China will build a further 150,000 km (93,000 miles) of oil and gas pipelines in the next 12 years, the official Xinhua news agency said on October 19th” (Reuters). These pipelines traveling within the country, and others which travel without carry oil, and geopolitical implications.
Below, I examine where China’s internationally-destined pipelines are going, examine the feasibility, and postulate what the pipeline developments mean for China’s future development.
Chinese Pipelines, Comparatively
China has a relatively developed system of oil and natural gas pipelines, but there is a great deal of room for improved coverage and efficiency. According to the CIA World Factbook, in 2007 China had 26,344 km of gas, and 17,240 km of oil pipelines. Comparatively, Russia in 2007 had 158,699 km of gas, and 72,347 km of oil, and the United States in 2006 had 244,620 km that carried petroleum products, and 548,665 km carrying natural gas. The United Kingdom, a much smaller country than China, had 18,980 km of gas and 4,930 km of oil pipelines.
If China’s goals are reached, in 12 years, the total length of its pipelines will reach around 193,000 km, still much less than the lines in the United States or Russia.
A great deal of China’s planned internal pipeline length will be achieved due to the construction of a West-East pipeline, pumping natural gas from Xinjiang to Guangzhou. The project will cost around $20 billion, and cover over 9,102 km.
There are great opportunities for natural gas expertise and development in China. According to Xinhua, “the country planned to raise the ratio of natural gas in its energy consumption by 2.5 percentage points to 5.3 percent by 2010.”
Overview of Expanding Chinese International Energy Pipelines
(This is by no means an exhaustive list; but it is extensive.)
Kazakhstan-China Oil Pipeline (Atasu-Alashankou pipeline)
November 2005; Expansion completed by 2009-2011.
Length: 962.2 km (600 mile) from Atasu in Kazakhstan to the Alataw Pass of Xinjiang. (Planned additional 700 km expansion to link to the Caspian Sea.)
Cost: $700-800 million shared between China and Kazakhstan.
Capacity: 5-20 million tons of oil a year.
What It Carries: “In 2005, China imported 1.3 million tons of crude oil from Kazakhstan via Alataw Pass.” (People’s Daily). By 2007, that number rose to 6 million tons (Upstream Online).
Future Developments: In August 2007, China and Kazakhstan agreed to extend the pipeline by 700 km (435 miles) westward to link it to the Caspian Sea.
(From: People’s Daily, May 25, 2006, China Daily, July 21, 2006, and Reuters, August 18, 2007.)
Length: 10,000 km. It originates in Turkmenistan, runs through Uzbekistan, southern Kazakhstan, and then enters China (People’s Daily, September 20, 2008). Stage I of the Uzbek part will be finished by Jan. 2010. Stage II finished by Jan. 2012 (RIA Novostoi, April 2008.) The Kazakhstan section began construction in July 2008, and phase I should completed by June 2010. “The first segment of the [Kazakh section of the] pipeline will go from the Uzbek-Kazakh border to the Kazakh-China border through Shymkent, the administrative center of the South Kazakhstan region and reach China’s Horgos” (From: New Europe, July 21, 2008).
Cost: $7.31 billion. (New Europe, January 5, 2008).
Capacity: Upon its completion and full utilization in 2013, the pipeline will have an annual transmission capacity of 30-40 billion cubic meters of natural gas (People’s Daily, September 20, 2008). These supplies should last for 30 years. Initially, 4.5 billion cubic meters will be pumped annually. Completion of Kazakhstan’s “second segment (Beineu – Bozoi – Kzyl-Orda – Shymkent) will have an annual capacity of 10 billion cubic metres and a length of 1,480 kilometres” (New Europe, July 21, 2008).
Of Note: Turkmenistan sells nearly half of its natural gas to Russia, around 40 billion cubic meters a year of the 70 billion cubic meters of gas a year it produces. By constructing this pipeline toward China, Turkmenistan gains access to a source that is willing to pay more for its gas, and loosens Russia’s hold on its economy, while bringing Turkmenistan closer toward China’s sphere of influence.
Also see: Silk Road Intelligencer, July 9, 2008 and Asia Times Online, July 17, 2008 and China’s Pipeline Diplomacy.
Russia-China Gas Pipeline (Altai Gas Pipeline Project)
(2011 previous plan; 2013 is now a more likely date due to diplomatic and economic hangups between China and Russia over the price of natural gas from the pipeline and its route. If however, a 2015 goal of piping gas to South Korea is achieved, an earlier constructed Chinese spur would seem rational. (Also see the WSJ))
This on-again, off again pipeline finally seemed ready to be deployed when resource and energy prices reached stratospheric levels during Spring 2008. However energy price drops, expansion of China’s energy supplies vis-a-vis domestic and Turkmenistani projects, and a worldwide economic slowdown have resulted in Russia rethinking the deal. According to an Oct. 8, 2008 Forbes article, “Russia will delay the construction of proposed gas pipeline to China due to competition from other gas sources in the Chinese market,” such as the new Central Asia Gas Pipeline.
Cost: $14 billion.
Capacity: 30 billion cubic meters/year. (10 billion cubic meters/year in the alternative South Korea-only plan.)
(Reuters’ optimistic September 10, 2008 article on the subject.)
Note (Update 10/29/2008) Despite delays in the natural gas pipeline; the ESPO oil pipeline spur, which will cost around $800 million and deliver 300,000 b/d should be completed sometime in mid-late 2009; although as often seems to happen with Russia-related projects, disputes and delay have arisen as of mid Nov/2008. When oil prices start rising again though, the parties will likely give/take more in negotiations. That would place pipeline completion around mid-late 2010.)
Pakistan-China Gas Pipeline
This pipeline would provide China with an alternative transportation route to the easily blockaded Strait of Malacca. However, a solely Pakistani-Chinese pipeline is more of a distant future hope than any short-term reality. Given Pakistan’s unrest and general difficulties, it will be difficult to safely tap the country’s resources or make any extensive long term investments.
Information on the pipeline’s proposal is from: (Xinhua, April 30, 2007).
Iran-Pakistan-China Gas Pipeline
(Construction begins May 2009? Completion June 2014?)
This pipeline is significantly more likely to be built than a solely Pakistan-China pipeline since Iran has better developed energy infrastructure than Pakistan and can supply the needed resources. However, there is danger that the pipeline in Pakistan may suffer damage due to terrorism or internal unrest much as pipelines in Iraq have been plagued by terrorism. Originally, the pipeline was planned to go to India, but has been held up for various reasons.
Cost: $7.4+ billion.
(More information at Stratfor; February 11, 2008. AND the Tehran Times, October 20, 2008; A March 30, 2008 Heritage Foundation backgrounder on the history of the original planned 1993 Iran-Pakistan-India Pipeline.)
Myanmar-Yunnan Gas Pipeline (Kyaukphyu-Kunming)
(Under negotiation and feasibility study. Plausibility of near-term development… low due to stability concerns, especially post-cyclone. Plausibility of development 2010-2012 medium to high depending on international natural gas prices and stability of the region.)
UAE Oil Pipeline (Habshan-Fujairah Main Oil Pipeline)
(March 2008 Construction begun; March 2010 completion.)
Length: 360 km.
Cost: $1+ billion.
Capacity: 1.5m bpd/oil.
Notes: “In early 2007 the China Petroleum Engineering and Construction Corporation (CPECC) signed an agreement with Abu Dhabi’s International Petroleum Investment Company to build a pipeline that would bypass the Strait of Hormuz… Still, when completed, it will be a drop in a bucket compared to the 17 million bpd of crude oil that pass the Hormuz Strait today.” This pipeline is important because it helps alleviate threats that Chinese oil will be blockaded should the international diplomatic situation degrade.
(Pipeline Information from Here. and Yitzhak Shichor writing for Jamestown in September, 2008.)
Importation of foreign Natural Gas is not essential to the growth of China’s energy industry since it accounts for less than 5% of China’s energy mix, but the addition of pipelines carrying up to 40 billion cubic meters of natural gas apiece would nearly double current Chinese capacity.
