一帶一路與中國大陸能源安全的未來 - 政大學術集成

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(1)International Master’s Program in International Studies National Chengchi University 國立政治大學國際研究英語碩士學位學程. io. sit. Kaiwen Lin 林凱文. er. Nat. y. ‧. ‧ 國. 學. One Belt One Road and the Future of 政治 Security Chinese Energy 大立一帶一路與中國大陸能源安全的未來. n. Adviser: a Professor Chung-chian Teng 鄧中堅. iv l C n hengchi U. June 2017.

(2) Abstract The Belt and Road Initiative is China’s latest economic development strategy, which seeks to connect China to the rest of Eurasia through infrastructure development and trade. While not a dedicated energy strategy, components of the initiative will play a role in meeting China’s growing energy needs. This paper examines the Belt and Road Initiative in the greater context of China’s energy policy by comparing it to China’s “going-out” strategy of the late 1990s. It assesses. 政治大. the impact that Belt and Road projects will have on China’s energy security by first defining. 立. how China views its energy security and then analyzing how Belt and Road projects address. ‧ 國. 學. China’s energy security concerns.. ‧. This paper finds that the Belt and Road Initiative can be considered a successor to the. sit. y. Nat. “going-out” strategy. It also finds that China views energy security primarily through the lens. io. al. er. of supply, and that Belt and Road projects such as port and pipeline construction contribute. n. by ensuring reliability of transport.. Ch. engchi. i n U. v. Keywords: Chinese energy security, One Belt One Road, Belt and Road Initiative. i.

(3) 摘要一帶一路倡議是中國最近的經濟發展策略，其目的是透過基礎設施發展和貿易，將中國與歐亞大陸的其他國家連結在一起。儘管並非單純為了能源所規劃的策略，但是倡議的組成部分對中國提供日增的能源需求扮演了一個角色。本論文透過與 1990 年代末中國走出去策略之比較，在中國能源需求的大架構下，檢驗一帶一路倡議。為評估一帶一路倡議對中國能源安全的影響，本論文首先界定中國對能源安全的見解，然後分析一帶一路計畫如何應對中國對能源安全的關切。. 政治大. 本論文發現一帶一路倡議可視為走出去策略的後續策略。此外，本論文也發現中國主. 立. 要是透過供應的角度來觀察能源的安全，且一帶一路計畫（如，石油和天然氣管道的. ‧ 國. 學. 構築）確保了能源運輸的可靠性。. ‧ y. Nat. n. er. io. al. sit. 關鍵詞：中國大陸能源安全，一帶一路. Ch. engchi. ii. i n U. v.

(4) Acknowledgments First, I would like to thank my advisor, Professor Chung-chian Teng, for his guidance over the last year. His patience and experience were invaluable when I found myself stuck and unsure of what to research or write next (as I often did). Thank you for responding to my frantic messages and questions in a timely manner and for making sure that I stayed on track to finish my thesis. Second, I would like to thank my committee members, Professor Wen-yang Chang and Professor Ariel Ko, for their suggestions and feedback, which helped me refine my. 政治大 I would like to thank Dr. Vocke and Fulbright Taiwan for making it possible for me to 立. question into one that was both answerable and worth answering.. ‧ 國. 學. study at National Chengchi University in the International Master’s Program for International Studies. I have truly enjoyed in my time in Taiwan and I hope that many more generations of. ‧. Fulbrighters will be able to benefit from this program in the same way that I have. Thank you. sit. y. Nat. as well to the IMPIS office for providing much-needed administrative support.. io. er. Special thanks go to to Yingjie Lan and Victor Hu for taking the time to read my. al. v i n C h when I wantedUto bounce ideas off him, and to resources, to Daniel Glockler for not fleeing engchi n. ponderous early drafts, to Eddie Kim for being an endless fountain of comments and. Elyse Mark for being an extra set of eyes and helping me bring everything together in the end. Finally, thank you to my family for providing me with your unconditional love and support, and for always being there when I needed advice. Thanks for not being upset when I ducked out of family events early to catch up on writing.. iii.

(5) Table of Contents Abstract ....................................................................................................................................... i 摘要............................................................................................................................................ii Acknowledgments.....................................................................................................................iii List of Tables and Figures......................................................................................................... vi Acronyms and Abbreviations ..................................................................................................vii Chapter One: Introduction ......................................................................................................... 1 1.1 Background and Motivations ........................................................................................... 1 1.2 Research Question ........................................................................................................... 3 1.3 Research Importance ........................................................................................................ 3 1.4 Research Limitations ....................................................................................................... 5 1.5 Research Methodology and Approach ............................................................................. 5. 政治大. Chapter Two: Literature Review ............................................................................................... 7 2.1 One Belt One Road .......................................................................................................... 7. 立. 2.2 Energy Security.............................................................................................................. 10. ‧ 國. 學. 2.2.1 Traditional Concept ................................................................................................ 13 2.2.2 Comprehensive Concept ......................................................................................... 18 2.2.3 Petroleum ................................................................................................................ 20. ‧. Chapter 3: Overview of Chinese Energy Policy ...................................................................... 23. y. Nat. 3.1 Actors ............................................................................................................................. 23. sit. 3.1.1 Foreign Policy Apparatus ....................................................................................... 25. al. er. io. 3.1.2 State Policy Banks .................................................................................................. 26. n. 3.2 History of Chinese Energy Policy.................................................................................. 31. Ch. i n U. v. 3.2.1 Self-Sufficiency Period (1949-1993) ...................................................................... 31. engchi. 3.2.2 “Going-out” (1993-2013)........................................................................................ 35 3.2.3 Understanding Changes to China’s Energy Policy ................................................. 40 Chapter 4: The Belt and Road Initiative .................................................................................. 42 4.1 Overview of “The Belt and Road” ................................................................................. 42 4.2 Energy-Related Components of the Belt and Road Initiative ........................................ 46 4.2.1 China-Pakistan Economic Corridor ........................................................................ 47 4.2.2 China-Central Asia-West Asia Economic Corridor ................................................ 49 4.2.3 Bangladesh-China-India-Myanmar Economic Corridor......................................... 49 4.2.4 China-Mongolia-Russia Economic Corridor .......................................................... 50 4.3 Comparing “Going-out” and the “Belt and Road Initiative” ......................................... 51 Chapter 5: China’s Energy Security ........................................................................................ 54 5.1 China’s Energy Security Concept .................................................................................. 54 5.1.1 Affordability ........................................................................................................... 56. iv.

(6) 5.1.2 Diversity.................................................................................................................. 58 5.1.3 Transport Reliability ............................................................................................... 60 5.2 Addressing China’s Energy Security Challenges .......................................................... 61 5.3 The Impact of “Belt and Road” Projects on China’s Energy Security .......................... 67 Chapter 6: Conclusion.............................................................................................................. 71 6.1 Implications.................................................................................................................... 72 6.2 Avenues for Future Research ......................................................................................... 73 References ................................................................................................................................ 75 Appendices .............................................................................................................................A-1 Appendix A: Map of the Belt and Road Initiative Economic Corridors ...........................A-1 Appendix B: Survey Results Showing Respondent Ranking of Energy Security Dimensions Across China, India, and Japan (Sovacool 2012) ..........................................A-2. 政治大. Appendix C: Energy Data from the 2016 China Statistical Yearbook ..............................A-3. 立. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. v. i n U. v.

(7) List of Tables and Figures Table 1.1: Summary of Chinese oil and natural gas statistics in 2015………………………...4 Figure 3.1: An organizational chart of the Chinese petroleum industry as of 2011………….24 Figure 3.2: The lifecycle of a Chinese concessional loan……………………………………28 Figure 5.1: China’s crude oil imports by source……………………………………………..59 Figure 5.2: China’s LNG imports by source…………………………………………………60. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. vi. i n U. v.

