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Oil needs drive China
west
By Phar Kim Beng
As an
emerging global actor, China has been surprisingly quiet
in West Asia. In contrast, during the Cultural
Revolution, when China's geopolitical presence was at
its weakest, Beijing took to supporting Palestinian
factions and Persian Gulf militants, in what has been
called "the radicalism of impotence".
China can
no longer remain on the sidelines, however. In due
course, it has to be concerned with the political
maneuverings in West Asia. This is because China's
emphasis on modernization has required extensive
financing and increasing access to oil in West Asia,
especially Saudi Arabia, Kuwait, Iraq and Iran. Since
November 1993, China has been a net importer of oil,
while double-digit growth in its energy-deficient
southern provinces has steadily swelled China's
shortfall, despite repeated efforts to reduce it.
By 2000, for instance, out of a total
consumption of 200 million tons, China imported 70
million tons of crude oil, of which up to 50 million
tons came from West Asia. According to Chinese
projections, imports will surpass 100 million tons by
2005, which will then account for 45 percent of the
country's total oil requirements.
Some Western
analysts have predicted that by 2020 China will be
importing as much as 75 percent of its oil, although
estimates offered by the Asian Development Bank
conservatively peg the figure at 38 percent. Regardless
of which figure one may use, China remains vulnerable.
Although China imports mainly from West Asia,
due to the region's political volatility it has also
tried to diversify by reaching out to Russia, a rising
oil exporter. On September 8, 2001, three days before
the fateful attacks on the Pentagon and World Trade
Center, China and Russia signed a US$ 1.7 billion
feasibility study for a proposed 2,400-kilometer
pipeline that by 2010 would deliver 30 million tons of
Russian oil to Chinese refineries each year.
The
strategy to import from Russia is, however, not entirely
risk free. The one factor that constricts the ability of
Russia to increase exports is infrastructure - namely,
inadequate pipelines and port facilities. Since American
firms possess the technological wherewithal and capital
funding to assist Russia, the latter's export and piping
routes will likely mirror the preferences of the United
States. This puts China in an acute position as the two
combined could potentially compromise its national
interest.
China has tried to adopt three
strategies to buttress its position as its energy needs
deepen. Plans are now afoot to build a strategic reserve
of 6 million tons of imported oil that will guarantee up
to one month's supply by 2005.
Although the
inspiration is the US Strategic Petroleum Reserve (SPR),
which protects against any shortage, China is now
contemplating the Japanese mode of oil reserve
construction, which is composed of government oil
reserves and enterprise oil reserves. Japan's government
oil reserves mainly handle crude oil imports, while
those of enterprises deal with both crude oil and
finished oil products. China's target is not as
ambitious as the SPR or Japan's strategic reserve
however, as the latter can hold reserves equivalent to
90 days of imports.
Building China's stockpile
to the equivalent of one month's imports may take three
years because of current high prices. At US$30 a barrel,
a 25-day reserve for China could cost up to US$1.5
billion. Thus China has to wait until the price comes to
less than US$15 a barrel to make the plan viable. Such a
wait could set China's strategic plan back by five years
at least.
Another strategy is to develop China's
own indigenous sources. One plan is to build a 4,000
kilometer pipeline to carry oil from western China's
sparsely populated Xinjiang region eastward to the
prosperous coast. But the pipeline will cost nearly US$5
billion to build, and construction of the associated
infrastructure is expected to cost as much as US$13
billion more. So far, China has succeed in raising the
first US$5 billion through partnership with Australian
energy firms, with US$500 million thrown in by British
Petroleum.
Since the plan will not be fully
operational at least for another decade, China has tried
to maintain positive links with West Asia, which has
become China's fourth largest trading partner. Yet,
while China wants to exploit and expand such links, it
does not want to antagonize the United States or incur
costs in other, more important, policy areas.
The principal area of Chinese profit, advantage
and risk is arms sales, and Iran is the number one
customer. But the United States considers Iran a leading
sponsor of terrorism, part of what the Bush
administration calls the "axis of evil". Washington DC
also strongly opposes China's arms sales to Iran and
acts to discourage them. US officials repeatedly warn
that Chinese arms supplies are a major concern and a
threat to US allies and forces in the Gulf.
Being a late arrival in the highly competitive
oil market, China must pursue more risky and marginal
sources neglected by others - including Iran, Iraq and
Sudan - which inadvertently raise international
political problems for China. More conventionally, China
has made a $1.5 billion deal for a huge Sino-Saudi oil
refinery in China and 10 million tons of Saudi oil
annually for a 50-year period.
Although East
Asian and domestic issues remain more important for
China than any West Asian considerations, China cannot
afford not to be more sensitive to events in the region
in future. China's position as a serious economic and
political player on the world stage requires that it has
a regular supply of oil, without which it could be
easily held hostage.
Indeed, China is aware of
the need to look beyond West Asia too. As early as June
1997, the China National Petroleum Corporation (CNPC)
out-bid US and other companies to win a major share in
two of Kazakhstan's largest oilfields and a contract to
build a 3,000-kilometer pipeline from Kazakhstan to
China that would also supply Iranian refineries. Former
Chinese Premier Li Peng lobbied hard to close this $4.4
billion deal.
(©2002 Asia Times Online Co, Ltd.
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