In 2006, China received 69.6% of its energy from Coal, 21.1% from Oil (350M tons; 183.7M produced domestically, around 47% imported), 5.8% from Hydroelectric, 2.7% (~3% in 2007) Natural Gas (55.6B cubic meters- in 2007 this rose to 69.8B cubic meters), 0.8% (1.3 % in 2007) from Nuclear Energy (9.6 GW), and 0.4% (0.7% in 2007) from Wind (5.6 GW), and [data from: Rosen (17), and China Daily (2006) with some updating.]
China‘s natural gas output in 2005 was around 48 billion cubic meters, in 2006 it was 58.6 billion cubic meters (China Daily, October 2007), and it was 69.8B cubic meters in 2007. “The government plans to increase the figure to 80 bcm by 2010 and 120 bcm by 2020… the expected demand [is] 120 bcm per year by 2010 and [150-]200 bcm by 2020.” (China Daily, Dec 2005)
Beijing will receive a relatively large chunk of Turkmenistan, Kazakhstan and Uzbekistan’s natural gas and oil, which will strengthen Beijing’s influence in the SCO (Shanghai Cooperative Organization) economic and defense grouping of Central Asian states. Beijing’s rising importance in these countries’ GDPs will lead to declines in Russian and American power, and present multiple diplomatic options for these countries.
Through its energy diplomacy and economic influence, Beijing appears to be creating a multi-polar near-term future for the Central Asia-East Asia world. A few years after the pipelines are completed at at capacity and the gas and money are flowing along the routes (perhaps as early as 2012), Beijing will become integral to these relatively small economies which may become increasingly less amenable to hosting Russian or American military bases or exercises without extremely viable compensation.
Beijing already surpasses the US in trade partner significance to several Central Asian States, trading $12 billion in 2006 (CRS, 71) with the region, compared to 2006 US trade of slightly over $2.3 billion with the region. (Data from HERE, HERE, HERE, HERE, and HERE for exports; HERE for imports)
The Central Asian states need Beijing more than Beijing needs them so it will be interesting to see what diplomatic initiatives China may enact and what diplomatic repercussions these energy shifts will have if Beijing attempts to exercise its soft power, especially as energy resources are diverted from Russia, economies become tied to China rather than Russia or US-Allies, and Iran finds a new source for its gas pipelines.
* China’s Pipeline Diplomacy. Deals with the reprecussions of China’s energy investments in the Central Asian States and what it means for their economies and ties to Russia.
* IAGS Global Energy Security.
* Iran’s Major Oil Customers.
* Kazakhstan’s Plentitude of Oil. Estimates of production of 3.5 million barrels per day (174 million tonnes) by 2020.
* Oil and Gas Industry Terrorism Monitor.
* Pipeline and Gas Journal’s October 2007 International Pipeline Report, and international trend analysis.
Also please see; Natural Gas Development, chinacomment’s prior treatment of the natural gas industry.
Hugo Chavez and Hu Jintao met on September 24, 2008 and signed 12 cooperative deals dealing with “trade, oil, finance, education, justice, telecommunications, infrastructure, sports and cultural relics” (Xinhua). The economic and oil agreements appear to be the most politically important since Venezuela is aggressively attempting to diversity its options in dispersing its abundant supplies of heavy crude oil.
Below, I explore possible effects of Chavez’s goal to ship 1,000,000 barrels of oil a day to China by 2012.
Amount of Trade / Growing Cooperation.
In 2001, China and Venezuela established a joint trade “committee [that] aims at consolidating and strengthening trade cooperation. “ (Xinhua), which helped China become one of Venezula’s five largest trading partners. The US, Brazil, and Colombia are among the others. China’s money, however, mostly travels toward the EU, the US, Japan, and the ASEAN nations (People’s Daily).
Year on year, China’s trade with Venezuela is steadily increasing. “Bilateral trade in the first seven months reached $6.23 billion, compared with $5.9 billion for all of 2007, Foreign Ministry spokeswoman Jiang Yu said” (Bodzin and Wang, Bloomberg).
Below is a chart examining the rise in trade between China and Venezuela.
Total Exports to China
Total Imports From China
Oil To China
|2000||>200 million total||from (p202)||—|
|2001||>350 million total
|2002||400-500 million total||from (p202)||—|
|2003||543 million||199 million||—
|2004||738 million||596 million||12,300 b/ day|
|2005||1,234 million||908 million||50,000 b/day (est.)|
|2006||2,622 million||1,698 million||~150,000 b/day|
|2007||3,014 million||2,835 million||200,000 b/day|
|2008||6.23 billion total||Through July (Bloomberg)||364,000 b/day|
|2009 (est)||> 8 billion total||est.||500,000 b/day|
(Unless otherwise indicated, data is from China Daily July 5, 2008; figures in USD.)
“Heavy” New Agreements
In the September 25th agreements, “Hu said China would like to deepen “all-phase and integrated” oil cooperation with Venezuela, encourage businesses to invest in Venezuela and establish a trade zone. China will also participate in building Venezuela’s infrastructures, including railway system, telecommunications network, social housing and hydro-power” (Xinhua). Additionally, China and Venezuela plan to construct two refineries, one in each country (Oil and Gas Journal).
Venezuela hopes to make 1,000,000 barrels/day in oil deliveries to China by 2012. The Venezuelans have been working diligently toward that goal; “In the first 7 months of 2008, Venezuela exported 5.18 million tons, or 38 million bbl, of crude to China—an increase of 93.8% over 2007.” (Oil and Gas Journal).
To facilitate cooperation and investment, China and Venezuela set up the “Joint Financing Fund, also known as the “heavy fund”” in early 2008 with capital of $6 billion (China Daily) [$4 billion of which was provided by China]. On September 25th, the countries agreed to double the investment to $12 billion (Shanghai Daily).
A market research report by Business Monitor International expects Venezuela will increase its 2008 production from 2.75 million b/day in 2008 to oil and gas liquids production of 2.93 million b/d by 2012. Internally, “[c]onsumption is forecast to increase by around 3% per annum to 2012, implying [domestic] demand of 675,000 b/d by this point. The export capability would thus be about 2.26mn b/d by 2012” (*A).
Crude Predictions / Feasibility
Logistics of shipping the distance from South America to China will be important to overcome. To in-part facilitate this obstacle, “the two have a shipping joint venture that will build the shared very large crude carrier” (Guardian). Still, according to the Heritage Foundation, the largest supertankers cannot pass through the Panama Canal, which increases costs of oil transport from Venezuela to China. Expansion of the Panama Canal should be completed by 2014. Expansion will expand the current locks from “33 metres (108 feet) wide” “The new locks would be 50 metres (150 feet). A third lane of traffic would be able to handle the wider loads” (BBC; also “Brazil’s Passage To China“).
It is important to retain a sense of perspective about Venezuela’s importance to China. China wants Venezuela’s oil, but Venezuela currently supplies only 4 percent of China’s total oil imports, according to a quotation by a Chinese government official on Bloomberg, but from data elsewhere it appears the number is closer to 10 percent. [Forbes clarifies that Bloomberg misunderstood the quotation- China receives 4% of Venezuela’s crude exports.] China imports about 46% of its oil needs (Xinhua).
In 2007-08, China mainly imported oil from Saudi Arabia (656,000 b/d, 17.92%of its total oil imports) and Iran (433,000 b/d, 11.83%) among others (Shichor, Jamestown).
In 2006, China’s oil imports mainly came from; Angola (~500,000 b/day), Saudi Arabia (~470,000 b/day), Iran (~350,000 b/day), Russia (~350,000 b/day), and Oman (~220,000 b/day). At that time, Venezuela’s supplies of oil did not even rank among China’s top five suppliers. (Data from the EIA).
Zweig, David and Bi Jianhai’s important article; “China’s Global Hunt for Energy.” (Foreign Affairs. Sep./Oct. 2005. 28.) noted that, as of 2004/5, China had relatively diverse sources of oil imports. China’s largest four oil suppliers accounted for the following percentages of China’s imported oil; Saudi Arabia (14%), Oman (13.3%), Angola (13.2%), and Iran (10.8%)).
Still, China’s oil import demands are rising and were up 14.7% in 2007. Every year, Venezuela supplies greater and greater amounts of oil to China, from a mere 50,000 b/day in 2005 to over 300,000 b/day in 2008.