(8) Acronyms and Abbreviations Bbl – barrel (of oil) Bcm – billion cubic meters (of natural gas) CNOOC – China National Offshore Oil Company CNPC – China National Petroleum Company E&P – exploration and production LNG – liquefied natural gas NDRC – National Development and Reform Commission of the People’s Republic of China NOC – national oil companies: CNPC, Sinochem, CNOOC, and Sinopec OBOR – One Belt One Road SPR – Strategic Petroleum Reserve Tcf – trillion cubic feet (of natural gas). 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. vii. i n U. v.

(9) Chapter One: Introduction 1.1 Background and Motivations In the almost four decades since China began its economic reforms, it has experienced unparalleled economic growth, making China a near-peer of the United States in terms of its economic influence. At first, Chinese plans for growth had an entirely domestic focus; during the Great Leap Forward, Chinese economic planners called upon the Chinese people to produce steel in makeshift backyard furnaces so that China might catch up to the West in steel production. 1 As China’s economy began to liberalize in the late 1970s and early 1980s,. 政治大 economy, which culminated in China’s entry into the World Trade Organization in 2001. 立 there was an understanding that growth could only come with integration into the global. ‧ 國. 學. Now that China has become one of the largest economies, and armed with the financial resources that come along with that success, it is in a position to leave its own mark on the. ‧. global economy, and shape it to China’s own benefit. This has become particularly critical in. sit. y. Nat. recent years, as its gross domestic product (GDP) growth rate has dipped from double digits. io. er. to a still-impressive 6.7%. 2. al. v i n C h to sustain its U reliable access to energy. In order for China e n g c h i current levels of GDP growth – as n. As with any other country, one of the main drivers for China’s growth has been. well as transition towards a consumption economy – it will need to ensure continued access to energy flows. Unexpected fluctuations in oil supplies, such as the ones faced by the West during the 1973 OPEC oil embargo, have proven to be disruptive to national economies. China has been a net importer of energy since the early 2000s and its need for foreign energy continues to grow year after year. One of the challenges that the government faces is. 1. June Teufel Dreyer, China's Political System: Modernization and Tradition, 8 ed. (Pearson, 2012), 99. Scott Cendrowski, "China's Gdp Growth Hits 6.7% for the Third Straight Quarter. What Are the Odds?," Fortune, http://fortune.com/2016/10/19/china-dp-growth/; ibid. 2. 1.

(10) maintaining stable access to energy regardless of changes in the global situation so that it can maintain desired levels of growth. China is unlikely to completely insulate itself from fluctuations in the global supply of energy in the immediate future, but there is much that it can do to ensure a steady flow of oil and gas into its borders. One way in which the Chinese leaders seek to both maintain economic growth and acquire energy is through the Belt and Road Initiative, a project that “aims to promote the connectivity of Asian, European and African continents and their adjacent seas,” and further expand the linkages between China’s economy and the rest of the world. 3 The Belt and Road Initiative, sometimes known as “One Belt One Road,” is China’s. 治政大China to the West, much as the latest economic development strategy, which aims to connect 立 ancient Silk Road connected China to Europe through central Asia. In 2013 President Xi. ‧ 國. 學. Jinping announced the earliest incarnation of the initiative in a speech at Kazakhstan’s. ‧. Nazarbayev University. In this particular speech, Xi proposed a jointly built “economic belt. sit. y. Nat. along the Silk Road…benefitting the people of all countries along the route.” 4 The five key. io. er. points of this plan were increased policy communication, improved road connectivity,. al. unimpeded trade, enhanced monetary circulation, and increased people-to-people. v i n One month later, inC a speech Parliament, Xi proposed “a h e ntogthec Indonesian hi U n. understanding.. 5. joint effort to build the Maritime Silk Road of the 21st century.” 6 The five points that he. emphasized in this speech are increased “trust and neighborliness, win-win cooperation, standing together, enhanced mutual understanding and friendship, and increased openness and inclusiveness.” 7 The Belt and Road is not exclusively about energy, but energy is 3. National Development and Reform Commission, Ministry of Foreign Affairs, and Ministry of Commerce, "Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road," (Beijing2015). 4 Jinping Xi, "Promote Friendship between Our People and Work Together to Build a Bright Future." 5 "Speech to Indonesian Parliament."; "Promote Friendship between Our People and Work Together to Build a Bright Future". 6 "Speech to Indonesian Parliament". 7 Ibid.. 2.

(11) explicitly mentioned as being an area of focus, whether by improving energy infrastructure, ensuring the physical security of pipelines and transport routes, or creating “an integrated chain of energy and resource cooperation.” 8. 1.2 Research Question The two research questions that this paper will seek to answer are as follows: Where does the Belt and Road Initiative fit in the context of China’s energy policy? What impact will this initiative have on the future of China’s energy security?. 治政 prominently featured in official documents and in scholarly大 discussions about the Belt and 立 While the Belt and Road Initiative is not an energy-focused initiative, energy is. Road. China’s energy concerns are not new, and One Belt One Road is only China’s most. ‧ 國. 學. recent attempt to address these concerns. For the purposes of this thesis, “energy security”. ‧. will refer to China’s ability to maintain sufficient access to the global energy market.. sit. y. Nat. Chapter 2 will cover the literature of energy security, along with a section explaining. io. er. why oil is particularly important. Chapter 3 will provide an overview of China’s energy. al. policy through the “going-out” period, which will be followed by an overview of the Belt and. n. v i n C5hwill look more specifically Road Initiative in Chapter 4. Chapter at China’s energy security engchi U concept and how the Belt and Road Initiative addresses that concept.. 1.3 Research Importance Although China is able to produce some of its own oil, it has been a net importer of oil since 1993, and the gap between consumption and domestic production continues to grow with each passing year; in 2005 China was able to produce 3.52 million barrels of crude oil per day, but consumed approximately 6.75 million barrels per day, meaning that it had to 8. National Development and Reform Commission, Ministry of Foreign Affairs, and Ministry of Commerce, "Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road.". 3.

(12) import 3.23 million barrels per day to make up the difference. 9 China became a net importer of natural gas in 2006 and a net importer of coal in 2007. 10 In 2012, China became the world’s largest energy consumer, “accounting for 11 percent of oil, 3.5 percent of natural gas, and nearly half of all coal consumption worldwide.” 11 Although the lion’s share of China’s hydrocarbon consumption comes from coal, China is still heavily reliant on foreign oil; in 2015 oil imports increased to 7.4 million barrels/day, which is the highest figure in history. 12. Oil. 27.8. 立. Production. Consumption. Imports. 214.6 million tonnes (1.5% increase). 559.7 million tonnes (6.3% increase). 365.8 million tonnes (9.4% increase). 138.0 bcm (4.8% increase). 197.3 bcm (4.7% increase). 59.8 bcm (3.4% increase). 政治大. 學. ‧. ‧ 國. Natural gas. Reserves/production ratio (R/P) 11.7. er. io. sit. y. Nat. Table 1.1: A summary of Chinese oil and natural gas statistics in 2015 (2016 BP Statistical Review). While renewable energy production has also grown, there are no signs that China’s. al. n. v i n thirst for foreign energy will abate in near future. China’s success in managing its Cthe he ngchi U. growing energy demands will be critical to its ability to maintain the health of its economy. Understanding how China views its energy needs will help outside observers interpret the direction of its energy policy, and it would be helpful to know what China hopes to achieve as a result of its significant investment into the Belt and Road Initiative. 9. Robert E Ebel, China's Energy Future: The Middle Kingdom Seeks Its Place in the Sun (Washington D.C.: CSIS Press, 2005), 11-12. 10 Antje Nötzold, "Chinese Energy Policy and Its Implication for Global Supply Security," The Journal of East Asian Affairs 26, no. 1 (2012): 132. 11 Ibid., 129. 12 "Bp Statistical Review 2016," news release, 2016.. 4.

