Anthony LOH

Like the United States, China needs oil to fuel its economy, but with the United States now in a position of influence in Iraq, China has had to turn to countries such as Sudan and Iran to meet its needs – precisely when the Untied States has sought to isolate these nations.

The latest addition to the list of factors comprising a “China threat” is China’s competition with the West for the global supply of oil. Other, older factors are Beijing’s aggressive drive for economic and industrial power, rapid military buildup, an authoritarian regime bent on maintaining its grip on power, and continued disregard for human rights norms. In the United States, many consumers believe that China’s voracious demand for oil has contributed to the U.S. gasoline price hikes. Those who advance this position argue that China’s ambitious energy policy is part and parcel of a plan to become a superpower and ultimately to replace the United States as the next hegemon of East Asia, and the world.

The alternative perspective, however, is that China survives by keeping its economy growing and its huge population employed-and for that, oil is necessary.

Since 1978, China has averaged 9.4 percent annual GDP growth. At this rate, China’s economy doubles every ten years. China’s combined share of the world’s consumption of aluminum, copper, steel, cement, nickel, and iron ore more than doubled between 1990 and 2000 (from 7 percent to 15 percent). In terms of oil, only twenty years ago, China was Asia’s largest oil exporter. In 1993, it became a net importer of oil, and in 2004, the world’s second-largest oil importer and consumer, after the United States. Since 2000, it has accounted for 40 percent of the world’s growth in demand for crude oil.

Various factors have contributed to China’s exploding oil demand- rapid industrialization, growing car ownership, increasing air travel in and outside of China, expanding export processing, and so forth. China’s domestic oil production supplies about two-thirds of its crude-oil consumption; the rest must come from imports. Various studies predict that China will import 80 percent of its oil by 2050 at the latest, and perhaps even by as early as 2025.

Beijing has devised several policies and strategies to cope with its need for oil. These include stepping up exploration at home, diversifying its sources of energy and developing alternative or renewable sources of energy (it would like to be the world’s largest producer of nuclear energy by 2050), conserving and rationing, developing energy-friendly technologies such as hydrogen-powered fuel cells, building up strategic petroleum reserves, and buying new stocks and oil fields overseas.

Beijing’s greatest emphasis has been on the acquisition of foreign oil assets. China’s search for sources of oil beyond its borders has four salient characteristics.

First, the U.S. occupation of Iraq has made it necessary for China to consider sources of oil beyond the Middle East. Second, on the principle that China cannot afford not to consider all sources of oil, it does business with “rogue regimes” and also has intruded on regions that conventionally fall under U.S. hemispheric influence. Third, Beijing’s global energy networks require that China develop naval power in the long term to secure its sea lanes. Finally, however, be-cause currently China lacks that naval power, China’s intermediate security strategy is to pursue a “go-west” policy in Central Asia and to invest in a “string of pearls,” countries in Southeast Asia that are geographically contiguous to China.

The Iraq War and China’s Oil Needs

Until recently, 60 percent of China’s imported oil came from the Middle East, which holds two-thirds of the world’s reserves. Saudi Arabia is the world’s largest oil producer, and China’s largest oil supplier. The China National Petroleum Corporation (CNPC), China’s largest oil company, had been waiting to develop the Al-Ahdab reserves in central Iraq as well as the even larger Halfayah field. These two fields would have provided some 13 percent of China’s domestic production. But the 2003 Iraq war and the continued occupation of Iraq have dashed those hopes. In addition, Iraq borders five of the world’s largest oil producers. This means that the United States is in a position to exercise greater leverage in the Persian Gulf than ever before, while China’s future in Middle East oil has become more tenuous. To Beijing’s detractors, China has been indiscriminate in choosing to do business with those that Washington has identified as “rogue” or “pariah” states-Sudan, Iran, Uzbekistan, and Myanmar, for example. Beijing’s initiatives conflict with U.S. attempts to contain these regimes. For example, when Washington cut ties with Khartoum in the wake of the 1997 genocidal war against Christians in the Darfur region, China made Sudan its largest overseas production base. Similarly, China signed a $70 billion oil and gas agreement with Iran in 2004, while the United States has been pressing Iran to give up its uranium enrichment program. Currently 14 percent of China’s oil imports come from Iran, making Iran the second-largest supplier of China’s oil. Taken together, Sudan and Iran now supply nearly 20 percent of China’s oil imports. Washington considers this state of affairs objectionable on several grounds. First, it objects to Beijing’s undermining its foreign-policy objectives-namely, to pressure Sudan to end its campaigns in Darfur and to pressure Iran to give up its uranium enrichment program. Second, it takes Beijing’s opportunism (as it sees it) to be a challenge to U.S. moral hegemony. Third, Washington believes that China, by selling Sudan and Iran arms and military technology and by investing in their industries and infrastructure, is propping up the very states that Washington seeks to weaken, isolate, and marginalize. By empowering them, China is indirectly challenging U.S. political hegemony.