Consequences. Can Hugo Shift to China?
Hugo Chavez needs other places to sell his oil if he plans to act on his anti-American rhetoric (PINR). Currently, though, the US is very important to Venezuela’s economy. “The U.S. buys about two-thirds of Venezuela’s daily exports of 2 million barrels,” which works out to about 1.3 million-1.5 million b/day (Bodzin and Wang, Bloomberg). As of 2005, over 60% of Venezuela’s oil exports went to the United States and was the United States’ fourth-largest oil supplier (Bajpaee, Jamestown). Interestingly, however, “U.S. imports of Venezuelan oil fell by 11.7 percent to a five-year low in the first four months of the year” (IHT).
The US is Venezuela’s largest trading partner, and Venezuela is the US’s 9th largest trading partner in terms of imports in 2006 and 2007. Venezuela accounted for over 37,000 million in trade in 2006 and 39,000 million in trade in 2007. In 2008, partially due to oil’s price spike, trade was up 58.5% to 32,000 million by July 2008, according to the Industry Trade Association of the US Dept. of Commerce.
China’s purchases of 364,000 b/day from Venezuela is about 1/4th of US purchases. Currently the United States is more attractive for Venezuela to ship to because the US has refineries which can deal with heavy Venezuelan crude, and the United States is much closer and cost-effective for Venezuela to ship toward.
Chavez interestingly claims that “Venezuela won’t suspend crude exports to the U.S. on increased supplies to China” (Bloomberg). If both the Chinese and the Venezuelans make significant investments in developing Venezuela’s oil fields, this will be possible. In fact, “PDVSA hopes that Chinese oil companies [alone] will produce at least 400,000 barrels of crude a day in Venezuela by 2011.”
However, President Chavez’s highly socialist economic policies might cripple indigenous Venezuela PDVSA investment into oil field development and refining. Although Venezuela may intend a “win-win” situation, the reality might turn into a zero-sum game where Venezuela gradually decouples crude shipments away from the United States’ heavy oil refineries (which refine nearly a third of Venezuelan heavy crude), and directs them toward domestic and Chinese refineries.
It is important to note that with expected growth of only 200,000 additional barrels/day expected by 2012, Venezuela may redirect oil and further decouple its economy from the United States in order to meet its self-imposed ship-to-China obligations.
As a result of its closer economic relationship with China, Venezuela appears to be purchasing political “cover.” The less its economy is dependent on America’s, Venezuela can more deeply pursue Chavez’s Bolivarian Revolution. It seems this deal mainly benefits Venezuela in its short term goals of independence from American economics.
In the long term, China gains a diplomatic ally, influence in South America, a guaranteed crude supply (because few countries can process Venezuela’s heavy crude), respect as an international economic leader, and gains expertise in heavy crude refining.
* China and Venezuela political relations (until 2003) from China’s Consulate in New Zealand.
* China Daily’s China-Venezuela Special (July 5, 2008).
* Another EIA article on Venezuela, with information on refining capacity (October 2007).
* (Added October 12) Forbes looks at China-Chavez relations (Oct 1, 2008)
(*A) Also of note; “Between 2007 and 2018, we are forecasting an increase in Venezuelan oil production of 23.2%, with liquids volumes rising steadily from 2.72mn b/d to 3.35mn b/d.” Business Monitor International Report.
On 08/08/08, as the Olympics began, Russian tanks moved into Georgia’s breakaway provinces of Abkhazia and Southern Ossetia. China’s position on the Georgian situation is interesting to consider since China has several provinces that suffer ethnic unrest (re: T###bet and Xinjiang.) Even more important, China has a breakaway province it would like to recover- Taiwan. The aftermath of the Georgian situation could have harsh consequences for international law. China has a vested interest in opposing breakaway provinces, but it also has diplomatic interests with Russia. Below, I analyze why and how the Georgia situation may significantly affect Sino-Russian relations and China’s future foreign policy.
China’s Territorial Philosophy
Due to China’s territorial worries about T$$$bet, Xinjiang, Taiwan, and other minority-zones, it might be suspected, by a casual observer, that China would reflexively support Georgia taking a hard stance against Georgia’s breakaway provinces. However, the situation in Georgia is more complicated.
China could take the “obvious” route, and side with Georgia that the breakaway provinces should hold fast to the country. Since China has significant interest in a good relationship with Russia, perhaps the “obvious” route is to side with Russia? Or maybe China’s best decision is to try to maintain neutrality and let the problem resolve itself?
China’s Direct Foreign Policy
Prof. Robert Ross, who has written significantly about Chinese security, thinks the Chinese could support Russia if Russia’s plans are for eventual subsumation of Abkhazia and Southern Ossetia. China could base their support on old USSR claims of influence (Bloomberg). If the provinces eventually join Russia, China’s claims on Taiwan could still be justified.
What if the provinces ultimately want real independence? Beijing might tacitly support Moscow if a back-door deal details a plan for the provinces to ultimately reunite with Russia (as S. Ossetia appears to be planning). But what if Russia’s recognition of Abkhazia and S. Ossetia’s independence is genuine? That sets a dangerous precedent for would-be breakaway provinces in China.
China has remained silent on the matter at the UN and on its Foreign Ministry website, merely calling for a “peaceful resolution.”
Hu Jintao and Putin met on August 9. The leaders could have discussed the developing Georgian situation, but press releases make no mention of that topic being discussed.
When the China-led Shanghai Cooperation Organization (SCO) met, Russia would have liked for SCO member-states to endorse the breakaway provinces. Instead, the SCO “called for respect for the concept of “territorial integrity,” which implies that the SCO opposes the provinces’ independence. However, the SCO may support the provinces’ eventual subsumation into Russia… Which may very well happen.
China And Georgia- What You May Not Have Known
China and Georgia have a relatively “long” and apparently relatively stable history. On April 9, 1991, Georgia declared independence. From 1992-1995, Civil War wreaked havoc in Georgia. China was one of the first countries to recognize Georgia’s independence. On “December 27, 1991, State Councilor and Foreign Minister Qian Qichen sent a message to Georgian Foreign Minister, informing him that the Chinese Government formally recognized the independence of the Republic of Georgia” (China Foreign Ministry). In June 1992, diplomatic relations began between the nations.
Comparatively, Australia did not recognize Georgia as a country until March 29, 1992. Recognition by the United States came only in April 1992, despite Georgia sending delegations to the United States from as early as 1991.
China and Georgia Trade, Compared to China and Russia Trade
China has little economic interest in supporting the tiny Caucasus country. Although ties between China and Russia might strain over the Georgian situation, China is likely to ultimately bend toward support of Russia.
The volume of China-Georgia trade has been relatively inconsequential. “In 2001, bilateral trade volume between China and Georgia stood at US$7 million, of which China’s export was US$3.71 million and import US$3.29 million” (China Foreign Ministry).
“The trade volume between China and Georgia in 2002 amounted to US$11.51 million, of which China’s export was US$8 million and import US$3.51 million” (China Foreign Ministry).
Comparatively, Sino-Russia trade was $48 billion in 2007, up 44% from 2006 (HERE).
Alternatively: Additional information is in the following articles: A short (2 page) and balanced overview of strategic possibilities of the China-Russia relationship, given by a CSIS/Peterson Institute sponsored project; China and Russia: Partners with Tensions, by Nicklas Norling for the Silk Road Studies Program which gives a more indepth (16-page) view. Jamestown’s Russell Hsiao briefly discusses China and Russia’s military relationship (Interestingly, Hsiao notes a “62 percent drop in Russian arms sale to China last year”.) And finally, Xinhua’s take on the Sino-Russian relations (In May).
Norling’s piece had a provocative statement; “To put it bluntly, Russia needs China more than China needs Russia and Russia’s main problem in maneuvering the relation is its weakness not China’s strength. The only lever that Russia possesses over China is energy but it is reluctant in playing this card prematurely. This is why Russia delays pipelines, does not fulfill reached agreements, and is obstructive in its energy engagements with China” (Norling, 43).
