EU and Iran that include China and Russia in forging a strong united front to arrest or reverse Iran’s ever more open quest for nuclear weapons. Thanks to these deals Iran not only gains strong supporters in the East, it gains capital to develop its energy systems and evade or mitigate at least some of the impact of UN and US sanctions. Indeed, according to a report from the CIA, “Chinese entities – which include private companies, individuals, and state-owned military export firms – cojntinue to engage in WMD-related proliferation activities “ to Iran. And even though Beijing has tightened regulations on sensitive equipment exports, “enforcement continues to fall short.” China not only hamstrings the US and deflects its attention away from China’s growing power, putting it in the status of a demandeur vis-à-vis China as regards Iran. China also gets an enormous source of reliable energy supplies and by forging these deals it has already begun to create a basis for enhancing the viability of any projected pipeline linking it through Pakistan and Central Asia (either Kazakhstan or Uzbekistan, Afghanistan and/or Pakistan) directly to Iran. Here again China would thus be in a postion to realize its ultimate dream of diverse supply lines that cannot be cut off by the US Navy or in this case by Russia or India, all potential rivals.
Thus China’s energy deals with Iran for oil and gas parallel its energy deals with Russia and Kazakhstan in that they consolidate a community of interests binding China to its suppliers. But these deals also enable China to attack U.S. objectives, attain lasting partnerships with important energy suppliers and generally strategically important states, gain secure and reliable energy supplies, deflect Washington’s attention and energy away form it and its growth, and to do so at relatively little poltiical cost. At the same time the current economic crisis offers China hitherto undreamt of opportunities to pursue its energy strategy at knock-down prices, for exmaple in the Russian case, where it can obtain its goal of getting energy wherever possible at below market prices.
South and Southeast Asia
China’s energy strategy that aims to ensure its energy security in times of peace and crisis if not war, inevitably entails a strong global rivalry with other key consumers like India. In 2006 India initiated efforts to forge a truce so that India and China would not overbid for energy supplies in the Middle East, Central Asia, and Africa. But that agremeent has either broken down or been discontinued and it is clear that China is outpacing India in Central Asia and elsewhere by virtue of its greater aggressiveness and enormous cash reserves. In particular China has trounced India in the rivalry for access to Myanmar’s gas fields. Here again the energy rivalry parallels the strategic rivalry perceived by Indian and other observers stemming from what they regard as China’s efforts to implement the string of pearls straegy and project naval power into the Indian Ocean. But China’s support for Pakistan, infrastructural projects there, and programs with Myanmar also support its larger strategic objective of frustrating India’s capacity to play a major role in world politics beyond the Subcontinent and particularly in Central and Southeast Asia. That India seeks such a role is not open to doubt. But as the discusion of the rivalry between it and China for energy access in Mynamar indicates, China is equally determined to thwart its attainment of those objectives.
Myanmar’s location at the Northwestern portal of the Straits of Malacca and into the Indian Ocean, and the possiblity of using its ports and associated infrastructure to bypass the Straits gives the area strategic maritime significance for both India and China. But as China has staked enormous resources on building its Southwest Yunnan province and holding onto Tibet, and given Myanmar’s oil and gas holdings, economic influence and access have become very important to both China and India. India covets Myanmar’s gas which could do much for its energy starved and insurgent Northeast provinces and regards China’s naval and energy activity there as potentially threatening to it. Thus it is hardly surprising that a robust economic-energy-naval rivalry is occurring with regard to Myanmar.
Myanmar possesses Southeast Asia’s largest natural gas reserves of at least 88 Trillion Cubic Feet (TCF) and oil reserves of around 600 million barrels. Although India was the preferential buyer for Myanmar in its gas fields called A1 and A3 off the Rakhine Coast (the site is called Shwe) in 2006-07; China stole a march on India and won Myanmar’s support to develop both ports and associated infrastructure as well as an oil pipeline linking Myanmar’s deep-water port at Sitwe to Kunming, a pipeline that would again bypass the Straits of Malacca. Much of this was due to the tensions in the relationship between India and Bangla Desh through which this gas would have to go from Myanmar. Bangla Desh resents India’s efforts to dominate South Asia, is plagued by strong anti-Indian feelings stemming from the Hindu-Muslim clash on the subcontinent, and has also become a major target of Chinese investment as China seeks to constrain Indian strategic opportunities. These factors, combined with some inept Indian diplomacy led Bangla Desh to veto shipments of Myanmar’s gas through its territorty to India and Myanmar, now having no outlet for its product was naturally susceptible to Chinese blandishments, the influence of China in the Security Council, and Beijing’s growing military and economic investments there.
