China’s Resources Policy: Expanding Influence
by Terry Li
As the most populated country experiencing one of the fastest economic growths in the world, China needs to maintain its resources security. It is estimated that the Chinese strategic petroleum reserve can only support its domestic demand for 46 days in an emergency. That is much lower than US’s 158 days and Japan’s 103 days. Chinese resources security has a close relationship with its national security. Even though mainland China is rich in resources, it also faces severe environmental issues.
Therefore, the Chinese government and major state-owned enterprises invest heavily in resources rich regions abroad, such as Southeast Asia, Africa, and the Middle East. Yet, many of the investments remain highly controversial, such as those in South China Sea, Sudan, and Iran. By investing in these areas, China has become one of the major players in the regions’ political scenes. According to Reuters, China is the biggest buyer of Iranian crude oil and has condemned US censure of one of its top trading companies for its gasoline export trade with Iran. Ignoring the sanctions imposed by Western countries, Beijing uses its resources strategy to show its political standpoints and to oppose Washington’s intention to weaken Iran. Moreover, since much of the export of crude oil is sanctioned, China can purchase oil with a discounted price, which would benefit the Chinese economy and resources security. One can see that China’s resources strategy is inspired by more than securing its national security. Due to its great impact on the regional affairs, China can reflect its political assertions through its resources policy. Th erefore, China’s resources strategy is not only eff ective in enhancing its resources security but also successful in expanding its global influence.
China’s resources strategy is vast yet controversial. According to the 2011 data from China Custom, China imports oil mainly from Saudi Arabia, Angola, Iran, Russia, and Oman. They made up 58% of China’s total oil import. In 2011, the amount of oil imported from Iran rose by 30.19%, Russia by 29.42%, Iraq by 22.57%, and Sudan by 3.1%. Also, three major Chinese oil companies, PetroChina, China National Petroleum Cooperation, and China National Off Shore Oil Cooperation, vigorously pursued oil supply contrasts with countries such as Indonesia, Myanmar, Nigeria, and Sudan. Saudi Arabia, Angola, Russia, and Oman have stable political systems and provide a considerable amount of oil to China. The political situations in some other oil exporting countries, however, remain uncertain. For instance, Iran is suspected of developing nuclear weapons, and it threatens to cut off the oil supply through the Strait of Hormuz, which increases the volatility in the Middle East. Iraq, another country in which China invests, has been an unstable country in this region as well. Myanmar is under sanctions by Europe and the United States due to its human rights violations. Nigeria is notorious for its internal conflicts between different tribes in looting oil fields. Sudan is widely criticized for accusations of ethnic cleansing in Darfur. Besides investing in controversial countries, China also tries to maximize its benefit in the South China Sea, an area in which China has disputes with many Southeast Asian countries, particularly Vietnam and the Philippines. In October 2011, India and Vietnam signed a pact regarding oil exploration in South China Sea, angering China. The Chinese government newspaper People’s Daily even threatened to use force to resolve the dispute. Therefore, since China’s resources strategy focuses on politically sensitive and controversial areas, China’s search for resources faces many barriers and potentials for instability.
Since some of the countries with which China trades are politically unstable, China can impose a great impact on their politics and economies by using its great economic influence. By importing resources from these countries, the Chinese government is widely criticized for providing funds to dictatorships, worsening the humanitarian conditions in these countries. A BBC news report about Darfur claimed that China “is fuelling war in Darfur,” and it described how China provided the Sudanese junta with weapons and trained their fighter pilots. China has also opposed the international sanctions imposed on Sudan. Without China’s support for the junta, the international intervention might be more effective. Moreover, other countries believe that if they face sanctions from the West, they could turn to China for support.
Myanmar, another country on which the West has placed sanctions, is one of China’s major resources trading partners. China imports natural gas, teakwood, and oil from Myanmar. More importantly, China’s oil pipeline to the Indian Ocean passes through Myanmar, securing China’s oil imports once the Strait of Malacca is cut off. Being one of few supporters of the de facto military government, Beijing helps Myanmar resolve its domestic conflicts and even refused to suppress the junta in the crackdown of democratic protesters in Yangon in 2007.