* China has an opportunity to flex its soft power, stepping in as a peacemaker and a deal maker, according to Huang Jing, a senior research fellow at the National University of Singapore’s East Asian Institute (HERE). Russia, however, seems to have blown China’s opportunity by recognizing the breakaway provinces. Will negotiations continue behind-the-scenes as China might encourage South Ossetia to be subsumed into Russia. Abkhazia, however, is a thornier issue. The Abkhazians seem to be enjoying their independence.
* China’s soft power may already be in full force. Russia’s ally Kazakhstan didn’t automatically recognize the breakaway regions and is instead calling for a multilateral solution. An article by Farkhad Sharip of the Jamestown Foundation wonders; “But would or would not Nazarbayev have bowed to pressure from Medvedev if it had not been for Chinese leader Hu Jintao who rejected outright Russian attempts to impose recognition of the separatist regions as independent territories?”
* China may be best served by neutrality. China stands to lose potential trade and access to energy resources if it opposes Russia. And China would gain relatively little from helping tiny US-ally Georgia, so it is unlikely China will push for the provinces to return to Georgia. But, by waiting, China can gain influence (IHT) in Central Asia (Financial Times) and elsewhere as planned foreign investments are diverted (WSJ) from Russia to a China that is willing to engage the world instead of to belligerently confront it.
* The situation is dangerous for China’s territorial ambitions. China may take Georgia’s ethnic unrest and splittism as a justification for acting even harsher to quell ethnic separatist dissent. This could lead to frentic pushes to bring Taiwan back and increase restrictions in T$$$bet and Xinjiang. According to Professor Robert Ross, “`the lesson for China in this is that we must be all-the-more sure that we control our ethnic groups'” since the separatist conflict “‘is all the result of the inability of Russian leaders to control their country, and allowing ethnic divisions to dominate” (Bloomberg).
* Others believe the US’ lackluster defense of Georgia’s provinces could embolden China to push more against Taiwan, if China believes the military risks of intervention and “punishment” would be minimal.
* China must be watching Russia’s stock market, which took a tumble in the wake of Russia’s invasion of Georgia (Also). China values its economy and an unstable economy could lead to internal chaos. How Russian stocks rebound in coming months will certainly determine, to some degree, China’s risk-calculus in pushing against Taiwan. The less Russia is “punished” for its invasion, the less risk China will see in placing military pressure on Taiwan.
It is a little early to say which of “China’s Lessons” will become the most prevalent. I would like to review this situation again in a month. Preliminarily, I would postulate that China will try to leverage this situation into a soft-power net bonus, working behind-the-scenes to promote Russia subsuming the provinces and promoting themselves as a stable destination for investment. Please feel free to discuss what you think in the comments section.
* Foreign Policy wrote the MOST authoritative article explaining how the Georgia situation could backfire against Russia. Not all of its assertions may happen, but Foreign Policy compiles many thoughtful ideas. (Jamestown further examines the mystery of Belarus’ limited support for Russia’s actions, and the Financial Times discusses more.)
* An interesting article on Bloomberg about China’s reaction to the Georgia situation. Prof. Robert Ross is a prime source.
* The Jamestown Foundation has their own take on the lessons to be learned from the Georgia situation (Link added September 6th).
* Georgia’s lessons for Taiwan. (Link from Brookings added September 6th).
* US Dept. of State background notes on Georgia.
by: Danny J. (Guest Contributor)
Last month, Sudan’s President Omar al-Bashir was recommended to be arrested by Luis Moreno-Ocampo, a prosecutor for the International Criminal Court (ICC). Days before the actual announcement, China’s UN ambassador expressed concern, arguing Bashir’s indictment could hurt possibilities for peace in Darfur, a western region of Sudan. Sudan’s UN ambassador responded similarly, saying the arrest would lead to ‘grave consequences’. ICC judges are not expected to make a ruling on Bashir’s arrest until October or November, so it is not an imminent threat. (Note: There are currently no Darfur peace processes on the table.)
Sudan and China have a fairly good relationship, but during much of Sudan’s North-South civil war, Sudan and China only had limited ties.
Even after al-Bashir came to power in a June 30, 1989 coup, Sudan’s primary business during its Civil War period was with Western countries. It was not until the late 90’s and early 2000’s that American and European companies, for the most part, pulled out due to domestic human rights lobbying and Sudan’s internal unrest. Talisman Oil, a Canadian Company completely left Sudan in early 2004 following several pipeline bombings – it was one of, if not the last remaining Western oil interests in Sudan.
As the West was pulling out, China dedicated more and more to Sudan, and Africa. Currently, China has large investments in Sudan, both commercially and politically. Regarding Oil, China is ‘leading developer of reserves in Sudan,’ and currently takes between 40 to 80 percent of its production, or about six percent of China’s total oil imports.
The Indictment and China’s Policies
Once al-Bashir’s indictment was officially announced, the Sudanese UN ambassador is said to have sought help with Security Council members China and Russia. By July 13, both UNSC members informally pledged support to Sudan’s government. As of July 31, China urged the UN to suspend the indictment of Bashir.
The African Union, Arab League, Non-Aligned Movement, and the Organization of Islamic Conference have all called for invoking ‘Article 16,’ a measure that allows the UNSC to suspend the ICC proceedings for 12 months, renewable indefinitely. The US, on the other hand, is firmly against freezing the indictment.
Even with an arrest warrant, it is unlikely that Bashir would be easy to get, considering that two other arrest warrants were issued last year, and both targets still remain at large. Yet, the warrant on al-Bashir may result in positive action toward resolution of the Sudanese situation. ‘Western diplomats say Mr. Bashir could escape indictment if he ended what they see as impunity for two men the ICC charged last year over Darfur.’ This presents a way out for Bashir, but should he do so, the move would probably be viewed as bargaining sovereignty for safety.
So, why do Russia and China support Bashir and Sudan? The main reason is Sovereignty. Internationally, China acts in a ‘treat others how you would like to be treated’ sort of way. It has done this in two ways over the years.
First, imagine what China would do if a high ranking Party member were indicted by the ICC. A member would more than likely never get to that point, since China possesses a UNSC veto, but in the current situation, China can even avoid the potentially embarrassing situation of having to cast a UNSC veto. In this way, the Party solidifies the power it holds over its people, ensuring that there can be no one above the state, in much the same way the USA’s refusal to join the ICC protects its sovereignty. The state has the last word.
A second example of this type of action regards how China previously addressed Sudan’s problems in Darfur and the civil war in the South as issues Sudan must deal with alone. Think of southern Sudan and Darfur as provinces in China like Xinjiang, Tibet, or Taiwan. China occasionally has problems with these regions. If secession by these regions were to happen to China, it would want support for its policy of ‘unifying’ itself. Therefore, China argues that Sudan’s internal ‘territorial problems’ should be ‘solved internally.’
Military Aid to Sudan? (Where Exactly is it Coming From?)
For a time, this meant even militarily helping Sudan. The BBC reported that ‘Dong Feng Military Trucks,’ ‘Chinese anti-aircraft guns,’ and ‘Fantan fighter jets’ have been sold or given to Sudan by China, in possible violation of a UN arms embargo. The BBC believes that some equipment arrived before, and some after the embargo, and that the Chinese are training Sudanese to pilot the jets (yet another breach of the sanctions).
One problem with this report was that it just names ‘China’, not differentiating whether the actor violating the embargo is official government policy, the military acting of its own accord without the Center noticing, or the embargo is being broken by smuggling of Chinese Arms.
It is possible the Chinese government (like other weapon-producing countries) sold the Sudanese government arms legally before the embargo, then other sales were made after the embargo (with or without official permission) by people and groups with access to the equipment.
Chinese Peacekeepers … Demonstrate Beijing is Honoring its Commitments
Still, China has helped make some positive action in the last two years. Last year, China began pestering Bashir into accepting UN troops and other decrees to prevent further problems in Darfur. The UN peacekeeping troops are foundering, but not because of China. It is because other countries fail to send the number of troops they pledged. (The current number of peacekeepers is around 9,100, with a pledged total of 26,000.)
China has sent most, if not all, of the troops it committed. Considering how understaffed the peacekeeping force currently is, China’s fulfillment of its promises is more than many other countries can say.