More recently China signed a contract with Myanmar to build cross-border oil and gas pipelines for the gas from those blocks and gas fields. The gas pipeline runs over 1240 miles from Sitwe through Rulli and Kunming in Yunnan to Chongqing in Southwest China.. In return China will provide Myanmar with help in building a big hydropower project in Northern Myanmar, continuing its assistance to Myanmar with these projects. China’s position in the Security Council where it can block unpalatable UN resolutions against Myanmar undoubtedly is a factor in that country’s government’s thinking. Similarly China has offered to assist Bangla Desh in providing foreign investment for its energy holdings that it desires, as well as power generation, hydro and solar energy, military asisstance, and even nuclear power. Not surprisingly, its relationship with Bangla Desh has improved at India’s expense.
Here again we see how energy, geopolitics, naval and maritime ambitions, and support for authoritiarian regimes, particularly those near China’s poorer and potentially volatile Western regions, all come together to foster an aggressive srategy of economic and energy investment, leading to the acquisition of a preferential position in the host country’s energy equation if not overall policies. These trends suggest that in Myanmar as well as Russia Chinese economic power is reaching a point where it can persuade regimes to adopt policies that they might not otherwise have done, e.g. in Myanmar’s case, reverse its intention to ship gas to India and instead sell it to China.
Such cases indicate the ongoing nature of the Indo-Chinese energy rivalry in Asia as well as across the globe. For example, in October, 2008 Pakistan warned that if India kept delaying the projected Iran-Pakistan-India pipeline (IPI) it might lose out and be replaced by China. Interestingly enough China’s Ambassador to India in 2006, Sun Yuxi, said that China has no objections to the IPI, finding it a very good idea, while India’s minister for State Planning, M.V. Rajashekaran, also said that once the pipeline is completed it could be extended to China. Indeed, if one correlates China’s recent moves in Central Asia regarding energy with its deals with Iran, it is hard to escape the notion that China is contemplating a pipeline network running from Iran either through Central Asia, or prospectively through Pakistan and/or India to China.
For all the talk that China is wasting money and paying for long-term contracts at top of the market prices, it is securing lodgments and presumably influence in places that India cannot yet do. Since China is the benchmark against which India now measures itself, this must be highly disturbing to Indian elites and the government. China, for example, is far ahead of India in gaining access to Central Asian pipelines and in making or completing deals to begin construction of them. Similarly the dates by when it should be obtaining Central Asian energy are much earlier than those when India hopes to be able to obtain energy form Central Asia. Again ironically, due to U.S. pressure upon Iran, China, not India is the main Asian beneficiary of Iran’s energy The pressure from China and the sense of being unable to compete with it may provide another motive for greater reliance upon nuclear energy and for turning to Russia to fill up its shortfalls. And, to the extent that Indo-Chinese competition for energy is unregulated (against the efforts by former Indian Energy Minister Aiyar to find a cooperative solution to the problem), Indo-Chinese rivalry in Asia could grow over time as well.
Implications
These cases, along with Chinese actions beyond Eurasia, exemplify China’s so called “peaceful rise”. There is no force or threat of it other than the pressures of the market in today’s economy. Companies and governmetns who cannot meet their debts or are short of cash will generally look for lenders who offer the most favorable terms. And in the current climate China, sitting atop enormous cash reserves, is more than willing to offer such terms in return for exclusive access to the product, below-market prices, and opportunitites for further equity access in those firms and countries. While these borrowers get their cash they also suffer, as debtors habitually do, from a loss of freedom of action. To a considerably greater degree than before they are tied to China’s economic chariot and to its economic-political preferences.