(13) 1.4 Research Limitations A major limitation of this study will be a dependence on English-language sources due to the author’s limited ability to read Chinese. Another limitation is the lack of access to sources that might provide insight as to the Chinese government’s true, self-interested motivations behind One Belt One Road, or access to official blueprints covering the full scope of the Belt and Road Initiative. Official documents proclaim that the initiative is meant to be a win-win for all parties across various economic sectors, but it would be interesting to see its specific objectives with regards to energy.. 治政大 available in Chinese, the order to make effective use of official documents that are only 立. This paper will rely on Chinese official documents that are available in English. In. author will rely on his adviser to identify relevant sections that the author can translate. ‧ 國. 學. himself. 13 This should largely mitigate limitations of language. Without access to inside. ‧. sources, this paper will have to rely on open-source information such as. sit. y. Nat. io. er. 1.5 Research Methodology and Approach. al. This paper will address the first question (“where does the Belt and Road Initiative fit. n. v i n C h by conducting aUhistorical analysis of Chinese in the context of China’s energy policy?”) engchi. energy policy using both primary and secondary sources. It will compare the implementation of the “going-out” strategy to the Belt and Road Initiative, which is appropriate because they are both development strategies that have been promoted by the central government. China’s energy policy of course covers everything from electricity generation to investing in renewable resources, but this paper will focus specifically on the part of China’s energy policy related to acquiring energy resources.. 13. All translations were done by the author unless otherwise noted.. 5.

(14) This paper will address the second question (“what impact will this have on the future of China’s energy security?”) by examining official documents and primary sources in light of existing energy security literature in order to argue that China maintains a particular view of energy security. It will then analyze the potential impact of Belt and Road projects against that concept. While some scholars have attempted to created quantitative models of energy security, they are not appropriate for this paper because their underlying assumptions about energy security do not match what this paper believes to be China’s assumptions about energy security. Additionally, to the extent that these models match a particular view of. 治政大 they are predicting possible outcomes. 立. energy security, they are better suited to tracking changes in energy security over time than. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 6. i n U. v.

(15) Chapter Two: Literature Review 2.1 One Belt One Road The Belt and Road Initiative is a relatively recent development and many of the proposed projects are either in their preliminary phases or have yet to leave the drawing board. Therefore, much of the existing scholarly literature can only speculate about the possible results of One Belt One Road. In March 2015, the National Development and Reform Commission, the Ministry of Foreign Affairs, and the Ministry of Commerce released the official action plan for the “Belt. 政治大 speeches, Christopher Johnson of the Center for Strategic and International Studies (CSIS) 立 and Road Initiative.” 14 While the published plan contains more specific points than Xi’s. ‧ 國. 學. describes OBOR as “more of a sweeping vision with a multitude of objectives than an operational blueprint,” and adds that foreign officials have remarked that Beijing “has been. ‧. slow to table specific proposals for cooperation and nobody seems in overall control.” 15. sit. y. Nat. However, he also concedes that Asian demand for infrastructure “makes it likely that OBOR,. io. er. though certainly running into painful obstacles now and again, will come out the other end. al. with some modicum of success.” 16. n. v i n Ch Zhao Minghao, writing more specifically e n g about c h iOneUBelt One Road’s impact on. relations between China and the European Union (EU), draws similar conclusions. Similar to Johnson, Zhao identifies a number of potential challenges to One Belt One Road’s success, such as suspicion from regional powers about China’s true motivations behind One Belt One Road a lack of Chinese knowledge, experience, and capacity “in dealing with the governmental and non-governmental actors in Central Asia, South Asia, and the Middle East,”. 14. For clarity, it should be noted that “One Belt” refers to the overland Silk Road Economic Belt and “One Road” refers to the proposed new Maritime Silk Road. 15 Christopher K. Johnson, "President Xi Jinping's "Belt and Road" Initiative," (Center for Strategic & International Studies, 2016), vi. 16 Ibid., 23.. 7.

(16) as well as the broader problem of “synergizing China’s governmental and civilian power.” 17 Given the geopolitical and geo-economic challenges facing the EU, Zhao believes that the EU will engage with One Belt One Road in order to give itself the flexibility it needs to stabilize its relations with Russia and also gain the leverage it needs to “reshape international rules regarding trade and investments.” 18 Irina Pop delves deeper into the issue of regional rivalries as a potential stumbling block for widespread implementation of One Belt One Road. The major players she points to are Russia, the United States, Japan, and India. Although Russia is a major economic partner. 治政大 Asia as a push into an area argues that Russia may see China’s proposed projects in Central 立 with China through its membership in the Shanghai Cooperation Organization (SCO), Pop. that Russia has traditionally considered as its own backyard. Despite the fact that the two. ‧ 國. 學. countries have established cooperative frameworks, Pop argues, “Russia is not an easy. ‧. partner to work with, as its actions can be unpredictable and could undermine China’s. sit. y. Nat. confidence in Russia.” 19 Like Russia, India also feels that OBOR encroaches on its traditional. io. al. v i n C hhas done much to portray For its part, Chinese leadership e n g c h i U One Belt One Road as n. it. 20. er. sphere of influence; it sees the maritime component as a “string of pearls” meant to encircle. something that other nations should embrace. In his analysis of Chinese views and commentary on One Belt One Road, Michael Swaine notes that Chinese officials and observers focus heavily on the benefits that other nations stand to gain by taking part in One Belt One Road; he quotes a Chinese official who describes One Belt One Road as “an offer of a ride on China’s economic express train. [OBOR] is a public product for the good of the. 17. Minghao Zhao, "China's New Silk Road Initiative," Istituto Affari Internazionali 15, no. 37 (2015). Ibid., 10. 19 Irinia Pop, "Strengths and Challenges of China's "One Belt, One Road" Initiative," (London: Centre for Geopolitics & Security in Realism Studies, 2016), 9. 20 Ibid., 10. 18. 8.

(17) whole world.” 21 Indeed, much of the Chinese commentary that Swaine paints OBOR in an altruistic light – as a service that China is generously providing to Eurasia. In this regard, it is also frequently contrasted with the American Marshall Plan, and the Bretton Woods system that followed, “which practically ensured the absolute dominance of the U.S. currency. But China does not want that.” 22 Not all commentators share this rosy view of Chinese intentions: Swaine identifies a number of non-authoritative Chinese commentators who see possible ulterior motives behind One Belt One Road, such as “shaping the perceptions of other powers so that they ‘do not make trouble for China.’” 23 Nor are all commentators as quick to accept that One Belt One. 治政大Chinese approach” to economic Road will be an obvious success: some wonder whether “the 立 development will necessarily work in other countries. 24 Swaine himself feels as though. ‧ 國. 學. Chinese commentators fail to see the true breadth of obstacles that One Belt One Road faces,. ‧. whether glossing over the poverty in some of the region and the “limited experience in. y. Nat. undertaking huge infrastructure projects”, or the potential “political and cultural ‘blowback’. er. io. sit. that could harm China’s image or increase instability and heighten geopolitical tensions.” 25. al. With regards to One Belt One Road’s impact on energy policy, Lu Ruquan, an. n. v i n C h Corporation (CNPC), employee of China’s National Petroleum e n g c h i U writes that “[w]hen analyzing OBOR, the oil and gas industry is a strategic industry that no one can exclude.” 26 He points. out that Xi Jinping’s decision to announce the One Belt One Road framework in Kazakhstan was a deliberate one, given that China has important strategic (read: oil) interests in Kazakhstan. He explains that Chinese oil companies have in effect been laying the. 21. Michael Swaine, "Chinese Views and Commentary on the "One Belt, One Road" Initiative," China Leadership Monitor 47 (2015): 10. 22 Ibid., 11. 23 Ibid., 14-15. 24 Ibid., 12. 25 Ibid., 15. 26 Ruquan Lu, ""One Belt, One Road": China and the "Oil Roads"," China Oil & Gas 3 (2016). 7.. 9.