As with everything, the relationship between Sudan and China is complicated. For both countries, the positives are great: Beijing gets more oil and another African supporter of ‘One China’; Khartoum gets money, at least some of which goes into modernizing the city and to a much lesser extent the country.
Unfortunately, weapons sales also play a part in the relationship, whether official or unofficial. This has helped exacerbate the conflict in Sudan (to be honest, even without Chinese arms, Sudan still would have gotten guns and Darfur would still be a problem) and made China lose some international face.
Sure, China dragged its feet in the beginning of the UN peacekeeping process, but that is the general nature of Chinese foreign policy: wait until you have to act, then act. In this case China balanced and preached noninterference, but changed position and acted when negative international PR threatened China’s face/image.
Still, it is important to commend the Chinese for convincing Bashir to allow peacekeeping troops, and for sending many troops themselves. There have been successes and failures, but China’s interaction with Sudan demonstrates how China is beginning to accept international responsibilities while maintaining dialogue, economic relations and involvement with its Sudanese friends.
Guest Contributor Danny J. has a BS in Political Science and International Studies with a focus on China and its politics. He lived a year in China and visited places, from Urumqi to Beijing to Yunnan, to list only a few.
(Note: Chinacomment is currently on vacation and without constant access to computer until the beginning of September; however, updates will continue at the pace of 1-3 a week since Chinacomment does have a sizable backlog of relevant material to post.
Also: Happy 08-08-08 08:08!)
The Spratlys, co-claimed by Vietnam, China, Brunei, Malaysia, the Philippines, and Taiwan appeared again in the news this week as China warned Vietnam and Exxon Mobil to not go ahead with planned exploration. Previously, in 2007 China discouraged BP from co-developing a natural gas field with Vietnam.
Chinese assertion of sovereignty in this case, when compared to its June 2008 deal with Japan to co-develop Chunxiao oil field in the East China Sea, is interesting. With the Chunxiao deal, China asserted supremacy, still claiming sovereignty, but it still agreed to co-develop the field, splitting investment and revenues 50-50% (“Sun Bin” has a description of that deal).
With Vietnam’s claim to the Spratly oil, China will reach no such consensus. PetroVietnam seems intent on not splitting investments with China, and Vietnam definitely has a legal case for not splitting. The Spratlys are beyond China’s Exclusive Economic Zone of 200 miles from its shores (in which it can exploit resources), however China still lays claim to them since the Spratlys are on China’s Continental Shelf.
And China has been enforcing its claims. In June 2007, “China arrested 41 Vietnamese fishermen near the Spratlys for straying into contested waters. They were released after paying fines. Vietnamese fishermen in another incident on July 9th were not as lucky. One fisherman was killed and several others were injured when Chinese navy vessels opened fire on their fishing boats near the islands.” In November 2007, “large military exercises by China in the South China Sea close to the Paracels sparked protest from Vietnam.” And “on December 4… Vietnamese state media criticized China for ratifying in the People’s Congress a plan to create the Sansha administrative zone to manage the Paracels, Spratlys and the Macclesfield Banks. The zone has been given the status of a “county-level city” within Hainan Province with its administrative headquarters on Woody Island in the Paracels… Chinese Foreign Ministry spokesman Qin Gang claimed China has “indisputable sovereignty” over the islands.”
As described by Bernard Cole in The Great Wall at Sea (2001), China signed the 1996 UN Convention on the Law of the Sea, but only after including several reservations. It claimed a sovereign right over an Exclusive Economic Zone (which would allow full naval intervention within more than 200 miles), and over its Continental Shelf (350 miles).
China also wanted boundary disputes to be settled bilaterally rather than internationally and would not allow foreign warships to transit through waters without approval. China’s naval claims extend from its coast nearly to the coasts of Indonesia, Vietnam, and the Philippines, and if accepted, would basically make the South China sea an exclusively Chinese lake, denying Vietnam easy naval access to the Pacific Ocean.
China’s historic claims to the Spratlys/Paracels are based on exploration by the Han from 200BC-220AD, and administration by the Tang Dynasty from 618-906, but Cole argues this does not really establish current-sovereignty according to modern usage.
China currently occupies around seven islands militarily, and vietnam has military garrisons on 20 Spratlys. Vietnam traces its legitimacy to 1933 French claims on the area.
The Philippines base their claim on an alleged discovery by a businessman in 1947. In 1974, he deeded the islands to government. The Brunei claim is based on proximity.
China is upset about Vietnam exploiting the natural resources because strategic costs and energy supplies are hanging in the balance. Although most estimates place reserves under the Spratlys at 7-20 billion barrels of oil; China believes there may be as many as 200 billion barrels beneath the waves. Strategically, if Vietnam starts developing the fields, then its claim to the islands would strengthen since the country would be utilizing the area.
Could this situation escalate? If the June 2007 collapse of the PetroVietnam/BP deal is any guide– then no, the status quo of undeveloped Spratlys could prevail. However, Vietnam and ExxonMobil may attempt to take advantage of the Olympics in order to push hard to shame Beijing into refraining from harsh rhetoric and threats. This would allow PetroVietnam and ExxonMobil to push ahead with developing the oil field and might lead to diplomatic consequences after the Olympics are finished.
ExxonMobil must have known the political consequences after seeing BP’s failure to join Vietnam in investing. Later, I hope to uncover some research on ExxonMobil’s oil interests and investments in China. To what degree would acquiring new sources with PetroVietnam hurt ExxonMobil’s bottom line? Now, ExxonMobil might still pull out of the deal if China exerts enough pressure, but I find it difficult to believe that ExxonMobil didn’t expect China to push back– they must have a good reason for pursuing talks with PetroVietnam.
What’s certain, though, is that Vietnam seems ready to go ahead with the deal and exploration despite Beijing objections.
The BRICs are getting cozier.
In 2007 Brazil finally experienced a trade deficit with China. “Brazil’s official figures show its China-bound exports totaled $10.75 billion in value in 2007, with imports from China reaching $12.62 billion,” according to Xinhua. ” 6 percent of all Brazilian exports went to China last year, while 10 percent of all imports came from China,” according to NPR. Bilateral trade rose 71.7% in 2007. Trade between the two took off between 2000 and 2003, when trade rose five-fold, and then again from 2004-2007 when trade more than doubled (BBC).
In 2007, the United States, Brazil’s #1 trading partner, exported $24.6 billion to Brazil and imported $25.6 billion; however, China may soon supplant the United States and Argentina in trade importance to Brazil.
In Brazil’s July-launched China Agenda program, the Brazilian Foreign Trade Secretary spoke of hopes to triple exports to China by 2010, which would account for $30 billion. This could mean that by 2011, Brazilian-China trade could surpass US-Brazil trade. However, I think that is unlikely, as I explain below.
China Supplies Mfg. Goods, Brazil Supplies Raw Materials
“96 percent of Brazil’s Chinese imports are high-value manufactured goods, 74 percent of its exports to China are low-value commodities such as soybeans and pig iron,” according to the AP.
According to Agenda China, Brazil hopes to increase exports of 619 product lines, including “Brazilian pharmaceutical products, chemicals, plastics, shoes and metals, as well as expanding the array of agricultural goods, through a higher Brazilian presence at trade fairs and through visiting delegations of businessmen” (AP). Brazil currently has three consulates in China. They are located in Beijing, Shanghai, and Xianggang (Hong Kong).
Brazil supplies raw materials China will require, such as iron. However, it is difficult for Chinese ships to reach Brazil, which could feasibly increase transport costs. They only have three options; a sea route (through Panama), another sea route around the tip of South America, or perhaps a land/sea route that would need extensive development before it could be widely feasable.
Of the three, transport through the Panama canal is by far the quickest (by days). The planned increase in Sino-Brazilian trade will make it even more vital that Panama’s expansion of the canal (to serve larger ships) is completed by 2014. (Panama Canal Expansion Proposal)
“The current locks are 33 metres (108 feet) wide, but the new locks would be 50 metres (150 feet). A third lane of traffic would be able to handle the wider loads” (BBC).
There are fears, perhaps over-stated, by some in American Ports, that US ports are not prepared to handle the newer large class of ships that can transverse the channel. If US ports are not dredged deeper, the US will lose a percentage of trade to the Venezuelan, or Brazilian economies.