China is Iran’s largest oil consumer, with trade reaching $30 billion in 2010. China also refuses to impose sanctions on Iran despite the pressure from the United States because China benefits from Western sanctions on Iran. China purchases oil from Iran at a lower price and expands its investment in Iran without any Western competitors. On February 2nd, Germany’s Chancellor Angela Merkel urged China to use its influence in Iran to press Tehran to halt its nuclear development. Due to its powerful influence on Iran, however, China’s neutral position may change in the future. If Iran blocks the Strait of Hormuz, the oil price may rise dramatically. China would become a major victim. Moreover, since Iran has the ability to block the Strait, China may see Iran as a potential threat to its oil supply, and Beijing may support the sanctions in order to warn Tehran. On the other hand, China may also act sympathetically towards Iran, or it may press Iran under the table. Therefore, China has a degree of influence both politically and economically in Africa, Middle East, and Southeast Asia, and it has the ability to alter the situations in these regions.
China’s resources strategy has also proved to be effective in Central Asia. The Shanghai Cooperation Organization (SCO), for example, was founded to strengthen the relationships between China and Central Asian countries and Russia. Members of the Organization include resources-rich countries such as Kazakhstan, Uzbekistan, and Russia. After the foundation of the organization in 2001, various resources trading agreements have been made between China and the rest of SCO members. Since Central Asia is close to China, resources can be easily transported through pipelines. This keeps the cost lower and the supply more constant than shipping from the Middle East. A 3000km long pipeline has been built between China and Kazakhstan, and a 1030km pipeline between China and Russia is under construction. The pacts between China and SCO members create a win-win situation. From the suppliers’ points of view, Russia and Central Asian countries want to expand their exports of resources, but their markets are too narrow and their passages of transportation are limited. They need to secure their resource exports in order to maintain their economies. From the importer’s point of view, 50% of Chinese oil imports are from the Middle East and transported through the Strait of Malacca, but the instability of many Middle East countries and the pirates in the Strait of Malacca made the Chinese resources supply less secure. Therefore, China seeks to find other trade partners to secure its resources supply in order to fulfill the domestic demand. As a result, the resource trades between China and SCO members benefit both sides and create a win-win situation.
Since China has such great powers in changing the regional politics in certain areas, some countries are worried about Chinese neocolonialism creating a regional hegemony. The United States, for instance, worries about China replacing its predominance in Africa. US Secretary of State Hillary Clinton stated that “we do not want to see a new colonialism in Africa” and “we do not want to see [investors] undermine good governance in Africa.” She accentuated that the Chinese model of development is flawed, so the African countries should not follow China’s path to modernization. Instead, she implied that African countries should learn from the democratic American model. Nevertheless, the Chinese government denied such criticism and claimed that China’s resources strategy in African improved the local living standards. Moreover, the Chinese Foreign Ministry spokesperson Hong Lei said, “there is indeed neo-colonialism in Africa, but absolutely not from China.” One can see that the United States is aware of the challenge from China. Such suspicion is not unreasonable. According to a prediction by South Africa’s Standard Bank, because of the large resources trade, up to 40% of China’s trade with Africa will be denominated with the Chinese currency Renminbi by 2015. The Chinese currency may replace US dollar in Africa and eventually threaten US interests in Africa. Similar suspicion occurs in Sudan as well. Due to the political influence that the Chinese government has on Sudan, Europe and the United States worry that Sudan may become China’s de facto colony, and they constantly criticize China for abusing human rights in Africa. In Southeast Asia, China acts more aggressively. Beijing warned Vietnam, the Philippines, India, and the United States for their actions in South China Sea and even threatened to use force to protect its oil fields. The ASEAN members worry that China will become the regional hegemon in South China Sea and eventually hurt their interests in the area’s rich oil reserves. Thus China’s expanding resources strategy has become a way for China to expand its influence. It has also become a cause the West uses to criticize China and to limit China’s development.