(18) groundwork for One Belt One Road in Kazakhstan and Central Asia over the last decade, with more than USD 40 billion of investments in “exploration and production, transportation by pipelines, refining, marketing, engineering services, and international trade.” 27 He lays an image of “oil roads”, with China and Russia as two key points, the six Central Asian countries as footholds, and the five South Asian countries – namely Myanmar, Bangladesh, India, Pakistan, and Afghanistan – as upgrade points; the Middle East and Africa are relegated to “outskirts and important substitutes.” 28 Lu emphasizes that Russia must be included because it has the world’s largest gas reserve and the 8th largest oil reserve, and that. 政治大. the Central Asian countries are important either as suppliers of oil or as vital transit countries for oil and gas pipelines.. ‧. ‧ 國. 學. 2.2 Energy Security. 立. The concept of “energy security” is a relatively recent one. Generally speaking, it. sit. y. Nat. refers to the importance of energy policy as a facet of national security. Since the end of the. al. er. io. Cold War, national power has been “associated with economic dynamism and the cultivation. v. n. of technological innovation.” 29 It is not enough for a state to have a large standing army if it. Ch. engchi. i n U. is not “balanced by a strong and vibrant economy.” 30 While oil has been considered a critical natural resource since the early 20th century, when the British Empire began using oil to fuel its ships, the developed world’s dependence on oil would not become truly apparent until 1973, the year that the Organization of Petroleum-Exporting Countries (OPEC) cut off all petroleum exports to the United States and cut back on its exports to other countries in. 27. Ibid. Ibid., 10. 29 Michael T. Klare, Resource Wars: The New Landscape of Global Conflict (New York: Henry Holt, 2002), 7. 30 Ibid. 28. 10.

(19) response to American support for Israel in the 1973 Yom Kippur War. 31 Klare explains that “[f]rom this time on, oil was seen not only as an essential military commodity but also as a prerequisite for global economic stability.” 32 In order to decrease their vulnerability to future oil shocks, oil-importing countries such as the United States began searching for more secure petroleum deposits and established safeguards such as the Strategic Petroleum Reserve. When the Iranian Revolution of 1979 replaced the pro-American Shah with an anti-American government, the United States experienced a second oil shock, which prompted President Jimmy Carter to declare that any. 治政 necessary, including military force,” a stance known as the大 Carter Doctrine. 立. attempts to restrict the flow of oil in the Persian Gulf “will be repelled by any means 33. The. forcefulness of the Carter Doctrine indicates that the United States views continued access to. ‧ 國. 學. oil as a matter of national security, and this claim is strengthened by the frequency with. ‧. which terrorist organizations have called for attacks on energy infrastructure. One al-Qaeda. y. Nat. spokesman referred to oil as “the provision line and the feeding artery of the life of the. er. io. sit. crusader nation.” 34 Daniel Yergin argues that for terrorists “the energy system looms as an all too obvious target for disrupting both the economy and society.” 35. al. n. v i n C hsecurity begins byUmentioning the lack of a universal Much of the literature on energy engchi. definition of energy security. This paper will group the field of energy security scholarship as being divided into two primary schools of thought: a more traditional concept that prioritizes access to and acquisition of raw energy supplies, and a more comprehensive one that includes factors less directly related to supply such as environmental impact or sustainability.. 31. Ibid. Ibid. 33 Ibid., 33. 34 Gal Luft, "A Crude Threat," The Baltimore Sun, 6 April 2004. 35 Daniel Yergin, "Energy Security and Markets," in Energy & Security: Strategies for a World in Transition, ed. Jan H. Kalicki and David L. Goldwyn (Washington D.C.: Woodrow Wilson Center Press, 2013), 81. 32. 11.

(20) This division maps closely to how Wei et al. identify the overall concept of energy security as being split between the energy economic security aspect (supply safety) and the ecological environmental safety aspect (using safely). 36 Their explanation of energy security will be mentioned first because it is unique in that rather than trying to prioritize one aspect over the other, they link the two. They argue that states transition from one to the other as they develop; a state must first be able to meet its basic energy needs before it can move on to other concerns. Wei et al. define what they call “energy economic security” as “the stability of normal demand of energy supply which meets the country’s survival and development.” 37 They use. 治政 two benchmarks to measure supply safety: that the state has大 sustained access to energy 立. without serious shortage (“serious” meaning that the supply shortage gap is “less than 7% of. ‧ 國. 學. the previous year’s important volume), and that oil prices are not unbearably high. 38. ‧. Unfortunately they do not specify how high oil prices would have to be in order to qualify as. sit. y. Nat. unbearable. According to their explanation, states prioritize supply safety when they are. io. er. industrializing because rapid economic growth requires consistent access to energy. At the. al. same time, lack of development means that the state is limited in its ability to respond to. n. v i n C han opportunity to U energy emergencies, nor has there been e n g c h i establish buffers such as a strategic reserve. As states mature and industrialization runs its course, the country has expanded its industrial capacity, built up reserves, and economic growth is not quite as pressing because productivity and quality of life are both high. Wei et al. believe that only when these conditions are met will people will focus not only on maintaining supply, but also on ensuring that energy usage does not threaten the environment or humanity. 36. Energy Economics: Modeling and Empirical Analysis in China, (CRC Press, 2010), 220. Ibid. 38 Ibid. 37. 12.

(21) Wei et al. take care to note that the primary focus of energy security can change as the international situation changes: as scholars like Klare and Yergin have argued, energy (and oil in particular) is a strategic good during wartime, and so nations have no choice but to prioritize security of supply when at war.. 2.2.1 Traditional Concept When the primary focus of energy security is security of supply, insecurity results from reduced supply, whether because prices climb or because of political instability. While. 政治大 mentioned factors are physical supply and the market price of energy. Political instability is 立. there are varying explanations of energy security even within this view, the most commonly. considered a factor that negatively affects both, and is also frequently mentioned.. ‧ 國. 學. Cherp and Jewell provide a broad overview of three primary perspectives of energy. ‧. security, all of which seem to fall under the traditional concept. They label these the. sit. y. Nat. “sovereignty” perspective, the “robustness” perspective, and the “resilience” perspective. 39. io. er. They define the central question of the sovereignty perspective as “who controls energy resources and through which mechanisms?” 40 This perspective is the oldest of the three and. al. n. v i n can be said to have come into beingC when Navy switched from domestic coal to h ethenBritish gchi U imported oil in the early 20th century. Oil was a critical resource during the first half of the. 20th-century because of its use as a primary fuel for the military. After the Second World War, oil became important in the industrialized war not only as fuel but also for “food production, health care, manufacturing, heating, and energy generation,” but most industrialized countries could not produce enough oil for their own use, especially when former oil-producing. 39. Aleh Cherp and Jessica Jewell, "The Three Perspectives on Energy Security: Intellectual History, Disciplinary Roots and the Potential for Integration," Current Opinion in Environmental Sustainability 3 (2011). 40 Ibid., 3.. 13.