Given the current fuel-price increases and the necessity of long journeys for goods to be transported from Brazil to China, I consider it doubtful that Brazil will increase exports to China three-fold in the next two years. Although the countries have demonstrated an ability to increase trade, the current economic slowdown and Chinese resource investments in Africa and in Australian companies will make purchases from Brazil of less immediate importance.
Trade will increase, since both countries’ are growing despite global difficulties, both will experience slight drags on expansion due to the global slowdown. This will ultimately make unattainable Brazil’s three-fold growth in trade to China .
After 2014, however, with the Panama Canal’s widening, all bets are off. In those circumstances, Brazil-China trade could certainly increase, perhaps exponentially.
* An interesting blog post from MarketOracle on the Brazil-China trade (crica, Feb 2007)
China’s total direct investment stock in Africa accounted for only 1% of global foreign direct investment in Africa, as of 2007 according to the US Department of State (Keep in mind though, as an earlier article stated, this number probably does not include Hong Kong assets invested in Africa- the US Government needs to get on the ball about that). But by other measures, China-Africa cooperation is increasing exponentially.
Bilateral trade between China and Africa rose from $10 billion in 2000 to $70 billion in 2007, making China Africa’s second largest trading partner after the United States. This rise in influence has led to a spate of articles in recent years focusing on China’s interest in Africa. The topic is broad, and would require pages upon pages to properly evaluate.
However, one particularly intriguing aspect of Chinese involvement in Africa that can be focused on are their relations with South Africa- one of Africa’s leading states. In recent years China has benefitted from resource agreements with South Africa and the number of Chinese living in South Africa has risen almost exponentially. So here I examine to what extent China is benefitting from South Africa, and vice versa.
China-South Africa Trade Ties
“Trade between SA and China stood at $9.9bn last year , which represented a 36% increase on the previous year,” according to a Chinese trade minister quoted on AllAfrica.com. In 2007, trade between the two rose to over $11.2 billion.
“South African imports of Chinese products [were] valued at $7.5 billion (R49.1 bn) and South Africa exports to China valued at $3.64 billion (R23.7 bn) in 2007,” according to the Jamestown Foundation.
South Africa “has become China’s main trading partner in Africa over the past few years — its trade with China accounts for more than 5% of total Sino-African trade — and ranked 21st on the list of the Asian giant’s trading partners worldwide.”
Chinese in South Africa
In June, South Africa put its Chinese citizens on an equal footing with its black and Indians by classifying Chinese as “black people,” according to the BBC. This classification allows “ethnic Chinese [to] benefit from government policies aimed at ending white domination in the private sector.” According to Sky Canaves of the WSJ China Journal, however, this will only directly benefit the 10,000-12,000 Chinese who were citizens of South Africa in 1994, and their descendants. If this is true, the declaration will not directly benefit the Chinese who are foreign investors in South Africa, merely the residents.
According to the Jamestown Foundation, South Africa has nearly 300,000 Chinese living there as of 2007. This implies an exceedingly huge post-1994 immigration of at least temporary Chinese to the country.
Chinese Investments in South Africa & South African Investments in China
China’s investments in South Africa are mainly centered around acquisition of resources. Even the ballyhooed purchase of a stake in a South African bank had some link to resource-driven investment.
In November 2007, ICBC Bank of China agreed to purchase a 20% stake in South Africa’s Standard Bank Group. The stake is valued at $5.6 billion and is one of the largest foreign acquisitions ever made by a Chinese company. As a result of the purchase, according to the Economist “ICBC will get access to Standard Bank’s extensive banking network in 18 countries across the continent—not to mention its expertise in commodities.”
According to Keith Campbell of Mining Weekly, “the Chinese companies involved in South African mining are Sinosteel, East Asia Metals Investment (a subsidiary of Sinosteel), Jiuquan Iron & Steel (Jisco), Minmetals and Zijin Mining.” In African nations, China only has more companies (6) active in the Congo. These companies in South Africa account for millions in investment.
According to the World Bank book Africa’s Silk Road, South Africa is the leading African exporter to China of Iron ore (94.03%), Diamonds (99.27%), Iron or steel coils (100%), Platinum (100%), Aluminum and alloys (99.8%), Acrylic alcohols (100%), Ferro-alloys (99.99%), Copper ores and concentrates (40.67%– Tanzania accounts for 39.74%), and Aluminum and Aluminum alloys (100%). South Africa is second in provision of Copper and copper alloys at (29.25% to Zambia’s 48.36%). (Percentages in the paragraph were listed as a percent of total African trade to China compared to other African countries’ trade between 2002-2004.)
In February, Sinosteel invested an additional $440 million in investment in its South African Joint venture, Sinosteel South Africa Chromium Industry Co., Ltd. (founded 1996) in which it owns a 60% equity stake.
Sinosteel also has a 50-50% joint venture with Samancor established in 2006 and called Tubaste Chrome. At the time, the JV was valued at $230-million. The JV produces 280,000 to 300,000 tons of chrome a year.
Sinosteel’s subsidiary “East Asia Metals owns 60% of Asa Metals, the other 40% being held by Limpopo Economic Development Enterprise.”
China additionally entered into an agreement with Sasol, the world’s largest maker of coal to oil, to build a coal-to-oil plant. It should be completed by 2014 and produce 80,000 barrels a day.
The investments of the other companies are more thoroughly discussed HERE. In general, it appears that Chinese investments into South Africa are accelerating, but still represent only a small part of China’s foreign investment, and a small percentage South Africa’s foreign market. (40% of trade and billions in investment is accounted for by the EU-which, by use of a crude currency calculation came out to $38 billion US in two-way trade; calculated from a stated $300 billion Rand). This would make China’s two-way trade account for just under 10% of total SA foreign trade.
In 2006, South African companies made over $200 million in investments in China, according to the Jamestown Foundation. According to China Daily, the amount was $700 million. Leading investor companies included SAB-Miller, Sasol, Anglo-American, and Kumba Resources.
Both China and South Africa have urged restraint in involvement in Zimbabwe’s electoral chaos, and in dealing with Sudan. This conjunction of aligned views on the international system and beliefs about the supremacy of state sovereignty can bring the two countries closer together. Chris Alden, writing for the Jamestown Foundation, discussed this fact.
* The high rate of crime in South Africa can deter many Chinese investors, as both the Jamestown Foundation and a Chinese official, Zhou Yabin, can attest. People’s Daily had a February 2006 article on the rising crime against Chinese nationals.
Crime in South Africa took at least 14 Chinese lives in 2006. In December 2006, overseas Chinese “established a special fund designed to protect their security in the country… The fund will be used to award police, detectives and informers, who make contributions in solving cases.”
* The Jamestown Foundation also believes that if Jacob Zuma eventually succeeds President Thabo Mbeki in South Africa, that China relations might degrade. Zuma is said to listen closely to labor unions which tend to oppose immigrant China labor and China-run businesses. That being said, Zuma is reaching out to China, in June visiting the country. And Zuma has previous experience with China, co-chairing at least one bilateral commission with China’s top leaders in 2004. Concerning Zuma’s apparent interest in China, and China’s willingness to at times cater to the South Africans (Such as when China imposed voluntary textile export restraints) it appears that unless there is massive anti-Chinese backlash among South Africa’s citizenry, Chinese investments will continue to benefit SA, and SA resources will continue to benefit China.
* Other challenges are a possible trade protectionist backlash that could manifest against the Chinese. Planning for a South Africa-China Free-Trade pact agreement might fall through, or indeed it could become too successful and China-South Africa trade might become too unbalanced and threaten South Africa’s indigenous manufacturing industries, textiles, and communications technology.
It appears China-South Africa ties can continue to accelerate, especially given Beijing’s penchant for investing abroad in resources. But it bears remembering that they will have to compete with the US and the EU, which is currently a larger player in South Africa’s economic policy.
* China Daily’s timeline of China-South Africa relations 1998-2003.
* Chris Alden’s excellent article on China-South Africa relations.
The Asia Times reported recent border incursions by China’s troops into Indian territory in the area of Sikkim on June 16. Troops moved nearly one kilometer into the territory, then departed. There have been over 70 Chinese incursions into Sikkim since January 2008.