Intruding in the Western Hemisphere

And then there is China’s entry into countries and regions that have traditionally been considered to be under U.S. hemispheric influence: Canada and South America. China has signed an agreement to build a $2 billion pipeline to bring oil to the west coast of Canada for shipment to Asia. In May 2005 the China Petroleum and Chemical Corporation (Sinopec) acquired a 40 percent interest in a $4.5-billion oil sands project in Alberta. In South America, China has already made significant in roads in Venezuela, which has the largest proven oil reserves in the Western hemisphere. There are talks of constructing a pipeline from the Atlantic to the Pacific through Panama. Since Venezuela and Canada together provide the United States with a quarter of its energy imports, Beijing’s initiatives are slicing into the U.S. pie. China is also concluding an energy deal with Brazil worth $10 billion, acquiring oil assets in Ecuador, investing $5 billion in offshore oil projects in Argentina, and pursuing agreements with Columbia, Peru, and Bolivia, among others.

In sum, the competition for oil has accentuated and widened the differences in Chinese and U.S. foreign policy objectives and stances on how the international system should be run. In exchange for oil, China provides economic assistance with no political strings, and in doing so has begun to rewrite the rules of the system. Not only Latin America, but Africa too (where in addition to Sudan, China has invested in such oil-rich countries as Nigeria and Equatorial Guinea, among others) has benefited significantly from China’s economic growth, in terms of investment and trade: China is now the main stimulus for export growth in these regions. In general, Chinese development aid and infrastructural investments are raising living standards in the developing world, which has been Beijing’s ambition since the 1950s.

The Necessity of Naval Power

Because its drive for oil security has brought it to every corner of the earth, China will eventually need to develop a world-class navy so as to secure its sea lanes for oil shipment. It must develop a blue-water navy (that is, a navy that can operate freely in the deep ocean, away from the Chinese mainland) with a global reach, and it must match U.S. naval capabilities in the long run. The current state of affairs, in which the United States enjoys naval supremacy and controls the global sea lanes of communication, is dangerous to China because the United States can easily threaten Chinese security. For example, the United States could impose an oil embargo in the event of a conflict in the Taiwan Strait.

There are different opinions as to how fast China is transforming its mainly coastal navy into an oceangoing one. China is trying to acquire modern surface vessels, strategic nuclear submarines, attack submarines, and so forth both through purchases (primarily from Russia, but also from Israel and Europe) and through a domestic shipbuilding program. But Beijing realizes that it is so far behind the United States in terms of naval capability that it is also opting to invest in oil pipelines that transport oil via land from Southeast and Central Asia.

Alternative Geostrategic Plans

Beijing is relying on two medium-term strategies to make up for its lack of a blue-water navy. The first is its “go-west” policy of securing assets in Central Asia. China’s longest pipeline, the 4,200-kilometer Tarim Basin-to-Shanghai gas pipeline, came online in 2004. Construction of a 988kilometer pipeline from Kazakhstan to Xinjiang is nearly completed. China is also helping to develop oil fields in Uzbekistan. The success of this “go-west” policy, however, has been dampened by an increased U.S. military presence in the region since September 11, greater competition from India, and various overlapping power blocs.

Secondly, China is building a series of strategic bases-a “string of pearls”-along the major sea lanes from the South China Sea to the Arabian Sea. The idea here is to construct an alternate oil import route that avoids the Strait of Malacca, through which 80 percent of China’s oil imports flow. In the South China Sea, China is fortifying bases to allow large-scale deployment of naval and air force units on Hainan Island, as well as building facilities on the Spratly and Paracel Islands to handle strategic bombers. In effect, it is building a group of unsinkable aircraft carriers in the South China Sea.

Further west, it is building container port facilities at Chittagong in Bangladesh and naval bases and intelligence-gathering facilities on Myanmar’s islands in the Gulf of Bengal, and it is building a pipeline from Sittwe in Myanmar to its own Yunnan Province. It has other projects under way in Thailand and Pakistan. Unfortunately, China is not without rivals in these regions either. In Southeast Asia, China has to compete with India; in the South and East China Seas, with Japan.

China’s Unique Predicament

China’s economy would likely come to a standstill if its oil supply were cut, and that likelihood increases as China’s dependency on imported oil increases. The Chinese predicament is difficult for two reasons. First, it is undergoing the equivalent of the Industrial Revolution, only 150 years late. As a relative latecomer to the pantheon of global powers, China has had to play by some of the rules established previously by the Western powers, but it is beginning to rewrite others. In a world in which there is no arbiter of conflicts over limited natural resources, China, like all nations, must defend its national interests and security.

Second, China’s size and population render its geostrategic problems unique. Its energy concerns and vulnerabilities cannot easily be shared with others. The United States and Japan have sufficient military capabilities to protect their supplies. The United States, moreover, enjoys an insular continental position, while China borders fourteen countries. If the United States, given its insular position, is concerned about terrorist infiltration, imagine China’s situation. China’s land mass is third-largest in the world (after Russia and Canada), but its population is greater than that of Russia, the United States, Japan and the entire European Union combined.

Chinese manufactured goods are making the lives of countless people on the planet better. The United States and many other countries also depend to a large extent on the continued health and growth of the Chinese economy. China needs to have the natural resources to continue producing the goods that it does. It is in no one’s interest that China’s economy should collapse for lack of oil. The world community must keep these facts in mind as it faces the problem of China’s increasing demand for global oil.

Further Reading

Jaffe, Amy Myers. “Wasted Energy.” New York Times, July 27, 2005,

Schwarz, Benjamin. “Managing China’s Rise.” Atlantic Monthly, June 2005, 27–28.

Source: Loh, Anthony. (2006). China’s thirst For oil. Guanxi: The China Letter, 1, 1.