(22) colonies became newly independent states. 41 The primary threats under this perspective are intentional, such as embargoes or the “malevolent exercise of market power”, but these risks can be minimized by “casting military, political and/or economic control over energy systems” through alliances, deals, or military action. 42 This thinking is in line with the view of the International Energy Agency, which in its 2008 World Energy Outlook stated that a key energy challenge of the modern era is “securing the supply of reliable and affordable energy.” 43 Maria-Floriana Popescu takes a more pessimistic view of energy security, defining it as “the overlap between economic security,. 政治大 to the economy, and the way the economy “links the degrees of dependence, interdependence, 立 national security and the environment’s security.” 44 She argues that the importance of energy. ‧ 國. 學. and subordination of states” means that “competition for control and distribution of hydrocarbons” will only grow in intensity. 45 While this view is borderline zero-sum, the. ‧. emphasis on naked competition over access seems to fit with the sovereignty perspective.. sit. y. Nat. Cherp and Jewell’s robustness perspective differs from the sovereignty perspective in. al. er. io. that it is primarily concerned about “vulnerabilities of energy systems to factors other than. v. n. politically motivated disruptions to access to oil and gas.” 46 It introduces the idea of globally. Ch. engchi. i n U. limited energy resources, whether in terms of actual physical limits or in terms of other constraints on energy consumption such as climate change. Under this perspective, threats are not directed, but instead occur naturally. These threats include “growth in demand, scarcity of resources, aging of infrastructure, technical failures, or extreme natural events,” and can be. 41. Ibid., 1. Ibid., 5. 43 International Energy Agency, World Energy Outlook 2008 (Paris, France: International Energy Agency, 2008). 44 Maria-Floriana Popescu, "The Economics and Finance of Energy Security," Procedia Economics and Finance 27 (2015): 467. 45 Ibid., 472. 46 Cherp and Jewell, "The Three Perspectives on Energy Security: Intellectual History, Disciplinary Roots and the Potential for Integration," 4. 42. 14.

(23) managed by “upgrading infrastructure, switching to more abundant energy sources, adopting safer technologies, and managing demand growth.” 47 The resilience perspective is the newest of the three. Cherp and Jewell explain that this perspective developed after many countries de-regulated their energy supplies in the 1980s and 1990s, under the belief that “markets can deliver energy more efficiently and ensure necessary investment in energy infrastructure while the diversity of market actors guarantee[s] security of supply.” 48 This commodification of energy products brought economic analyses to the forefront of energy security studies, shifting the focus from physical. 政治大 was that of diversifying risk. This idea came from risk analysis in investment portfolios, and 立 availability to the market price of energy itself. A related idea introduced during this period. ‧ 國. 學. posits “risks of failures of energy systems can be minimized by applying the mean-variance portfolio theory (MVP) in order to diversify among energy options with different risk profiles. ‧. (as reflected in their price history).” 49 The threats that this perspective focuses on are. sit. y. Nat. considered inherently unpredictable and uncontrollable, such as unforeseen economic crises. n. al. er. io. or booms, political regime change, or climate fluctuation. Because the resilience perspective. i n U. v. sees threats as being unpredictable, it seeks to protect against them by “spreading risks and preparing for surprises.” 50. Ch. engchi. Andreas Löschel et al. refer to the IEA’s claim that energy insecurity “stems from the welfare impact of either the physical unavailability of energy or prices that are not competitive or overly volatile,” 51 and attempt to expand on that definition but only to the extent that they want to operationalize “competitive” and “overly volatile”. They are still. 47. Ibid., 6. Ibid., 4. 49 Ibid., 5. 50 Ibid., 7. 51 Andreas Löschel, Ulf Moslener, and Dirk T.G. Rübbelke, "Indicators of Energy Security in Industrialized Countries," Energy Policy 38 (2009): 1665. 48. 15.

(24) operating under the assumption that energy security is primarily about maintaining security of energy supply. Their contribution is a distinction between what they term “ex-post indicators” that explain energy-related economic frictions in the past, and “ex-ante indicators” which attempt to forecast potential causes of economic friction. One interesting finding is that factoring political risk of supplier countries can skew projections about energy security, which aligns with the idea of threat as put forth under the resilience perspective. Daniel Yergin on more than one occasion combines features of Cherp and Jewell’s three perspectives. He defines energy security simply as “the availability of sufficient supplies at affordable prices.” 52 In 2006 he proposed four principles that policy-makers. 治政大 a list which had grown to ten should attempt to abide by when thinking about energy security, 立 principles by 2013 (bolded items appeared on both lists): 53. ‧ 國. 學. ‧. 1. Diversification 2. The importance of the United States in the global oil market 3. The need for a domestic security margin (either spare capacity or emergency stocks) 4. The role of resilient and well-functioning energy markets 5. The importance of building relationships with exporting nations 6. The need for cooperative relations among importing nations 7. The importance of high-quality information (to prevent speculation and panic) 8. The importance of a robust domestic industry 9. The role of research and development 10. The importance of planning for disruptions. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. These principles are based on Yergin’s recognition of the fact that there is only oil global oil market that determines prices, but that there are also a number of suppliers within that market of varying degrees of reliability. While he does not quantify what it means to meet these principles, they provide an easily understood framework for the traditional concept of energy security.. 52 53. Yergin, "Energy Security and Markets," 74. Ibid.; "Ensuring Energy Security," Foreign Affairs 85, no. 2 (2006): 75-80.. 16.

(25) The focus on supply naturally means that threats to a nation’s energy supply are threats to a nation’s energy security. Philip Andrews-Speed classifies these threats into two categories based on the scope of their impact: global events and local events. 54 Five types of events exist under the global event category: policy discontinuities, fundamental discontinuities, force majeure disruption, export disruption, and embargo disruption. Policy discontinuity refers to “sudden and unpredictable” changes in price that come as a result of OPEC decisions to adjust output levels. 55 Fundamental discontinuity refers to “a long-term failure to invest in production, transportation or processing capacity [that] could result in an absolute shortage of supply of energy with respect to the global demand.” 56 It stands to. 治政大the global economy for a period reason that this type of disruption would significantly impact 立. of years, as energy-importing countries struggle to cut back on their own energy consumption. ‧ 國. 學. waiting for new infrastructure to be built. The next three disruptions are slightly more. ‧. political in nature: force majeure disruptions are disruptions as a result of civil or interstate. sit. y. Nat. conflict involving exporting nations, or even trade route blockages. Export disruptions. io. al. n. when importing nations embargo a specific exporting state.. Ch. engchi. er. involve exporting nations deciding to cut back on exports, and embargo disruptions occur. i n U. v. Local events that can threaten a nation’s energy security are embargo disruptions, logistical disruptions, and local market disruptions. Embargos can be general embargos of a specific importing state by the global community, or embargos by a specific oil exporter or even an oil transit state. A general embargo would be most damaging, but is unlikely due to difficulties in coordinating such an effort. A specific embargo is far more likely, and Andrews-Speed adds that embargos involving pipelines are far more meaningful than 54. Philip Andrews-Speed, Energy Policy and Regulation in the People's Republic of China, ed. Thomas W. Wälde, International Energy and Resources Law and Policy Series (The Netherlands: Kluwer Law International, 2004), 337. 55 Ibid. 56 Ibid., 338.. 17.