Moreover, these investments and the accompanying strategy behind them are coming to be seen both in China and abroad as portending a new level in Chna’s rise to power and the development of the so called “Beijing consensus.” South Korea’s Ministry of Strategy and Finance recently sounded the alarm over China’s investment and loan strategy in a report bearing this title. It warned that China’s energy investments might “put Korea’s diplomatic efforts to secure natural reosurces in peril.” It also warned that developing countries that accept these loans and investments might gravitate toward a Chinese-style economic model. Some foreign commentators warn that this strategy might compromise Taiwan’s independence and that through this strategy China is clearly eclipsing Japan which has failed to translate its economic power into political advantage. Others disagree as do some political leaders who claim that they are not surrendering their political independence to China or adopting a Chinese-style economic model. But some Chinese scholars claim that this model is coming to replace the previous “Washington model” of economic development.
For example, Chi Zhiyuan, a professor at Tsinghua University who recently wrote a book on this subject, claims that the financial crisis has caused the world to lose confidence in Washington. Similarly, Cheng Enfu, an econnomics researcher at the Chinese Academy of Social Sciences, a government–affiliated think tank, defines the Beijing Consensus as,
Promotion of economies in which public ownership remains dominant; gradual reform is preferred to”shock therapy,” the country is open to foreign trade but remains largely self-reliant; and large-scale marker reform takes place first, followed by political and cultural change.
It is hardly coincidental that Russia’s economy under Putin and Medvedev broadly resembles this paradigm in many aspects. But nonetheless it is failing to keep pace with China. In this context it is hardly a surprise that for years Russian leaders have been publicly warning that if Russia did not get its house in order that China would gain a commanding economic position in Russian Asia or warning against the rise of China as exporter, importer, and now lender in Central Asia. For example, Russian officials have repeatedly reiterated their opposition to being merely China’s source for raw materials and demand equal status in economic-technological exchanges with China. Russian leaders also know that if they fail to be competitive economic players in East Asia they will also be at a serious disadvantage at home and in Central Asia. For, if Russia fails to become “a worthy economic partner” for Asia and the Pacific rim, Deputy Prime Minister and Finance Minister Aleksei Kudrin warned that, “China and the Southeast Asian countries will steamroll Siberia and the Far East.” China would then also steamroll Russia in Central Asia too. Certainly Russian energy policy therefore betrayed a definite reserve, if not something stronger, about ceding too much influence in Russia or Central Asia to China. Yet now we see Russia accepting its debts to China and reversing past energy policies regading both oil and gas.
The situation in Central Asia also shows similar signs of rising Chinese power. For some time it has been apparent that China has had the power to influence at least some Central Asian states’ policies, e.g. prodding Kyrgyzstan to enact an ”anti-extremism law in 2004 because it may have believed that Uyghur underground parties existed there and in Kazakhstan. In like manner Kazakhstan may have sacrificed some of its own interests in 2005 to China to get it to make its first energy purchase there of Petrokazakhstan. More recently a study of Central Asian perceptions of China concluded that local governmetns perceive China as a uniquely powerful regime that could substantially injure their interests and therefore make fulsome statements about friendship with it. Thus they too are being forced into accomodating China.
Similarly we see in Myanmar that Chinese investment helped turn that government away from India to Beijing. In other words China is beginning to have other states accommodate themselves to its preferences. Some have discerned even a similar trend in Australia though others deny it. Others argue this is happening in East Asia, particularly Southeast Asia, but also possibly in South Korea. The evidence submitted here suggests that we can begin to discern such patterns of accomodation, particularly in the face of the current crisis, backed up by the unstated but always present specter of China’s power, especially in neighboring areas like Central Asia. Indeed, several writers not only point to the growth of that power in Central or Southeast Asia, they openly herald the advent of a new order that is gradually becoming based on an increasing acomodation to China’s prefreences, often manifested thorugh such soft economic power as we have seen here. Thus Thonmas Rawski and William Keller openly warn that “the balance of influence between China and the United States in Asia is shifting decidedly in China’s favor.”
While this is by no means a scholarly or analytical consensus view; it does tesitfy to the vigor of China’s current policies. Not surprisingly China sees in this crisis an opportunity (as the Chinese characters for crisis suggest). In the last major economic crisis a decade ago China acted not just to secure Southeast Asian stability but also benefited immensely from the perception of its role and from the emergence of its economic power as the anchor of Asian stability and one of the anchors of global stability as is also now the case. Much has been written about China’s economic and energy policies in Asia that have been devised to ensure its maximum energy security. But now we may begin to see the fruition of those policies in Central Asia and elsewhere. While many will undoubtedly benefit, somebody may well lose and the results from that perspective will not be pretty.
