Can China’s Growing Demand for Energy be Satisfied Without Conflict?

In this essay, the author assess the threat of China’s increasing demand of energy and whether conflict is imminent. The author analyzes the cases of potential conflict, particularly in the East China Sea and the Middle East. The probability of conflict is then assessed in each of these cases in accordance with recent developments.  


By Abd Al-Aziz Abu Al-Huda, 20th April, 2012

Access to energy resources is a vital ingredient to the economic and military development of any state in the international system. Yet, within the past two decades, China’s quest for energy resources has particularly generated much debate and criticism. The commonly held opinion is that China’s pursuit for energy resources is a prelude to conflict with the International community because China poses a long term threat on energy supplies. However, such observations have been criticized by scholars such as Kung-wing Au and Hongyi Harry Lai, who emphasize that China’s growing demand for energy has in fact increased its vulnerability resulting in gradual cooperation.

This paper then attempts to assess the threat of China’s increasing demand of energy and whether conflict is imminent. The paper will begin by looking at cases of potential conflict particularly in the East China Sea and the Middle East. The paper will then attempt to assess the probability of conflict in each of these cases according to recent developments. The discussion will then conclude by examining the level of cooperation in each of the cases and the probability of its persistence. Following an examination of the literature, one can argue that conflict will highly depend on developments in internal state policies, perceptions and more importantly the development of negotiations which can be hindered by historical and political factors.

East China Sea

Development and dependency on imported oil is not restricted to China alone, but is shared by the wider Asian region as states seek to expand production, electricity generation, and energy access to their military. The East China Sea is said to hold 60-70% of the regions oil and natural gas resources which creates conditions for conflictual foreign policy due to uncertainty in the global supply of energy resources (Lai, 2007). The most conflictual competition is that between China and Japan due to the unresolved sea border dilemma between the two countries. This is followed by Chinese fears over U.S presence in the Straits of Malacca, the key energy supply route for China. With Chinese and Japanese case particularly, the fundamental cause of the conflict is not just competition over resources but the conflict also results from political distrust resulting from historical grievances (Liao, 2008).

Sino-Japan Relations

Despite conflicting claims over the demarcation of the East China Sea, Japan and China continued to negotiate joint development in the disputed area (Au, 2008). Both sides proposed solutions to finalize the conflict particularly Japan which tried to come up with an equitable solution by coming up with the Median line. The Median line according to Au “runs from the north to the south and separates the sea with equal distances from the shores of the two countries”  (Au, 2008, p. 224). While this may seem like a fair solution, China still has not acknowledged the median line highlighting that it was unilaterally drawn by Japan without consulting China (Buszynski & Sazlan, 2007).

Alternatively, China argues that it has the right to develop the “subterranean resources on its continental shelf” which go past the median line creating overlapping claims with Japan  (Au, 2008, p. 224). Japan despite having proposed the Median line, is also concerned that many oil and gas deposits in Chinese waters are situated in close proximity to the Japanese side allowing Japanese reserves to be tapped by Chinese operations (Au, 2008). In return, Japan aimed at limiting Chinese operations by blocked joint development in the Diaoyu and Senkaku islands (Buszynski & Sazlan, 2007). The islands remain subject to territorial dispute despite being under current Japanese control. However, Japan feared that cooperation with China over the Islands would, according to the Law of the Sea, enhance China’s share in regional waters.

The UN convention on the Law of the Sea specifies that coastal countries can “claim 200 nautical miles from their shores as their Exclusive economic zones (EEZ)” (Au, 2008, p. 225). In regards to the East China Sea, the widest point is only 360 nautical miles barely permitting Japan and China to demarcate territorial waters without conflicting claims (Liao, 2008). Coupled with historical animosity, China has considered investing in a naval defense force to guard Chinese seaborne energy imports going through the Straits of Malacca and territorial claims (Kennedy, 2010).  The Japanese air force near the Median line have identified the presence of Chinese military warships on a few occasions and considered this a ‘Show of force’ by China (Liao, 2008, p. 66).