(26) maritime embargos because “[s]hips can be diverted, but pipelines are immovable.” 57 Logistical disruptions can be accidental or deliberate (terrorism), and tend to be endemic over long distances, but are generally short-lived and can be mitigated. The final type of local disruption is the local market disruption, which occurs within a state. This type of disruption can result from government mismanagement or monopolist suppliers. 58 In summary, the core of what I define as the traditional energy security concept is narrowly focused on threats to supply. Strictly speaking, it does not have to be about petroleum, even if petroleum seems to be a frequent focus of the literature. These principles. 政治大. are equally applicable to other resources such as natural gas or coal; shocks to the supply of. 立. any energy resource can be equally disruptive depending on a country’s fuel mix.. ‧ 國. 學. 2.2.2 Comprehensive Concept. ‧. In recent years, the concept of energy security has expanded to reflect what Lynne. y. Nat. sit. Chester calls its “polysemic” nature, which is to say that it is more multi-faceted than the. n. al. er. io. traditional concept. She criticizes the traditional understanding of energy security as having. i n U. v. an “almost overwhelming focus…on securing supplies of primary energy sources and 59. Ch. engchi. geopolitics.” She speaks more favorably of broader concepts of energy security, arguing that “energy markets need to be considered through a multi-dimensional lens” which “include[s] notions such as adequacy of capacity to meet demand, affordability, and sustainability.” 60 While Chester does not attempt to propose a fully fleshed out framework of her own, she notes that broader definitions of energy security tend to include three additional 57. Ibid. As of this writing in Venezuela, “[o]nce one of the world’s premier oil exporters,” is facing gasoline shortages. Clifford Krauss, "Venezuela Staves Off Default, but Low Oil Prices Pose a Threat," The New York Times, https://www.nytimes.com/2017/04/12/business/venezuela-oil-debt-payment.html. 59 Lynne Chester, "Conceptualising Energy Security and Making Explicit Its Polysemic Nature," Energy Policy 38 (2009)., 887. 60 Ibid., 892. 58. 18.

(27) dimensions of adequacy of capacity, affordability, and sustainability whereas market-centric definitions focus solely on availability. 61 David von Hippel et al. view energy security as an issue that has many overlaps with the concept of sustainability. Their framework adds five components to the traditional supply-focused concept of energy security: “environment, technology, demand-side management, social and cultural factors, and post-Cold War international relations.” 62 They argue that: A nation-state is energy secure to the degree that fuel and energy services are available to ensure: (a) survival of the nation, (b) protection of national welfare, and (c) minimization of risks associated with supply and use of fuel and energy services…Energy policies must address the domestic and international (regional and global) implications of each of [the five aforementioned] dimensions. 63. 立. 政治大. ‧ 國. 學. They provide a handful of useful metrics for the six dimensions (energy supply plus the five. ‧. dimensions they identify) as well as interpretations of each metric’s impact on a state’s. sit. y. Nat. energy security. They intend for policymakers to use these metrics to compare possible. io. er. courses of action and ultimately assist in the formulation of energy security policy.. al. Benjamin Sovacool and Ishani Mukherjee propose an even more expansive. n. v i n framework of energy security. TheirCframework five dimensions of availability, h e n gcovers chi U affordability, technology development, sustainability, and regulation, and these dimensions are then broken into an additional twenty components. From these five dimensions and twenty components, they list close to 400 indicators that policymakers and scholars can use to “analyze, measure, track, and compare national performance on energy security.” 64 They then use this framework to evaluate the energy security performance of 18 countries (to. 61. Ibid., 891. David von Hippel et al., "Energy Security and Sustainability in Northeast Asia," ibid.39: 6723. 63 Ibid., 6724. 64 Benjamin K Sovacool and Ishani Mukherjee, "Conceptualizing and Measuring Energy Security: A Synthesized Approach," Energy 36, no. 5343-5355 (2011): 5344. 62. 19.

(28) include China) over the period from 1990 to 2010. After completing their evaluation, they conclude that energy security “is more multifaceted than many policymakers or even scholars may realize,” and suggest that future analyses “must extend beyond traditional themes such as security of fossil fuel supplies and the efficacy of energy markets.” 65. 2.2.3 Petroleum When discussing energy security, special attention must be paid to petroleum. Of the various types of energy available, petroleum is unique in its importance to the global. 政治大 five reasons why petroleum is important in a way that coal or liquid natural gas are not: it is 立 economy, and is the most frequently mentioned in the literature. Von Hippel et al. provide. the dominant fuel in primary energy supply; much of it comes from the Middle East, which. ‧ 國. 學. remains politically very unstable; oil supply and prices are heavily influenced by political. ‧. decisions of both buyers and sellers; key sectors such as transportation, petrochemicals, and. sit. y. Nat. agriculture have no reliable substitutes for oil; and the continued sensitivity of oil prices to. io. er. speculation, manipulation by suppliers, and currency values. 66 The IEA states simply that. al. petroleum “is the world’s most vital source of energy and will remain so for many years to. n. v i n CT.hKlare argues that U In similar fashion, Michael e n g c h i petroleum is “utterly essential to. come.” 67. sustain the international sinews of globalization – the planes, trains, trucks, and ships that carry goods and people from one region of the planet to another.” 68 He cites projects from the United States Department of Energy which state that “world energy output must increase by 57 percent over the next quarter century,” and ominously warns that if this target cannot be. 65. Benjamin K. Sovacool et al., "Evaluating Energy Security Performance from 1990 to 2010 for Eighteen Countries," ibid.: 5852. 66 von Hippel et al., "Energy Security and Sustainability in Northeast Asia," 6720. 67 International Energy Agency, World Energy Outlook 2008, 37. 68 Michael T. Klare, Rising Powers, Shrinking Planet (New York: Henry Holt, 2008), 11.. 20.

(29) met, “the world economy will fall into recession or depression, the globalization project will fail, and the planet could descend into chaos.” 69 Over the years there has been much debate about the status of the global supply of oil. In 2001, Klare took a more skeptical stance, assuming that global consumption of oil would likely increase, but that remaining un-extracted petroleum would be more difficult to extract, creating an effective decline in oil supplies. 70 By 2008, he would take an even more pessimistic view, in light of Department of Energy projections showing that oil consumption would outstrip oil production, as well as the looming decrease in the availability of so-called “easy oil.” 71 He predicts that barring some sort of global cataclysm that reduces energy usage. 治政大 worldwide, “severe shortages are inevitable.” 立 72. Not everyone is this gloomy about oil supplies. Richard Newell and Stuart Iler believe. ‧ 國. 學. that “[c]oncerns about the physical availability of global oil resources are [therefore] largely. ‧. misplaced.” 73 They point to projections of increasing production from OPEC, which would. y. Nat. raise OPEC’s share of production from 40% in 2010 to 45 or even 50% over the next two. er. io. sit. decades. 74 They also believe that by tapping into supplies of less easily accessible oil, “North. al. America has the potential to significantly increase its oil production over the next several. v i n C States They note that the United of petroleum “now stands at its h e nproduction gchi U n. decades.”. 75. highest level in 20 years” as a result of the application of techniques such as “enhanced oil recovery and horizontal drilling or hydraulic fracturing technology,” even as petroleum. 69. Ibid. Ibid. 71 Ibid. 37. 72 Ibid., 41. 73 Richard G. Newell and Stuart Iler, "The Global Energy Outlook," in Energy & Security: Strategies for a World in Transition, ed. Jan H. Klalicki and David L. Goldwyn (Washington D.C.: Woodrow Wilson Center Press, 2013), 54. 74 Ibid. 75 Ibid., 57. 70. 21.