It is interesting these incursions happened in Sikkim, which China has acknowledged as part of India as recently as May 2004, rather than in Arunachal-Pradesh and Aksai Chin which are territories still under dispute- of course, incursions are still ongoing in Arunachal-Pradesh.
It is odd, but it appears the major Western news sites have oddly enough not yet picked up on this issue. Perhaps this is because India’s foreign ministry is “playing down” the news.
Sudha Ramachandran, writing for the Asia Times, has many ideas for why China increased its belligerence. Chief among his ideas is that the Chinese are using incursions in Sikkim to encourage India to give concessions in Arunachal and Aksai. Also in agreement is a China expert at an Indian think tank who argues China might be backing off recognition of Sikkim as part of India. The Chinese foreign minister, however, recently reiterated China recognizes Sikkim as part of India.
An increased show of force is likely to cause the Indian populace to dig in and oppose India ceding land. Since the Chinese are not led by foolish military leaders (one would presume), perhaps the increase in incursions is due to something else.
I would posit the main reason for the new incursions in a territory the Chinese already agree is part of India is to give the Indians a warning not to shelter and encourage the D*l*i L*ma of T&b&t&n Buddhism fame. China already warns countries not to receive the spiritual leader under threat of damaging relations. And the recent unrest unnerved Beijing. It reasonable to expect that China is willing to undertake drastic measures to limit the D*l*i L*ma’s influence in India.
The Chinese do not want their country to split because of tensions, and perhaps they see the Indians as encouraging those tensions. Thus, the border incursions are a warning among others that Bhaskar Roy of the India-based South Asia Analysis group describes, which are designed to modify India’s foreign policy behavior and its relationship to the D&l*i L&m&.
* An Economic Times article briefly explains the situation.
In this continuation of my review of Robert Shapiro’s Futurecast, I analyze his discussion on why Russia, India, and other countries will fail to achieve China and United States’ levels of growth in the coming ten to twenty years.
SHOULD THE WORLD BE CONCERNED ABOUT RUSSIA AND INDIA?
Shapiro discusses why Russia and India will not be able to match the United States or China in relative successfulness. He points out India is ranked 118th in the world for literacy.
Additionally, the Indian economy is still greatly underdeveloped. 60% of Indian labor is based in agriculture, and 20% is centered in extremely small, often one-person-businesses due to a regulatory culture with restrictive land policies and subsidies to miniature businesses that impedes business consolidation (101).
In comparison, a little less than 1% of the US’s economy is based in highly productive agriculture, and 43% of China’s workers serve in agricultural fields, all according to the CIA’s World Factbook.
In 2004, partially due to restrictive government policies, India received only $5.3 billion (2.3%) of the world’s FDI that was sent to developing countries; China received $60.6 billion (over 20%) (162). While this indicates India has potential to grow; the changes in regulatory environment need to come much quicker to encourage such growth.
India’s Democratic society is far less likely to sanction the painful changes than China’s semi-autocratic government permitted to increase efficiency and development. China ended many state pensions, reduced health benefits, and evicted thousands from their homes. Shapiro does not believe India has the political will to carry through similar needed reforms.
Shapiro does not discuss, but it bears mentioning that India also faces a military challenge. With unrest and instability increasing in Pakistan, the chances for an armed confrontation over Jammu-Kashmir and other disputed regions may increase.
Muslim-led terrorist attacks, such as a 2006 train bombing by extremists that killed over 170, have been significant in recent years (See the Jamestown Foundation’s Terrorism Monitor and the CFR report on Indian terrorism for more information; an Indian think tank discusses terrorist violence in India and points out that the number of yearly deaths have declined from 2002 to 2006, but still over “2,765 people died in terrorism-related violence in India during year 2006.” [Important to note: some violence involved other groups such as the Naxalites])
Shapiro also avoids in-depth discussion of possible China/India and China/United States confrontation in the near future. China and India have been working hard to resolve border disputes, but all disputed land is not yet resolved. Additionally, both have interests in Southeast Asia, and their expanding navies could come into a conflict over operational spaces. A naval confrontation over bottlenecks such as the Strait of Malacca, however, will not be likely until both countries develop their militaries to become true regional powers- something that will elude China until the mid to late 2010s, and which India may not achieve until the 2020s.
Shapiro argues Russia’s demographic decline (its aging and population decrease) will contribute to a drop in productivity that will be exacerbated by a murky legal environment that could discourage foreign investment and development. Considering how Russia is currently benefitting from $135 a barrel oil, it is becoming much more flush with cash.
But extra cash does not necessarily equate to extra power. Mexico, Saudi Arabia, Nigeria, and other Middle Eastern states have squandered huge oil windfalls in the past without managing to pull their countries out of poverty and into fully sustainable modern economies.
Shapiro’s analysis of Russia could have benefitted from an indepth discussion of the effect that increasing linkages between China and Russia might have in spurring Moscow to faster development.
China/Russia trade was $50 billion in 2007, and Russia is China’s 8th largest trade partner. Chinese FDI in Russia is estimated at only $3 billion in 2006, “less than 5% of total FDI stock in Russia,” according to a report in the China and Eurasia Forum Quarterly. However, that amount of Chinese FDI sent abroad still accounts for the 6th highest Chinese foreign FDI received by any country in 2006 (excluding tax havens).
Russia may have the largest FDI ODI (Outward Directed Investments) of the BRIC (Brazil, Russia, India, and China) countries– valued at $50 billion+ in 2007, but its FDI has yet to have a large positive effect on foreign countries. Russia’s largest investment targets are located in Cyprus (receiving 37.5%), Luxembourg (26.7%), and the United States (6.7%). Of Russia’s allies in the CIS (Commonwealth of Independent States), Armenia and Belarus receive the most investment according to Deutsche Bank, but it would be difficult to argue that either of those countries has become an economic success due to Russian development.
A later analysis will examine the Russian/China energy trade, but the data for Russia/China business and resource trade, according to Deutsche Bank and a China-Eurasia Forum Quarterly report by Libor Krkoska and Yevgenia Korniyenko, indicates Russia’s culture of bureaucratic inertia will disrupt development. Also, Russia’s corrupt business practices have gotten worse, according to Freedom House, which might stunt further development.
Russia has a long way to go before it can become a viable partner for China, and historical tensions between the countries might yet preclude strong agreement and alliances in the next five to ten years.
RECIPE FOR SUCCESS?
Shapiro lauds slashing corporate tax rates [as was done to good effect in Sweden and Ireland] (33) and convincing workers that “their interest lies in accepting fewer benefits and less economic security from their governments” (32), since “the American and Chinese approaches can sustain themselves over the next generation, while Japan and Europe’s systems cannot” (34).
Shapiro points out that from 1990 to 2006 “the global market share of European manufacturers shrank from 18.5% to just over 14%, while the global market held by American companies rose from 21 to 23%” (183). He cites that the key to growth– he gives Ireland as an example [especially due to its IT and Pharmaceutical industry successes] (201)– is to “open its economy to foreign competition and investment.”
“In 2006, Europe’s major countries accounted for just 10% of world GDP, less than 1/2 of what America produced that year” (176).
Shapiro spends the rest of the book discussing challenges in health care, energy, and the environment, lamenting a possible doomsday-scenario of economic collapse in China coming on $150 a barrel oil. We’ll see how that plays out. China’s Oil Price Freeze discussed some of the tensions threatening to emerge in response to China’s insistence on keeping energy prices stuck at November 2007 levels, and Consequences of China’s Oil Price Hike discussed tensions that might emerge now that China has raised some energy prices.
Futurecast offers little new specific for China-watchers and makes a few slightly dubious surface-assertions in regards to Chinese strengths and weaknesses, but that has to be expected from a broad overview. The book is easy to read, and doesn’t make any glaring errors.
If one is reading for a broad and ambitious look at future geopolitics two to ten years down the line, this book is a good read. I would recommend it to a person who is generally interested in China, or anyone who wants to feel happy about the United States’ place in the world community since this book does an excellent job of Pro-America cheerleading.