“The Malacca Dilemma”

Around 80% of China’s oil and gas imports pass through the Straits of Malacca (Bustelo, 2005). Being dependent on energy imports, the Straits of Malacca is particularly problematic for China because the United States navy patrols the straits. Initially, the U.S naval presence is beneficial to China because it wards off piracy. However, U.S naval presence also risks the U.S blocking the flow of energy due to China’s criticized increasing role in the Middle East and Africa. The U.S naval forces also pose a threat to China should they interfere in Taiwan by using their bases in the Philippines or Kyrgyzstan (Kennedy, 2010). Even without U.S naval presence, China seeks to diversity its land based imports because they lack a developed navy to challenge the U.S (Downs, 2004). China has specifically looked at Russia to build  the Tayshet-Skovorodino-Nakhodka oil pipeline but was challenged and beaten by Japan over the route (Lai, 2007).

The Middle East

Like the Straits of Malacca, China’s energy dependency also increases concern over the Straits of Hormuz in the Arabian Gulf where most of the Middle East’s energy passes (Calabrese, 1998). Despite heavy presence of U.S influence in the Middle East, China’s foreign policy gradually developed into building closer diplomatic relations with the Arab world and Iran in order to secure access to energy deposits. From the U.S standpoint, China’s ties with the Middle East poses several challenges because it goes against the U.S’s policy of containment (Calabrese, 1998). However, China views U.S policies as a unilateral initiative which doesn’t involve them because China’s ties in region are free from ideological or historical hostilities (Yetiv & Lu, 2007).

The Middle Eastern perspective holds positive views of China particularly after the U.S campaign on the ‘War on Terror’ which alienated most of the region increasing anti-Americanism (Garrison, 2009, p. 13). As sales to the U.S declined, The Middle East, particularly Saudi Arabia, began a series of ‘loans for oil’ deals creating new investments (Kennedy, 2010, p. 140). Saudi Arabia, as a result of increasing political and economic cooperation, also allowed the Chinese oil company SINOPEC to extract natural gas from one of Saudi Arabia’s basin’s (Lai, 2007).

With the wider Arab world, China has devised an agreement with the 15 members of the Arab League to establish a forum on politics and economy. The agreement specifically targeted concessions for mutual market access and cooperation in investment especially in oil and gas (Lai, 2007). Unlike the U.S, China has been successful in dealing with the Middle East because it sympathizes with the Arab world’s stance on Palestine. Since the ‘War on Terror’, China has been active in voicing Arab concerns calling for an end to regional violence and support for the ‘Land for peace’ and ‘Nuclear free Middle East’ initiatives (Yetiv & Lu, 2007). Additionally, Arabs prefer dealing with China because they share China’s policy of non-interference regardless Human rights issues unlike the U.S which seeks to impose democratization on authoritarian regimes (Ziegler, 2006).

Iran, like the Arab world favours Chinese energy involvement. China’s relationship with Iran also includes military cooperation which the US particularly criticizes even though reports confirmed that China is not involved in selling sensitive military technology to Iran (Calabrese, 1998). A more pressing concern for the U.S has also been China’s assistance in developing Iran’s oil extracting capabilities and purchasing it which violates U.N Security Council sanctions (Yetiv & Lu, 2007). The U.S perceives this action as assistance to the rogue Iranian regime as well as irresponsibility on China’s part for violating International norms.