(30) consumption has generally flattened. 76 In fact, they claim that if both these trends continue to hold true, North America could achieve net self-sufficiency in oil by 2035. 77 Yergin cites the 44 percent increase in US oil production between 2008 and mid-2013 as a cause for optimism about oil supply; he is primarily concerned about political instability in the Middle East disrupting oil prices. 78 It should be noted that these predictions were all made at different times. It is also worth noting here that oil prices are not monolithic; there are in fact a variety of different benchmarks based on different types of liquid crude oil, and variations in pricing across these. 治政大 (WTI), which is a “blend One benchmark is the price of West Texas Intermediate 立. benchmarks reflects concerns such as difficulties in transporting oil from refineries to markets.. 79. of several U.S. domestic streams of light sweet crude oil.” 80 In December 2001, the price of. ‧ 國. 學. WTI was approximately $19/barrel, and had climbed to roughly $133/barrel by June of. ‧. 2008. 81 The local high in 2013 was $106/barrel in the month of August. Since then the price. sit. y. Nat. of oil has plummeted, and WTI currently costs roughly $45/barrel. 82 Of course, oil prices. io. al. n. open market, they must find ways to weather this volatility.. Ch. engchi. 76. er. have proven to be extremely unpredictable, and because most countries must buy oil on the. i n U. v. Ibid. Ibid. 78 Daniel Yergin, "Energy Security and Markets," ibid., ed. Jan H. Kalicki and David L. Goldwyn, 71. 79 U.S. Energy Information Administration, "Wti-Brent Crude Oil Price Spread Has Reached Unseen Levels," U.S. Energy Information Administration, http://www.eia.gov/todayinenergy/detail.php?id=290. 80 CME Group, "Light Sweet Crude Oil (Wti) Futures and Options." 81 U.S. Energy Information Administration, "Cushing, Ok Wti Spot Price (Monthly)." 82 Ethan Lou, "Oil Falls as Stronger Dollar Outweighs Opec Deal Optimism," Reuters, http://www.reuters.com/article/us-global-oil-idUSKBN13C04L. 77. 22.

(31) Chapter 3: Overview of Chinese Energy Policy This chapter will provide important background on the subject of Chinese energy policy by identifying key players in the energy sector and walking through the history of Chinese energy policy through the “going-out” period. It will then introduce the Belt and Road Initiative, focusing specifically on projects that are relevant to China’s energy sector.. 3.1 Actors. 政治大 state-owned enterprises (SOEs). In the interest of clarity, this section will briefly go over the 立 The Chinese energy sector contains a mix of official government organizations and. main actors that still exist today. The current major governing bodies are the State Council,. ‧ 國. 學. the National Energy Commission (NEC), the National Energy Administration (NEA), the. ‧. National Development and Reform Commission (NDRC), the State Assets Supervision and. sit. y. Nat. Administrative Commission (SASAC), the Ministry of Commerce (MOFCOM), and the. io. n. al. er. Ministry of Land and Natural Resources (MLNR). 83. i n U. v. China has three state oil companies and five state oil trading companies. The state oil. Ch. engchi. companies are the China National Petroleum Corporation (CNPC), the China Petroleum and Chemical Corporation (Sinopec), and the China National Offshore Oil Corporation (CNOOC); the state oil trading companies are the China National Chemicals Import and Export Corporation (Sinochem), ChinaOil, Unipec, Zhuhai Zhenrong Oil Trading Company, and CNOOC-Sinopec United International Trading Ltd. 84 Of the five oil trading companies, ChinaOil, Unipec, and CNOOC-Sinopec are joint ventures between Sinochem/CNPC,. 83 84. Kang Wu, Energy Economy in China (Singapore: World Scientific Publishing Co. Pte. Ltd., 2013). Ibid.. 23.

(32) Sinochem/Sinopec, and CNOOC/Sinopec respectively. 85 The three state oil companies and Sinochem are often collectively referred to as the four national oil companies (NOCs). 86. 立. 政治大. ‧. ‧ 國. 學 y. Nat. n. al. er. io. sit. Figure 3.1: An organizational chart of the Chinese petroleum industry in 2011 (Wu 2013). Ch. i n U. v. There are a handful of other actors not directly involved with energy policy that. engchi. nonetheless play important roles in facilitating energy policy overseas. These include the Ministry of Foreign Affairs (MOFA) and the various state policy banks (Export-Import Bank of China, China Development Bank, and Agricultural Development Bank).. 85. ChinaOil, as a joint venture of Sinochem and CNPC, focuses on the import/export of crude oil. Unipec, as a joint venture of Sinochem and Sinopec, focuses on the international trade of refined products. Michal Meidan, The Structure of China's Oil Industry (Oxford Institute for Energy Studies, 2016), 11. 86 Although they are technically referred to as national oil companies, the NOCs handle other forms of energy such as natural gas as well.. 24.

(33) 3.1.1 Foreign Policy Apparatus The importance of energy to the Chinese government is evidenced by the fact that it is willing to use its foreign policy arm to directly support NOCs overseas: energy scholar Bo Kong calls this “petroleum diplomacy.” The three types of petroleum diplomacy are diplomacy in pursuit of security of supply, security of transportation, and cooperative security. 87 Diplomacy in pursuit of security of supply is the most important, involving maintaining friendly relations with oil-exporting countries. 88 This is the type of petroleum diplomacy that China has most frequently engaged. 政治大 strategy, it increased the frequency of high-level visits to oil-exporting countries in Africa 立. in, to great success. As the Chinese government began to increase support for the going-out. ‧ 國. 學. and Latin America. President Hu Jintao’s visits to Egypt, Gabon, and Algeria in 2004 all resulted in the signing of petroleum agreements, as did his visits to Morocco, Nigeria, and. ‧. Kenya in April 2006. 89 Later in 2006, Premier Wen Jiabao also traveled to Africa and. sit. y. Nat. facilitated agreements with Egypt, the Republic of Congo, and Angola as well. 90. n. al. er. io. This type of diplomacy also includes China’s involvement in multilateral. i n U. v. organizations such as the Shanghai Cooperation Organization (SCO), through which China. Ch. engchi. has actively promoted energy and petroleum cooperation in Central Asia. 91 Positive diplomatic relations pave the way for China’s NOCs to sign agreements in each target country, which makes NOCs more competitive, and which facilitated the implementation of the “going-out” strategy (to be discussed in Section 3.2.2). 87. While Kong includes diplomacy in pursuit of cooperative security as one of the three, I do not believe that it is as impactful as the other two types. 88 Some scholars argue that close ties with oil-exporting countries are not as helpful as they seem, either because “special relationships” with oil-exporting states are “useless during a crisis,” or because bilateral relationships involving oil can leave the oil-importing state vulnerable to blackmail. Erica S. Downs, "The Chinese Energy Security Debate," The China Quarterly, no. 177 (2004): 38. 89 Bo Kong, China's International Petroleum Policy, ed. David L. Goldwyn and Jan H. Kalicki, Energy and Security (Praegar Security International, 2010), 124. 90 Ibid., 125. 91 Ibid., 127.. 25.

(34) Diplomacy in pursuit of security of transportation involves countries that “patrol or are situated along a transportation corridor.” 92 Transportation corridors can be SLOCs or oil/gas pipeline pathways. China’s use of diplomacy to promote pipeline projects, whether in partnership with Russia, Kazakhstan, or other countries, falls under this type of diplomacy. The case of the Central Asia-China pipeline connecting China to Turkmenistan shows the importance of diplomacy in pursuit of security of transportation matters because the pipeline must pass through Uzbekistan and Kazakhstan on its way to China. 93 The relationship between transportation and energy security will be described in further detail in Chapter 5.. 立. 3.1.2 State Policy Banks. 政治大. ‧ 國. 學. China’s state policy banks are another key source of the government aid that has helped Chinese NOCs compete for investment opportunities in the global market. The. ‧. preeminent Chinese state policy bank is the Export-Import Bank of China (Eximbank), whose. er. io. sit. y. Nat. mandate is to:. facilitate the export and import of Chinese mechanical and electronic products, complete sets of equipment and new- and high-tech products, assist Chinese companies with comparative advantages in their offshore project contracting and outbound investment, and promote international economic cooperation and trade. 94. n. al. Ch. engchi. i n U. v. Like its counterparts the China Development Bank (CDB) and the Agricultural Development Bank, Eximbank is a “policy bank” in that its sole purpose is to “take over lending in support of government policy objectives…free[ing] the commercial banks from pressure to undertake politically popular projects." 95 As such, Eximbank is the primary source of Chinese. 92. Ibid., 119. Wu, Energy Economy in China, 188. 94 The Export-Import Bank of China, http://english.eximbank.gov.cn/en/. 95 Barry Naughton, The Chinese Economy (Cambridge: The MIT Press, 2007), 457. 93. 26.