Notes
Zhu Yifan, Fan Xi, and Chen Yin, “Do Not Let Your Neighbor Collapse, --emerging Asian Economies Seek Internal Support,” Beijing, Xinhua, in English, April 17, 2009, “ Open Source Center, Foreign Broadcast Information Service Central Eurasia (Henceforth FBIS SOV), April 17, 2009
Simon Romero and Alexei Barrioneuvo, “Deals Help China Expand Sway in Latin America,” New York Times, April 15, 2009, www.nytimes.com for examples from Latin America; Arianna Eunjung Cha, “China Uses Global Crisis To Assert Its Influence,” Washington Post, April 23, 2009, www.washingtonpost.com
Trevor Houser, “The Roots of Chinese Oil investment Abroad,” Asia Policy, Number 5 January 2008, 141–66; The Rise of Asia’s National Oil Companies, energy Security Survey 2007, Special Report, NO. 14, 2007, National Bureau of Research Asia, www.nbr.org
International Crisis Group, China’s Thirst for Oil, Asia Report No. 153, June 9, 2008, http://www.crisisgroup.org/home/index.cfm?id=5478
Lowell Tillet, "The National Minorities Factor in the Sino-Soviet Dispute," Orbis, XXI, No. 2, 241-260.
Michael Swaine and Ashley j. Tellis, Interpreting China's Grand Strategy: Past, Present, and Future, Santa Monica, CA: Rand Corporation, 1996
M.K. Bhadrakumar, “Cash-Rich China Courts the Caspian,” Asia Times Online, April 18, 2009, www.atimes.com
Ibid; “Kazakhstan: A Chinese Energy Loan,” ww.strafor.com Analysis, April 17, 2009; Joanna Lillis, “Kazakhstan: China’s Deep Pockets Make Beijing a Potent Player in Central Asia,” Eurasia Insight, April 20, 2009;
“Interview With President Nursultan Nazarbayev of Kazakhstan,”
Beijing, Xinhua Domestic Service in Chinese, June 8, 2006, FBIS SOV, June 8, 2006
John C.K. Daly, “Analysis: China Increases Stake in Kazakh Energy Assets,” UPI.com, www.upi.com, April 28, 2009
“China, Kazakhstan: Nuclear Power Deal Agreed,” www.stratfor.com, April 30, 2009
“Chinese Premier Raises Four-Point Proposal. For china-Kazakhstan Cooperation,” Beijing, Xinhua in English, April 17, 2009, FBIS SOV, April 17, 2009
“China Reform Monitor,” April 15, 2009 from the American Foreign Policy Council,www.afpc.org, citing Interfax, April 15, 2009
Jian Yang, “Beyond Energy: China’s Energy Relations With Japan and India,” Paper Presented to the Annual convention of the International Studies Association, New York, 2009
“Mining Boom Boosting Economics of Afghanistan,” www.sananaews.com.pk, April 22, 2009; Ian McWilliam, “China Wins Major Afghan Project,” BBC News South Asia, November 20, 2007; “Afghanistan Looking Mining Companies To Explore Iron Ore Mine,” http://paguntaka.org, April 5, 2009; Niklas Norling, “The emerging China-
Afghanistan Relationship,” Central Asia Caucasus Analyst, May 14, 2008; Kevin Slaten, “China’s Bigger role in Pakistan, Afghanistan,” South china Morning Post, February 12, 2009, www.scmp.com; Ron Synovitz, “China: Afghan Investment Reveals Larger Strategy,” Radio Free Europe Radio Liberty, May 29, 2008; Tariq Mahmud Ashraf, “Afghanistan in Chinese Strategy Toward South and Central Asia,” Jamestown China Brief, VII, BNO 10, May 13, 2008; Jeremy Page, “Afghanistan Copper Deposits Worth $88 Billion Attract Chinese Investors,” Timesonline, May 15, 2008, www.timesonlinie.co.uk;
“Chinese Mulling $13B Investment in Gwadar,” Pakistan Real Estate Now, May 9, 2008, www.livenreal.com/news/index.pho./chinese-mulling-13b-investment-in-gwadar; Sumita Kumar, “The China-Pakistan Relationship: Trade, Investment, Energy, and Infrastructure,” Strategic Analysis, XXXI, NO. 5, 2007, pp. 757-790