The April 2008 CRS American government report I mentioned before in “China’s Soft Power” dredged up some good statistical data regarding China’s economic reach. However, the CRS analysis fell flat by not including Hong Kong’s FDI in the full calculation of China’s FDI and influence on foreign countries.
China’s 2007 stock of FDI abroad is either $93.7 billion (according to the CIA), or $73.3 billion (according to the report; CRS, 22) or $292 billion (according to UNCTAD); but if you add Hong Kong there is an additional $534 billion or $769 billion in FDI stocks to be accounted (according to the CIA and UNCTAD respectively), or $43 billion in same-year 2006 FDI flows, according to UNCTAD.
Because Hong Kong’s FDI is omitted, the CRS report understates much of China’s world-wide influence.
Of course, much of Hong Kong’s $534 billion in FDI is reinvested back in the mainland.
Many factors can be evaluated when considering China’s worldwide economic influence. Here, I highlight two main ideas touched on in the report; China’ Foreign Trade, and its FDI.
China’s main trading strengths are with countries bordering it such as Japan, South Korea, Central Asia, ASEAN, and Pacific Island Countries. Its total trade with Pacific Island Countries was $754 million in 2006, compared to $404 million by the United States, $3.7 billion by Australia, $918 million by Japan, and $832 million by the EU-25 countries (CRS, 36).
“[I]n 2007, China’s total trade with ASEAN was 17% larger than total U.S. trade ($200.6 billion versus $171.7 billion). China’s exports to ASEAN in 2007 were 55.6%” greater than United States’ exports to the region, while U.S. imports from ASEAN were 2.6% greater than China’s imports (CRS, 91).
“Based on the fact that China’s imports from ASEAN in 2007 grew by 21.1% (over the previous year), versus 12.4% for the United States, it is likely that China’s imports from ASEAN will be larger than U.S. imports [from the region] in 2008. China ran a $14.1 billion trade deficit with ASEAN, while the U.S. trade deficit totaled $50.6 billion” (CRS, 91).
China’s trade with Japan was $210.7 billion in 2006; Japan’s amount of trade with the US was $213.5. The trend in trade indicates China is probably now Japan’s number one trading partner (CRS, 43). Japan receives 9.5% of China’s exports.
China’s trade was greater that US trade with South Korea in 2006. China-SK had $118.1 billion in bilateral commerce, compared to America’s $76.9 billion in bilateral commerce with the peninsular state (CRS, 44). China’s trade with the country is rapidly accelerating and currently accounts for 4.6% of China’s exports (CRS, 45).
China’s trade with Central Asia was $12 billion in 2006 (CRS, 71), accounting for 1.34% of Chinese export trade (CRS, 72). In 2003, US trade with Central Asia amounted to $1 billion. In 2006, the United States imported $1.3 billion from the 5 Central Asian states and exported around $927 million to them (Data from HERE, HERE, HERE), HERE, and HERE). for a total of around $2.3 billion; dwarfed by China’s trade with the region.
WHERE THE UNITED STATES’ TRADE INFLUENCE REMAINS STRONG
In contrast, the United States still trades more with Latin America and Africa, two regions often identified as places where China might eventually challenge the United States’ trade dominance.
“China’s overall trade with LAC [Latin American Countries] grew to about $70 billion in 2006, representing just 4% of its overall trade. In comparison, U.S. trade with Latin America and the Caribbean amounted to almost $555 billion in 2006” (CRS, 26).
“From 2001–2006, the absolute value of U.S. goods trade with Africa, at $71 billion, was greater than that of Sino-African trade, but Chinese-African trade grew at a much faster rate than U.S.-African trade.” Then again, it had a longer way to rise. “China’s total trade with sub-Saharan Africa rose from $8.92 billion to $45.35 billion in that period, an increase of 409%, as compared to a 152% rise in total U.S.-African trade” (CRS, 119).
WHAT EFFECT DOES CHINA’S RISING TRADE HAVE?
China’s growing influence in trade with its Asian neighbors could lead to future trade embargoes and conflicts such as the 2001 mushroom/automobile trade war between China and Japan. This began when Japan placed a tariff on Chinese leeks and mushrooms. In return, the Chinese imposed oppressively high tariffs on Japanese cars, mobile phones, and air conditioners. The Japanese eventually backed off. It is important to note, however, that the mushroom trade war happened before full Chinese ascension to the WTO. Now that China is part of the WTO (since November 2001) and greater integrated into the world financial system, such trade wars might be less likely to occur.
US-CHINA TRADE & THE TRADE DEFICIT
The United States received, in 2006, 21% of China’s exports (CRS, 45). “In 2007 the United States incurred a merchandise trade deficit of $256 billion with China, $83 billion with Japan, and $13 billion with South Korea (43% of the total U.S. trade deficit of $816 billion) (CRS, 60).
As earlier noted; estimates of China’s FDI investments in foreign countries might be incorrect due to non-inclusion of Hong Kong FDI numbers into the CRS report.
From existing data, it appears China’s FDI sent abroad is relatively low.
“From 2002–2006, U.S. FDI flows to ASEAN were $13.7 billion (or 8.0% of total), making the United States ASEAN’s 4th largest source for FDI. Over this period, China’s FDI totaled $2.3 billion or 1.3% of total, making China the 10th overall source of ASEAN’s FDI” (CRS, 95). “The United States remains ASEAN’s 2nd largest trading partner (China ranks 5th) and its 4th largest source of foreign direct investment (China ranks 10th)” (CRS, 102).
“While China’s reported cumulative stock of FDI in [Latin America] amounted to $11.5 billion in 2005, the cumulative stock of U.S. FDI in the region amounted to $366 billion in 2005, and grew to $403 billion by 2006” (CRS, 26).
Considering the difficulties of analysis; rather than getting into a deeper blow-by-blow analysis of China’s FDI around the world, I’ll point out an interesting point.
According to the UN; US and Japan’s year 2005 FDI into China accounted for $95 billion, which is $22 billion more than China’s total 2006 FDI invested everywhere in the world (CRS, 47). Using those numbers, it still appears that foreigners are developing and affecting China more than China is developing and affecting the world.
At least that’s how it is for now, anyway.
There’s a lot more to read in the US Government report, from a discussion on Sino-Japanese-Korean relations, to analyses of how the Taiwan issue affects international relations and of China’s energy diplomacy and the SCO (Shanghai Cooperation Organization), to in-depth discussion of international loans and trading and nuanced explanations of where China’s FDI is heading and why.
Despite its flaws, the report is still well worth checking out.
* Also of Interest: UNCTAD’s World Investment Report: 2006
I just found an intriguing report, put out by the United States government in April 2008, and available at the Federation of American Scientists’ website detailing China’s Foreign Policy and ‘’Soft Power’’ In South America, Asia, and Africa. The article is available at: http://www.fas.org/irp/congress/2008_rpt/crs-china.pdf
It makes several startling conclusions contrary to mainstream fears of China’s increasing soft power and influence in the developing world, including:
* “China has attempted to exploit its ‘‘no strings attached’’ foreign aid stance and its ability to deploy state-owned assets to reap softpower advantages. But CRS finds that China’s success has been mixed and its influence remains modest. Contrary to some projections of China’s ability to displace American influence through the use of soft power, the CRS report indicates that China must grapple with many limitations on its influence” (viii).
Is this wishful thinking on the part of the American defense and diplomatic establishment?
Britain’s The Economist partially concurs with the US government report, arguing that “concerns about the dire consequences of China’s quest for natural resources are overblown.” Also, it calls attention to assertiveness on the part of resource-owners in Gabon, Peru, and the Philippines where Chinese corporations were kept out of national parks and other companies were investigated for corruption– hardly the actions of countries coddling China or intimidated by its might.
Meanwhile, oil extraction agreements signed with African countries keep on coming with a June 5th $5 billion oil extraction deal in Niger.
* “And CRS found that China’s cumulative stock of foreign direct investment (FDI) worldwide amounted to just $73.3 billion at the end of 2006—0.58% of global FDI” (viii).
That is surprising. I will have to look into how they calculated the FDI.
* It also calls attention to blowback against the Chinese, particularly in Zambia.
I intend to pour through the report over the next few days and I’ll post more in-depth comments and analysis. For now, I thought you’d enjoy seeing the report and welcome any comments.