(35) concessional loans to developing countries such as Angola. 96 Kong argues that the considerable amount of support that NOCs have received from state-owned banks in recent years reflects the importance that the Chinese leadership has placed on the “going-out” strategy. For example, in the early 1990s, the NOCs struggled to receive loans at favorable rates from Eximbank, but in the early 2000s, both Eximbank and the CDB launched initiatives making NOCs “eligible for receiving preferential loan credit from these state policy banks when making overseas acquisitions.” 97 NOCs and the state policy banks work in tandem to secure so-called “loans for oil”, with NOCs offering their expertise and state banks. 治政大 Between 2009 and 2010, the policy banks offered $54 billion in loans to oil-rich countries. 立. providing financial backing: between the months of January and September of 2009, Chinese 98. CDB alone extended nearly $65 billion worth of credit to both foreign energy companies and. ‧ 國. 學. government entities. 99. ‧. Paul Hubbard uses a number of Chinese-language sources to explain how Eximbank. sit. y. Nat. provides concessional loans. He identifies the life cycle of a concessional loan as follows:. n. al. er. io. 1. The government of the borrowing country submits an application to the China Eximbank. 2. The China Eximbank reports the evaluation to the Ministry of Commerce. 3. The Chinese government signs a framework agreement with the borrowing country. 4. The borrowing government signs a project agreement with the China Eximbank. 5. According to the contractual terms, the Chinese contractors and exporters invoice the foreign executing agency requesting payment. 6. The foreign executing agency submits the invoice and progress report to the borrowing country government. 7. The foreign government submits a drawing application, invoice, and progress report to the China Eximbank. 8. The China Eximbank then disburses the funds to the exporter.. Ch. engchi. 96. i n U. v. Paul Hubbard, "Chinese Concessional Loans," in China into Africa, ed. Robert I. Rotberg (Washington, D.C.: Brookings Institution Press, 2009). 97 Kong, China's International Petroleum Policy, 68. 98 Ibid., 69. 99 Meidan, The Structure of China's Oil Industry, 45.. 27.

(36) 9. The foreign government pays interest and fees and loan repayments to the China Eximbank.100. 立. 政治大. ‧. ‧ 國. 學 sit. y. Nat. io. n. al. er. Figure 3.2: The lifecycle of a Chinese concessional loan (Hubbard 2009). Ch. i n U. v. It should be noted that according to this process, China is not necessarily on the hook. engchi. for the full amount of aid that it pledges insofar as the amount of aid that it actually disburses depends on the cost of the projects that are proposed, approved, and completed; the amount that China pledges is more of an upper limit than a realistic goal. Michal Meidan, looking at the China Development Bank, sees a similar pattern: the host nation opens an account with CDB, and an energy-backed loan (EBL) is “secured by revenue earned from deliveries of oil. 100. Hubbard, "Chinese Concessional Loans," 219.. 28.

(37) or natural gas to a Chinese oil company.” 101 The Chinese company then deposits payment into the host nation’s CDB account, allowing CDB to withdraw anything it is owed. 102103 Chuan Chen et al. refer to this structure as the “Angola mode” used for countries “unable to provide adequate financial guarantees to back their loan commitments.” 104 Echoing Hubbard’s explanation of Chinese concessional loans, Chen et al. explain that after a framework agreement for infrastructure investment is signed, the recipient government awards the contract to a Chinese construction firm to be paid for by Eximbank credit. 105 What makes the Angola model distinct from other Eximbank concessional loans is that the. 政治大 production of the oil or other natural resources that will constitute repayment of the loan.” 立 recipient government also awards a Chinese petroleum company “the rights to begin. 106. ‧ 國. 學. Yun Sun also notes that there is an additional component of Chinese assistance that is “essentially ‘tied aid’…Beijing requires that infrastructure construction and other contracts. ‧. favor Chinese service providers.” 107. y. Nat. sit. The importance of policy banks can be seen by their alleged impact on NOCs. There. n. al. er. io. is some debate as to whether state policy bank support actually helps NOCs. One way to see. i n U. v. the importance of policy banks is bErica Downs argues that there is a perception that NOCs. Ch. engchi. are handicapped by their status as relative latecomers in the international oil business, lacking the experience of more established international oil companies (IOCs). 108 As a result,. 101. Meidan, The Structure of China's Oil Industry, 45. Ibid. 103 According to the English-language website for China Eximbank, “China Eximbank is the only bank designated by the Chinese government to implement [preferential] facilities.” The Export-Import Bank of China. 104 Chuan Chen et al., "China's Emerging Role in Africa," Gridlines, no. 42 (2008): 2. 105 Ibid. 106 Some of these other resources include “iron, bauxite, and cocoa.” Ibid. 107 Yun Sun, "Africa in China's Foreign Policy," (John L. Thornton China Center and African Growth Initiative, 2014). 108 Erica S. Downs, "Who's Afraid of China's Oil Companies," in Energy Security, ed. Carlos Pascual and Jonathan Elkind (Washington D.C.: The Brookings Institution, 2010), 93. 102. 29.

(38) concessional loans are a tool by which the central government can help make up for some of the lack of experience. State entities can also benefit NOCs by smoothing relationships between China and the government of the target country, especially where local energy companies are stateowned. By linking oil investment to investment in other sectors of the local economy, these governments hope to develop their infrastructure and diversify away from extractive industries. Turkmenistan and Angola are two examples of countries in which Chinese loans may have paved the way for NOCs to sign production-sharing agreements. 109 Sun notes, “in. 政治大 multiple oil blocks through $4 billion in loans.” Michal Meidan argues that CDB-provided 立 2006, this approach probably helped Chinese oil companies win the exploitation rights to 110. ‧ 國. 學. EBLs helped NOCs acquire overseas assets, and “were the first truly effective mechanism for advancing China’s energy security, by earmarking set volumes of oil to China.” 111 He. ‧. identifies CDB loans as contributing to successful acquisitions in Brazil, Ecuador, Venezuela,. sit. y. Nat. Turkmenistan, and Russia, among others. 112 However, he also argues that EBLs are not the. n. al. er. io. preferred funding source for NOCs; they do not protect against political risk, they do not. i n U. v. always protect against price fluctuations in the open market, and in the event that borrowers. Ch. engchi. renege on the original contract, “CDB [has] limited recourse to recover oil or revenues.” 113 On the other hand, such financial backing can be ineffectual or even counterproductive. A proposed deal with Nigeria that would have provided $2.5 billion from China Eximbank fell short despite the fact that Nigeria “offered preferential rights to oil exploration and production blocks to foreign companies that promise to invest in the. 109. Ibid., 94. Sun, "Africa in China's Foreign Policy," 8. 111 Meidan, The Structure of China's Oil Industry, 46. 112 Ibid. 113 Ibid. 110. 30.