1.3 Implementation of Energy Policy of China in Central Asia

Concurrent with increasing oil dependence, China has come to be viewed as a great power, not merely a regional actor. China’s quarter-century of rapid economic growth and its relative openness to the outside world have forced others to take it seriously. China’s rising global influence and the country’s rapidly growing demand for energy definitely affected China’s foreign policy. Unless China’s economy experiences a dramatic meltdown, the country will continue to consuming increasing amounts of energy. The International Energy Agency estimates that by 2020 China’s share of primary energy demand will increase to sixteen percent, while its share of population shrinks to nineteen percent. Beijing is promoting the exploration of new oil and gas fields within the PRC, but specialists agree that imports will constitute an increasing share of the country’s energy consumption. China’s energy needs may heighten the potential for competition and conflict with other oil importing nations, most notably the United States and Japan. Conversely, China’s vulnerability as an energy importer could lead toward greater cooperation and integration within multilateral institutions. China’s oil strategy for the 21st century calls for diversifying oil imports, cooperation on developing oil and gas wells in other countries (the “going abroad” plan), establishing a national oil reserve, increased efficiency in oil and coal consumption, reforming the National Energy Commission and tasking it with responsibility for oil security, creating a national oil foundation to develop oil finances and futures, and reducing the volume of oil imports carried by foreign tankers from 90 to 50 percent. Increasingly, Chinese publications are referring to securing oil supplies as a vital component of the country’s national security.

China is seeking a place among the key players on the global economic and political scene. It is placing its stakes on greater efficiency and attractiveness of the Chinese economic model while trying to find a niche for the country in the global processes and the quest for mechanisms of their efficient management badly needed to preserve its integrity, sustainable development, and security, as well as its position in the world. Applied to the energy sphere, the above means that Beijing should protect its economic interests and its influence in the global and regional energy markets by acquiring firm positions in long-term contacts with fuel-rich countries (the Central Asian countries included) to guarantee a consistent inflow of raw materials into its fuel and energy complex. Today, its interests are concentrated on hydrocarbons; tomorrow they will spread to uranium. This is not an end in itself, but rather the country’s readiness to cooperate with other countries, particularly its neighbors, in order to guarantee China’s strategic interests in the economic, security, and political spheres [10]. Matveev states that at the present time, the high rates of growth in the Chinese economy are not sustained by corresponding development in the fuel and energy complex [11, p.77].

The PRC is increasingly becoming a net importer of energy resources. Over time, the shortage of energy resources will only rise, and meeting the needs of the national economy for them in full measure will become one of the active factors in the state’s foreign policy strategy. A key feature of China’s energy diplomacy is stable and guaranteed provision of the country’s needs for highly efficient energy resources, meaning oil and natural gas. Due to the PRC’s extensive involvement in the globalization processes, significant attention should be given to such external factors of world energy market movement as a change in the geopolitical situation and the related increase in political risks and instability in hydrocarbon production, increase in world prices for oil and gas, greater state participation in world energy resource trade, and so on. In addition, several national features of the country’s oil and gas sector should be taken into account in China’s energy policy, in particular: The high level of state participation in the development of oil and gas resources; The discovery of new promising oil and gas fields in difficult-to-access mountainous and desert terrains;  The underdevelopment of the gas transport infrastructure [11]. In the context of Chinese dependence on Middle Eastern and African Oil Central Asia appeared as a good chance to diversify Chinese energy imports. The Central Asian energy resources surely are not able to fully satisfy the needs of China. As Paramonov and Strokov wrote in their article, on the whole, Central Asia plays a secondary role in China’s security and raw material (energy resources) spheres: it is a strategic rear to be relied upon for greater political efficiency (in the security, economic, and energy spheres) of China’s relations with the leading Western countries and APR neighbors, which are priority vectors for China. This however doesn’t belittle the importance of Central Asia, on the contrary as we have already discussed in the previous section the role of strategic rear for China is vital. Accordingly, some leading Russian experts also emphasize that Central Asia plays a role of “strategic rear” of China in a lot of dimensions such as security, energy and resistance to West (USA and NATO), creation of new markets for commodities and raw materials and transit corridor. It is connected to the development of Chinese backward regions such as Xinjiang [12]. One of the priorities of China in its energy policy is the development of continental oil and gas supplies from Russia and Central Asian states through pipelines. According to Chinese experts several factors determine the attractiveness of Central Asian vector of PRC energy strategy: Mutual interests – Central Asian countries need investments to develop their energy resources and markets for supply while China needs to diversify its energy imports; The existence of common borders which helps transporting energy resources without intermediaries appears for China as the best guarantee of its energy security; The assistance in the development of North-Western China will create new jobs in XUAR which, in opinion of Chinese leadership, will stabilize the situation in the region; Ensuring the peaceful environment and strengthening China’s influence in Central Asia which is also important for Beijing’s geopolitical aims [12]. As independent expert David Babayan states Central Asia is acquiring a key role in this context. This region is rich in natural resources, particularly the raw hydrocarbons that China urgently needs [13]. This is why it is vitally important for Beijing to ensure raw hydrocarbon deliveries from Central Asia. This approach fully coincides with the oil strategy declared by several Chinese experts. In accordance with this strategy’s provisions, “unless China invests the capital to control some oil resources, any even insignificant international economic, political, or military conflict could affect supply and demand on the spot market, causing severe interference to our oil imports to seriously undermine China’s economic stability and sustained development.” For strategic considerations, it is more beneficial for China to make arrangements for oil and natural gas to be delivered from Central Asia, with which it has a common border, than from more distant regions by sea. Zhang Wenmu, a researcher from the Chinese Institute of Contemporary International Relations, believes the Central Asian oil market should be oriented toward China. “It is better to place the main stakes on oil and gas transportation by land, since China, which has the advantage of large land forces, is capable of ensuring the security of such deliveries,” [13, p.58]. Moreover, arranging for deliveries of natural resources to the PRC will be one of the most effective ways to create interdependence between the PRC and the Central Asian states, which is one of the most important imperatives of the geopolitics of any state. In this sense, Central Asia could be China’s energy rear. So Beijing’s main political strategy in the region is primarily aimed at convincing the Central Asian states that their increased cooperation with China will not pose a threat to their security. This is the message China conveys in essentially all the documents it has signed with the Central Asian countries.

China has three state-supported companies in the energy sector. One of these companies, Sinopec (the China Petrochemical Corporation), was founded by merging the Petroleum Industry Ministry and the Chemical Industry Ministry in 1983. Sinopec is active in the south of China. Another important energy company in China, CNPC (the China National Petroleum Corporation), is China’s largest energy company and it is active in the west and north of the country. The last company, CNOOC (the China National Offshore Oil Corporation), was transformed from a bureau inside the Petroleum Industry Ministry in 1982. This company is responsible for offshore exploration and exploitation activities [14].

Oil-and-gas rich Central Asia was found by PRC as a perfect source to meet the needs of Chinese growing economy. Being heavily dependent on energy supplies from Africa, Middle East and Asia-Pacific using seaways, considering rising prices for oil, China started thinking about diversifying its energy imports by building continental pipelines in Central Asia [6]. And it is increasing its influence in the region.