Assessment

There is no doubt that China’s increasing presence in the field of energy security creates an ‘Energy security dilemma’ (Kambara, 1984). As China develops into a prominent power on the international scene, emphasis is focused on the fact that China is currently the second largest consumer of oil globally and rising (Downs, 2004). However, what crucially matters is not how much energy resources China consumes, but whether it’s increasing consumption will alter its foreign policy. Estimations of China by 2030 tell us that it will remain dominated by coal because of difficulties in increasing the domestic use of natural gas coupled with lacking infrastructure (Kambara, 1992). Even should demand for oil increase, conflict to ensure supplies will depend on policy makers at the time and how they perceive national interests and threats (Garrison, 2009)

While China is a growing power, it largely remains dependent negotiating deals with Oil producing countries that ultimately control supplies (Garrison, 2009).  One must point out that only a small share of oil actually goes back to China. Around 85% of imported oil and gas reserves are actually sold and injected into the open market (Garrison, 2009). In fact, one can argue that China’s oil deal with Iran actually increases the supply of energy in the global market restricting prices from increasing (Kambara, 1984). Additionally, regardless whether China sold its imports or not, the U.S would still not be affected because its oil imports from the Arab states are minuscule compared to the “1011.6 and 590.3 million tons of oil annually” purchased from Canada and Mexico (Lai, 2007, p. 531). China on the other hand only imports “51.7 million tons roughly 8.8% of the U.S imports” which are not large enough to upset the U.S (Lai, 2007, p. 531).

Arguably, one can also claim that China contributes to global energy security because until recently, they had a high degree of self-reliance of around 90% of energy being generated in China (Garrison, 2009, p. 144).  Now, China actually produces 10% of the world’s oil and so it is likely that no conflict on behalf of China, the U.S, or the region will be imminent because China lacks military capabilities and the U.S and the region, particularly Japan favour increased energy output which decreases the prices of oil and gas. As previously stated, any actual conflict will most likely be due to a political fallout rather than energy scarcity (Yergin, 2006).

Furthermore, China’s current economy is only a fraction compared to the U.S economy and slightly stronger compared to its Asian neighbours. In per capita, Zheng Bijian argues that “China remains a low income country and China faces constraints to get its 1.3 billion population out of poverty” (Bijian, 2005, p. 19). Taking this into consideration, it is likely that China would view continuing oil diplomacy as much more cost effective and successful compared to using its limited military means (Ziegler, 2006, p. 8). China also considers its dependence for supplies of oil products like “gasoline, diesel oil, kerosene and fuel which come from its neighbours in South Korea, Russia, and Singapore as well as Japan and Malaysia and the Philippines” which, with the exception of Russia, has U.S military presence (Lai, 2007, p. 528).

Cooperation

With increasing interdependence, states gradually come to share numerous challenges. China like other states shares the consequences to its economic development if there is a disruption in energy supplies. Additionally, with its continuing use of coal and fossil fuels, China is also affected by the transboundry environmental consequences that emerge (Garrison, 2009).So has China been cooperating? And will the U.S and its neighbours cooperate back? Economically, neighbouring countries according to Jean Garrison actually think that deepening economic ties with China would be beneficial for them in the long run (Garrison, 2009).  Chinese officials have also highlighted the importance of integration with its neighbours as part of their oil diplomacy to provide opportunities to develop economic and military relations (Ziegler, 2006).

Concerning China’s anxiety about U.S presence in the Straits of Malacca, it is highly unlikely that China would increase its naval capability or move them away from the Taiwanese Strait. The cost of forming a defense navy actually makes the idea more of a concept than a reality (Downs, 2004). Even if China should disrupt sea lanes in order to ensure energy demands, the action would provoke numerous lethal moves by the U.S, Japan, and its neighbours. Instead, from the current situation we can assume that China understands the necessary need for strong U.S naval protection to ensure the safety of sea lanes for its oil (Ziegler, 2006).

Logically, China is focusing on improving its diplomatic relations with its neighbours to provide alternate land routes, despite its dependence on seaborne energy imports  (Lai, 2007). One way has been through the “Strings of pearls strategy” which aims at building close ties along coastal countries from the Middle East to the East China Sea in order to defend sea routes from terrorist attacks. (Lai, 2007, p. 528). An example of these close ties is with Pakistan where both countries agreed to build an oil pipeline going from the Port of Gwadar near the straits of Hormuz to the Chinese region Xinjiang which bypasses the Straits of Malacca and the East China Sea (Calabrese, 1998).

