China's global hunt for energy

Written by  //  October 1, 2005  //  China, Economy, Environment & Energy, Geopolitics, Markets, Oil & gas, Public Policy  //  Comments Off on China's global hunt for energy

By David Zweig and Bi Jianhai
Foregn Affairs
September/October 2005

Summary: Chinese foreign policy is now driven by China’s unprecendented need for resources. In exchange for access to oil and other raw materials to fuel its booming economy, Beijing has boosted its bilateral relations with resource-rich states, sometimes striking deals with rogue governments or treading on U.S. turf. Beijing’s hunger may worry some in Washington, but it also creates new grounds for cooperation.

An unprecedented need for resources is now driving China’s foreign policy. A booming domestic economy, rapid urbanization, increased export processing, and the Chinese people’s voracious appetite for cars are increasing the country’s demand for oil and natural gas, industrial and construction materials, foreign capital and technology. Twenty years ago, China was East Asia’s largest oil exporter. Now it is the world’s second-largest importer; last year, it alone accounted for 31 percent of global growth in oil demand. Now that China is the workshop of the world, its hunger for electricity and industrial resources has soared. China’s combined share of the world’s consumption of aluminum, copper, nickel, and iron ore more than doubled within only ten years, from 7 percent in 1990 to 15 percent in 2000; it has now reached about 20 percent and is likely to double again by the end of the decade. Despite calls by Prime Minister Wen Jiabao and other politicians to cut consumption of energy and other resources, there is little sign of this appetite abating. Justin Yifu Lin, director of the China Center for Economic Research at Peking University, in Beijing, says the country’s economy could grow at 9 percent per year for the next 20 years.
These new needs already have serious implications for China’s foreign policy. Beijing’s access to foreign resources is necessary both for continued economic growth and, because growth is the cornerstone of China’s social stability, for the survival of the Chinese Communist Party (CCP). Since China remains a relatively centralized, government-driven economy, Beijing has been able to adapt its foreign policy to its domestic development strategy. Traditional institutions, such as the Foreign Affairs Leading Small Group of the CCP, are still making the key decisions, but a more pluralistic environment is emerging and allowing business leaders to help shape foreign policy. The China Institute for International Studies, a government think tank, holds numerous conferences bringing together academics and leaders in business, the military, and the government to devise strategies for the top rung of the Communist Party.
Partly on these people’s advice, Beijing has been encouraging representatives of state-controlled companies to secure exploration and supply agreements with states that produce oil, gas, and other resources. Meanwhile, it has been courting the governments of these states aggressively, building goodwill by strengthening bilateral trade relations, awarding aid, forgiving national debt, and helping build roads, bridges, stadiums, and harbors. In return, China has won access to key resources, from gold in Bolivia and coal in the Philippines to oil in Ecuador and natural gas in Australia.
China’s resources hunt has been a boon to some states, especially developing countries, as it has allowed them to exploit as yet untapped resources or gain leverage to negotiate better deals with older customers. But for other states, particularly the United States and Japan, China’s insatiability is causing concern. Some governments worry as Beijing enters their spheres of influence or strikes deals with states they have tried to marginalize.

DAVID ZWEIG is Director of the Center on China’s Transnational Relations at the Hong Kong University of Science and Technology and the author of Internationalizing China: Domestic Interests and Global Linkages. BI JIANHAI is a Postdoctoral Fellow at the center.

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