Andrew Erickson and Lyle Goldstein, “Gunboats for China’s New “Grand Canals”,?” Naval War College Review, LXII, NO. 2, Spring, 2009, pp. 43-76
Erickson and Goldstein, pp. 43-76; Shebonti Ray Dadwal, “China’s Search for Energy Security: Emerging Dilemmas,” Strategic Analysis, XXXI, NO. 6, 2007, pp. 889-914; You Ji; “Dealing with the Malacca Dilemma: China’s Effort to Protect Its Energy Supply,” Strategic Analysis, XXXI, NO. 3, 2007, pp. 467-489; Gupreet S. Khurana, “China’s “String of Pearls’ In the Indian Ocean and Its Security implications,” Strategic Analysis, XXXII, No. 1, 2008, pp. 1-39
Beijing, Xinhua, in English, January 15, 2007, FBIS SOV, January 15, 2007; Dushanbe, Asia-Plus Internet Version, in Russian, January 1`6, 2007, FBIS SOV, January 16, 2007; Beijing, China Daily (Hong Kong Edition) Internet Version, in English, January 16, 2007, FBIS SOV, January 16, 2007
Ming Quan, “CNPC’s Expansion Blueprint: Oil and Gas Capacity To Reach 200 Million Tons in 10 Years,” Guangzhou, Shiji Jingji Baodao Online, in Chinese, March 19, 2009, FBIS SOV, April 16, 2009
Robert J. Saiget, “PRC FM Spokesman Says China, Russia Finalize Oil Pipeline, Supply Deal,” AFP in English, April 21, 2009, FBIS SOV, April 22, 2009; Rong Yan, “Vice Premier Li Keqiang Meets Russian Deputy Prime Minister Sechin,” Beijing, Xinhua Domestic Service, in Chinese, April 21, 2009, FBIS SOV, April 22, 2009
“The Collaborative View: Transforming Chaos Into Opportunity,” http://collaboration360.blogspot.com/2009/02/transforming-chaos-into-opportunities.html; Robert Cutler, “China On Buying and Lending Spree,” Asia Times Online, March 5, 2009, www.atimes.com
Gaye Christoffersen, The Multiple Levels of Sino-Russian Energy Relations, Paper Presented to the Conference “Sino-Russian Relations: Old Patterns, New Realities”, Central Asia-Caucasus Institute, Washington, D.C., May 6-7, 2009
For an analysis of Russian energy failures in Asia to date see Stephen Blank, “At a Dead End: Russian Policy and the Russian Far East,” Forthcoming, Demokratizatsiia
John Helmer, “China Loan Turns Russian Oil East,” Asia Times Online, February 24, 2009, www.atimes.com
Borzou Daragahi, “Iran Signs $3.2 Billion Natural Gas Deal With China,” Los Angeles Times, March 16, 2009, www.latimes.com
“Iran Eyes Russia, China If Japan Stalls On oil Deal,” The Japan Times, August 29, 2006, http://seaarch.japantimes.co.jp/print/nb20060829a1.html; F. William Engdahl, “China Lays Down Gauntlet in Energy War,” Asia Times Online, December 21, 2005, www.atimes.com
Andrei Kolesnikov, “Vladimir Putin Includes Iran in Sextet,” Moscow, Kommersant, in Russian, June 16, 2006, FBIS SOV, June 16, 2006
Wang Ying and Dinakar Sethuraman, “China, Iran Sign $2Billion Oil Production Agreement,” Bloomberg, December 10, 2007
“Iranian nuclear Work Unhindered By Sanctions, CIA Report Says,” Global Security Newswire, May 8, 2009, Nuclear Threat Initiative, www.nti.org, or http://gsn.nti.org
Walter C. Ludwig III, “Delhi’s Pacific Ambition: Naval Power, “Look East,” and India’s Emerging Influence in the Asia-Pacific,” Forthcoming, Asian Security,V, No. 2, 2009
Stephen Blank, Natural Allies?: Regional Security in Asia and Prospects for Indo-American Strategic Cooperation, Carlisle Barracks, PA: Strategic Studies Institute, US Army War College, 2005
