Page 2 of
2 China at
risk with Venezuela oil bet By
Matt Ferchen
The CDB and risk
socialization Why does it matter if Chinese
NOCs are reselling a significant percentage of
their Venezuelan (or other) equity oil on the
international market? In Venezuela, the CDB-led
multi-billion dollar financing and investment
relationship with the Chavez government
constitutes the CDB's largest financial presence
anywhere outside of China itself and is nominally
based on China's need for oil. [8]
If some
significant percentage of the oil acquired through
the CDB deals does not go to China and in the
process the CDB, Chinese NOCs and other Chinese
firms involved with the CDB deals earn a profit,
then the CDB effectively has exposed China's
diplomacy and image to the full extent of
Venezuelan political and economic risk for its own
corporate gain.
Of course, the CDB and
other Chinese state and non-state firms involved
in Venezuela still could face economic losses themselves
in the wake of Chavez's
demise, but this is perhaps less serious than the
potential political consequences.
For all
practical purposes, this essentially amounts to
CDB's socialization, or nationalization, of its
own corporate risk. If the CDB were not a Chinese
state-owned "policy bank" at the leading edge of
its own financing and other Chinese SOE investment
in Venezuela and were instead a private firm, it
would not represent state-to-state ties in the way
it currently does.
Because the CDB,
however, is one of China's three state-owned
policy banks, its actions - including purely
economic ones like providing financing for
Venezuelan oil deals and for other Chinese firms
to invest in Venezuela - have political
consequences for China itself.
Through the
CDB, "China" has become the largest source of
foreign financing for Chavez, who is by far the
most controversial and polarizing leader in Latin
America. The CDB's massive build-up of
loans-for-oil deals have thus been seen by many of
those who both love and hate Chavez, inside and
outside of Venezuela, as symbolizing official
Chinese backing for Chavez. [9]
For a
Chinese government that has a policy of
non-interference in other countries' domestic
politics and is particularly concerned not to
ruffle US feathers in its own "backyard", even the
perception of such political support for Chavez is
problematic.
Moreover, if much of the oil
acquired through the CDB deals is simply being
resold, China's new leadership may want to ask
itself whether this constitutes a sound economic
or political foreign policy strategy in Venezuela.
Managing the hangover Neither
Chavez nor PDVSA have necessarily been easy
partners for China, and many former PDVSA
officials and opposition figures have been
critical of the loans-for-oil deals with China.
China has had to work to parry Chavez' efforts to
involve it more closely in his own ideological and
anti-US agenda. Whether inside or outside of
Venezuela, Chavez has been the kind of polarizing
leader who you are either for or against.
So in the case of the CDB-led build-up of
financing and investment in Chavez's Venezuela,
China's actions have spoken louder than words. For
better or for worse, Chavez has been Beijing's man
and in return China has continued to supply Chavez
with scarce foreign financing and investment. With
Chavez ill in Cuba, possibly never to return,
Venezuela has entered into a constitutional and
political crisis that may drag China in as well.
For well over a year, concerns have been
raised that if, in a post-Chavez scenario, the
opposition were to come to power that it would
seek to alter the loans-for-oil deals with China.
Ultimately, no one knows the answer to those
concerns.
The CDB may have secured
long-term access to Venezuelan oil for China's
NOCs, or alternately the CDB and other Chinese
firms may face loss-making revisions to current
agreements. [10] What is clear is that the CDB's
decade-plus of bringing on state-to-state deals
with the Chavez government has now exposed Beijing
to a painful diplomatic hangover tied to
Venezuela's slow-motion crisis. Whether at
home or abroad, Chinese leaders hate nothing more
than instability, but instability is what they
face in their relations with Venezuela. As in
Sudan and Iran before, an unwanted crisis may yet
serve to focus Chinese leaders' minds to help
build a healthier and more stable Venezuela, but
doing so will probably require a willingness to
rethink the governance of China's SOEs abroad.
Since the vast majority of China's
imported oil continues to be supplied by basic
long-term trade contracts and not through its
equity oil acquisitions, the crisis in Venezuela
may prove the perfect opportunity to move away
from a pattern of Chinese equity oil ties to
controversial governments.
If a major
portion of China's equity oil is not going to
China anyway, the new Chinese leadership should
ask itself whether the diplomatic and image costs
to China are worth the risks.
Notes: 1. Zha Daojiong, "China's
Energy Security: Domestic and International
Issues," Survival, Vol. 48, No. 1, Spring 2006,
pp. 179 - 190. 2. For more on the geopolitical
implications of China's energy ties to such
"pariah" regimes, see Andrew B Kennedy, "China's
New Energy-Security Debate," Survival, Vol 52, No
3, June-July 2010, pp. 137 - 158 and Wojtek M
Wolfe and Brock F Tessman, "China's Global Equity
Oil Investments: Economic and Geopolitical
Influences," Journal of Strategic Studies, Vol.
35, No 2, April 2012, pp 175 - 196. 3. As a
percentage of total global oil imports, Chinese
customs figures show that Venezuela accounted for
less than 0.5% as recently as 2004, up to 4.5% in
2011. See, Zhongguo shiyou jingji [China's Oil
Economy], March 2012. 4. See, Kevin Tu,
"Chinese Oil, An Evolving Strategy," China
Dialogue, April 24, 2012, for 2010, and Michael
Forsythe and Henry Sanderson, China's Superbank,
Singapore: Bloomberg Press, 2013, for early
portions of 2011. 5. See, for example, Julie
Jiang and Jonathan Sinton, "Overseas Investments
by Chinese National Oil Companies," International
Energy Agency, February 2011; Mikkal Herberg,
"China's Energy Rise and the Future of US-China
Energy Relations", New American Foundation, June
21, 2011; and John Lee, "China's Geostrategic
Search for Oil", The Washington Quarterly, Vol 35,
No 3, Summer 2012, pp 75 - 92. 6. Erica S
Downs, "The Fact and Fiction of Sino-African
Energy Relations", China Security, Vol 3, No 3,
Summer 2007, pp 42 - 68. 7. Jiang, and Sinton,
p 18. 8. See, Forsythe and Sanderson, China's
Superbank, pp 123 - 146. 9. Vladimir Rouvinski,
"China Through the Eyes of Latin American Media:
2001-2011", Conference Paper presented at
Javeriana University, "China and Latin America:
Strategic Partners in a Multipolar World?" Bogota,
Colombia, September 3-4, 2012. 10. The very
limited Chinese academic analysis of "risk"
related to Chinese investments in Venezuela
focuses almost exclusively on financial or
economic factors, not political risk. See, for
example, Zhang Kang, "Weineiruila shiyou zoushi he
wo guo de fengxian duice [Venezuelan Oil and
China's Risk Policies]," Zhongguo Nengyuan Wang,
December 13, 2011, available online.
Matt Ferchen is a resident
scholar at the Carnegie-Tsinghua Center for Global
Policy, where he runs the China and the Developing
World program. He is also an associate professor
in the Department of International Relations at
Tsinghua University, where he teaches courses on
international and Chinese political economy as
well as on China-Latin America relations.
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