In order to gain resource security while obtaining good relationships with other countries, Beijing has chosen to share its resources with its neighbors. The famous slogan, “setting aside dispute and pursuing joint development,” was announced by Deng Xiaoping. Beijing has been using this policy as one of the key resources strategies in East China Sea and South China Sea. Although some voices from China claim that such policy is a violation of China’s own sovereignty, the Chinese government believes that it is an effective way for China to explore more resources in controversial areas. Since many dispute islands in South China Sea are too far from mainland China, supplies are difficult to reach. In order to explore the natural resources in these areas, Chinese companies have to build bases in other countries to support the production. Therefore, joint development is a key to expanding Chinese resources. Such a policy, however, has proved to be ineffective. Japan refuses to work with China in East China Sea, and Vietnam refuses to put its territorial dispute aside.
Besides being one of the major resources importers, China is also a large resources exporter. China is rich in “rare earth elements,” resources that are widely used in the arms industry and the machine industry. China produces 97% of the world’s rare earth elements, making it the dominant exporter of this resource. However, Europe and the United States have been criticizing China for limiting its export of rare earth elements to 35 million tonnes, and are planning to file a charge at the WTO. By controlling the price of rare earth elements, China can use the resources to threaten major importers such as Europe, the United States, and Japan.
The influence of China’s resources strategy expands from South China Sea to Iraq, from Nigeria to Sudan. It hurts the interests of some major developed countries and raises human rights concerns. Nevertheless, China needs to maintain its domestic demand for resources while maintaining a good international image. Beijing needs to find a balance between these two goals and uses its vast influence to strengthen China’s political and economic status globally. China should avoid becoming a regional hegemon. A powerful yet effective resources strategy could help China gain more support from the Middle East and African countries and could eventually maintain China’s national security.
by Terry Li
As the most populated country experiencing one of the fastest economic growths in the world, China needs to maintain its resources security. It is estimated that the Chinese strategic petroleum reserve can only support its domestic demand for 46 days in an emergency. That is much lower than US’s 158 days and Japan’s 103 days. Chinese resources security has a close relationship with its national security. Even though mainland China is rich in resources, it also faces severe environmental issues.
Therefore, the Chinese government and major state-owned enterprises invest heavily in resources rich regions abroad, such as Southeast Asia, Africa, and the Middle East. Yet, many of the investments remain highly controversial, such as those in South China Sea, Sudan, and Iran. By investing in these areas, China has become one of the major players in the regions’ political scenes. According to Reuters, China is the biggest buyer of Iranian crude oil and has condemned US censure of one of its top trading companies for its gasoline export trade with Iran. Ignoring the sanctions imposed by Western countries, Beijing uses its resources strategy to show its political standpoints and to oppose Washington’s intention to weaken Iran. Moreover, since much of the export of crude oil is sanctioned, China can purchase oil with a discounted price, which would benefit the Chinese economy and resources security. One can see that China’s resources strategy is inspired by more than securing its national security. Due to its great impact on the regional affairs, China can reflect its political assertions through its resources policy. Th erefore, China’s resources strategy is not only eff ective in enhancing its resources security but also successful in expanding its global influence.