On the international level, China has also been quite accommodating to the U.S and the international community despite criticisms of its involvement with authoritarian regimes. In 2002, China voted in favour of the U.S proposed resolution 1441 at the U.N Security Council which stipulated that Iraq, a Chinese energy partner till 2003, was in “material breach of disarmament obligations”  (Lai, 2007, p. 530). While the decision clearly affected China’s ability to extract Iraqi oil under Saddam Hussein, China did not veto the resolution which allowed the U.S to wage war against Iraq in 2003 (Yetiv & Lu, 2007).

As for Iran, when Iranian-U.S relations were deteriorating over Iran’s nuclear programme, it was widely held that China would support Iran considering the Iranian concessions made to Iran for joint development. But China in fact supported a proposal initiated by the U.S and the European Union to refer Iran’s nuclear programme to the U.N Security Council should Iran fail to cooperate with inspections  (Lai, 2007). Also, China agreed with the international community that Iran should not develop nuclear weapons (Calabrese, 1998).

In its own continent, China has been making gradual progress in cooperating over oil and gas. In 2002, China and ASEAN members assured that they will aim to resolve territorial disputes through peaceful means (Bijian, 2005). In 2005, China agreed to initiate joint exploration programmes of oil and gas with Vietnam and the Philippines including an agreement of cooperation on gas with Indonesia (Liao, 2008). China and India have also attempted to cooperate by signing a memorandum of understanding for enhancing cooperation in the field of oil and natural gas (Kennedy, 2010). Both agreed to cooperate on “energy exploration, production, storage, and stockpiling, research and development, and conservation” which would bring down energy prices in Asia (Lai, 2007, p. 533). Lastly, China was successful in building cooperation between India and Pakistan by proposing an Iran-Pakistan- India “Peace pipeline” (Lai, 2007, p. 533).

As for unstable relations with its Japanese neighbour, both governments have actually been making contributions since 1970 and expressed a willingness to assist each other and Asian states in utilizing non-oil energy like wind and solar power (Liao, 2008). Cooperation between both governments also extends to the East China Sea where Japan has refrained from drilling in disputed waters while offering China technological assistance for joint development (Manicom, 2008). In 2007, both Japan and china advanced dialogue pledging their commitment to peacefully settle territorial issues (Au, 2008).

In 2008, the ‘Cooperation Consensus’ highlighted considerable improvement between China and Japan. Both parties agreed to jointly explore the Northern part of the East China Sea and jointly exploit the Chinese Chunxiao oil and gas fields (Jianjun, 2009). In return for joint cooperation, Japanese energy firms even agreed to follow Chinese national laws and supply assistance for existing oil and gas projects (Jianjun, 2009). This cooperation was the result of, what Goa Jianjun describes as the “Disputed area approach” which allows for development while maintaining consultation about other parts of the East China Sea (Jianjun, 2009, p. 294).

The problem however is that the consensus is not singed but only a verbal agreement between both parties until a finalized territorial settlement (Manicom, 2008). Yet, both states agreed not to take independent decisions which would harm joint development and both states agreed that “no side is to interpret the consensus in way to prejudice the maritime delimitation” in order to maintain stability in the region. (Jianjun, 2009, p. 297). It is likely that if Japan assists China technologically by providing hydro and solar power, then China would be able to maintain its part of the agreement and not venture into further exploration in the East China Sea (Ziegler, 2006).

In conclusion, China’s increasing demand for energy does not have to be met with conflict. Competition does exist but has been exaggerated without highlighting the progress of cooperation. Any conflict, should there be one, will depend on future government policies and how China and the International community interpret energy security. From what we can tell, cooperation is still an option because China has taken international and regional steps not to jeopardize its future development into a world power. Countries like the U.S need to pay greater attention to China’s struggles and China as well. Good will gestures on both sides will help deter conflict. Overall, there is a powerful incentive for a productive, accommodating Chinese Foreign Policy.


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