Zhao Hong, “China and India’s Competitive Relations With Myanmar,” ICS Working Paper Series No. 7, 2008, Institute of China Studies University Of Malaya, 2008; Jian Yang,
Ibidem; Ashild Kolas, “Burma in the Balance: the Geopolitics of Gas,” Strategic Analysis, XXXI, No. 4, 2007, pp. 625-643
“Myanmar Gets China’s Help For Hydropower Project,” Asian Energy, http://asianenergy.blogspot.com, March 31, 2009
Sudha Ramachandran, “China Secures Myanmar Energy Route,” Asia Times Online, April 3, 2009, www.atimes.com
“China For improved Tech for Power Generation in Bangladesh,” www.energybangla.com, April 21, 2009; “Bangladesh to Seek Foreign Help In Offshore Gas Exploration,” www.energybangla.com April 8, 2009; “China Offers Bangladesh More Military Aid, Nuclear Tech (Roundup), South Asia News, April 25, 2008, www.monstersandcritics.com, accessed on May 4, 2009; Srinjoy Bose, energy Politics: India-Bangladesh-Myanmar Relations, Institute of Peace and conflict Studies IPCS Special Report, No, 45, 2007
“Pakistan: India May Lose Iran Gas Pipeline Project,” FARS News Agency, October 19, 2008, www.english.farsnews.com
Stephen Blank, “China’s Recent Energy Gains in Central Asia: What Do They Portend,?” Central Asia Caucasus Analyst, September 19, 2007
Arianna Eunjung Cha, “China Uses Global Crisis To Assert Its Influence,” The China Post, April 25, 2009, www.chinap;ost.com.tw
Sergei Blagov, “Russia Wants to Be More than China’s Source for Raw Materials,” Eurasia Daily Monitor, September 30, 2005
Moscow, Interfax, Presidential Bulletin, in English, August 21, 2001, FBIS SOV, August 21, 2001, "Asia and the Russian far East: The Dream of Economic Integration," AsiaInt Special Reports, November, 2002, pp. 3-6, www.Asiaint.com
Michael Lelyveld, “Russia: Moscow’s Oil Pipeline Plan to China Stalls,” Radio Free Europe Radio Liberty (Henceforth RFERL), Newsline, December 10, 2002, on Slavneft see, Le-Min Lim, “China Sees Russian Barrier to Slavneft,” International Herald Tribune, December 17, 2002, “Anti-China Sentiment Plays Into Duma vote,” www.stratfor.com, December 16, 2002, “Chinese Drop Plans to Bid for Slavneft,” Rosbusiness consulting, December 17, 2002, www.top.rbc.ru, Peter Wonacott and Jeanne Whalen, “China and Russia Prepare to Sign Pipeline Agreement,” Wall Street Journal, December 2, 2002, “Japan, Russia Discussing Pipeline Construction,” Moscow Times, December 28, 2002
Marat Yermukanov, “Astana May Sacrifice National Interests To Save China Oil Deal,” Eurasia Daily Monitor, September 7, 2005; Vladimir Socor, “Implications of China’s Takeover of Petrokazakhstan,” Eurasia Daily Monitor, September 7, 2005
Marlene Laruelle and Sebastian Peyrouse, China As a Neighbor: Central Asian Perspectives and Strategies, Stockholm: institute for Security, Development and Policy, 2009, p. 170
James Manicom and Andrew O’Neil, “Accommodation, Realignment, or Business as Usual?: Australia’s Response to a Rising China” Paper Presented to the Annual Convention of the International Studies Association, New York, 2009; “Australia’s Chinese Entanglement,” p. 46
Robert S. Ross, “Balance of Power Politics and the Rise of China: Accommodation and Balancing in East Asia,” William W. Keller and Thomas G. Rawski, Eds., China’s Rise and the Balance Of Influence in Asia, Pittsburgh: University of Pittsburgh Press, 2007, pp. 121-145