China’s resources strategy is vast yet controversial. According to the 2011 data from China Custom, China imports oil mainly from Saudi Arabia, Angola, Iran, Russia, and Oman. They made up 58% of China’s total oil import. In 2011, the amount of oil imported from Iran rose by 30.19%, Russia by 29.42%, Iraq by 22.57%, and Sudan by 3.1%. Also, three major Chinese oil companies, PetroChina, China National Petroleum Cooperation, and China National Off Shore Oil Cooperation, vigorously pursued oil supply contrasts with countries such as Indonesia, Myanmar, Nigeria, and Sudan. Saudi Arabia, Angola, Russia, and Oman have stable political systems and provide a considerable amount of oil to China. The political situations in some other oil exporting countries, however, remain uncertain. For instance, Iran is suspected of developing nuclear weapons, and it threatens to cut off the oil supply through the Strait of Hormuz, which increases the volatility in the Middle East. Iraq, another country in which China invests, has been an unstable country in this region as well. Myanmar is under sanctions by Europe and the United States due to its human rights violations. Nigeria is notorious for its internal conflicts between different tribes in looting oil fields. Sudan is widely criticized for accusations of ethnic cleansing in Darfur. Besides investing in controversial countries, China also tries to maximize its benefit in the South China Sea, an area in which China has disputes with many Southeast Asian countries, particularly Vietnam and the Philippines. In October 2011, India and Vietnam signed a pact regarding oil exploration in South China Sea, angering China. The Chinese government newspaper People’s Daily even threatened to use force to resolve the dispute. Therefore, since China’s resources strategy focuses on politically sensitive and controversial areas, China’s search for resources faces many barriers and potentials for instability.
Since some of the countries with which China trades are politically unstable, China can impose a great impact on their politics and economies by using its great economic influence. By importing resources from these countries, the Chinese government is widely criticized for providing funds to dictatorships, worsening the humanitarian conditions in these countries. A BBC news report about Darfur claimed that China “is fuelling war in Darfur,” and it described how China provided the Sudanese junta with weapons and trained their fighter pilots. China has also opposed the international sanctions imposed on Sudan. Without China’s support for the junta, the international intervention might be more effective. Moreover, other countries believe that if they face sanctions from the West, they could turn to China for support.
Myanmar, another country on which the West has placed sanctions, is one of China’s major resources trading partners. China imports natural gas, teakwood, and oil from Myanmar. More importantly, China’s oil pipeline to the Indian Ocean passes through Myanmar, securing China’s oil imports once the Strait of Malacca is cut off. Being one of few supporters of the de facto military government, Beijing helps Myanmar resolve its domestic conflicts and even refused to suppress the junta in the crackdown of democratic protesters in Yangon in 2007.
China is Iran’s largest oil consumer, with trade reaching $30 billion in 2010. China also refuses to impose sanctions on Iran despite the pressure from the United States because China benefits from Western sanctions on Iran. China purchases oil from Iran at a lower price and expands its investment in Iran without any Western competitors. On February 2nd, Germany’s Chancellor Angela Merkel urged China to use its influence in Iran to press Tehran to halt its nuclear development. Due to its powerful influence on Iran, however, China’s neutral position may change in the future. If Iran blocks the Strait of Hormuz, the oil price may rise dramatically. China would become a major victim. Moreover, since Iran has the ability to block the Strait, China may see Iran as a potential threat to its oil supply, and Beijing may support the sanctions in order to warn Tehran. On the other hand, China may also act sympathetically towards Iran, or it may press Iran under the table. Therefore, China has a degree of influence both politically and economically in Africa, Middle East, and Southeast Asia, and it has the ability to alter the situations in these regions.
China’s resources strategy has also proved to be effective in Central Asia. The Shanghai Cooperation Organization (SCO), for example, was founded to strengthen the relationships between China and Central Asian countries and Russia. Members of the Organization include resources-rich countries such as Kazakhstan, Uzbekistan, and Russia. After the foundation of the organization in 2001, various resources trading agreements have been made between China and the rest of SCO members. Since Central Asia is close to China, resources can be easily transported through pipelines. This keeps the cost lower and the supply more constant than shipping from the Middle East. A 3000km long pipeline has been built between China and Kazakhstan, and a 1030km pipeline between China and Russia is under construction. The pacts between China and SCO members create a win-win situation. From the suppliers’ points of view, Russia and Central Asian countries want to expand their exports of resources, but their markets are too narrow and their passages of transportation are limited. They need to secure their resource exports in order to maintain their economies. From the importer’s point of view, 50% of Chinese oil imports are from the Middle East and transported through the Strait of Malacca, but the instability of many Middle East countries and the pirates in the Strait of Malacca made the Chinese resources supply less secure. Therefore, China seeks to find other trade partners to secure its resources supply in order to fulfill the domestic demand. As a result, the resource trades between China and SCO members benefit both sides and create a win-win situation.
Since China has such great powers in changing the regional politics in certain areas, some countries are worried about Chinese neocolonialism creating a regional hegemony. The United States, for instance, worries about China replacing its predominance in Africa. US Secretary of State Hillary Clinton stated that “we do not want to see a new colonialism in Africa” and “we do not want to see [investors] undermine good governance in Africa.” She accentuated that the Chinese model of development is flawed, so the African countries should not follow China’s path to modernization. Instead, she implied that African countries should learn from the democratic American model. Nevertheless, the Chinese government denied such criticism and claimed that China’s resources strategy in African improved the local living standards. Moreover, the Chinese Foreign Ministry spokesperson Hong Lei said, “there is indeed neo-colonialism in Africa, but absolutely not from China.” One can see that the United States is aware of the challenge from China. Such suspicion is not unreasonable. According to a prediction by South Africa’s Standard Bank, because of the large resources trade, up to 40% of China’s trade with Africa will be denominated with the Chinese currency Renminbi by 2015. The Chinese currency may replace US dollar in Africa and eventually threaten US interests in Africa. Similar suspicion occurs in Sudan as well. Due to the political influence that the Chinese government has on Sudan, Europe and the United States worry that Sudan may become China’s de facto colony, and they constantly criticize China for abusing human rights in Africa. In Southeast Asia, China acts more aggressively. Beijing warned Vietnam, the Philippines, India, and the United States for their actions in South China Sea and even threatened to use force to protect its oil fields. The ASEAN members worry that China will become the regional hegemon in South China Sea and eventually hurt their interests in the area’s rich oil reserves. Thus China’s expanding resources strategy has become a way for China to expand its influence. It has also become a cause the West uses to criticize China and to limit China’s development.
In order to gain resource security while obtaining good relationships with other countries, Beijing has chosen to share its resources with its neighbors. The famous slogan, “setting aside dispute and pursuing joint development,” was announced by Deng Xiaoping. Beijing has been using this policy as one of the key resources strategies in East China Sea and South China Sea. Although some voices from China claim that such policy is a violation of China’s own sovereignty, the Chinese government believes that it is an effective way for China to explore more resources in controversial areas. Since many dispute islands in South China Sea are too far from mainland China, supplies are difficult to reach. In order to explore the natural resources in these areas, Chinese companies have to build bases in other countries to support the production. Therefore, joint development is a key to expanding Chinese resources. Such a policy, however, has proved to be ineffective. Japan refuses to work with China in East China Sea, and Vietnam refuses to put its territorial dispute aside.
Besides being one of the major resources importers, China is also a large resources exporter. China is rich in “rare earth elements,” resources that are widely used in the arms industry and the machine industry. China produces 97% of the world’s rare earth elements, making it the dominant exporter of this resource. However, Europe and the United States have been criticizing China for limiting its export of rare earth elements to 35 million tonnes, and are planning to file a charge at the WTO. By controlling the price of rare earth elements, China can use the resources to threaten major importers such as Europe, the United States, and Japan.
The influence of China’s resources strategy expands from South China Sea to Iraq, from Nigeria to Sudan. It hurts the interests of some major developed countries and raises human rights concerns. Nevertheless, China needs to maintain its domestic demand for resources while maintaining a good international image. Beijing needs to find a balance between these two goals and uses its vast influence to strengthen China’s political and economic status globally. China should avoid becoming a regional hegemon. A powerful yet effective resources strategy could help China gain more support from the Middle East and African countries and could eventually maintain China’s national security.
