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Business Week: China: Is Beijing Greedy for Oil?

By Wenran Jiang
Western countries are quick to blame China's growing energy needs for rising prices. Instead, they should try to capitalize on it with new solutions
China's growing appetite for energy has caused widespread concern in the West. The Middle Kingdom is blamed for the sharp increase in global oil prices in the past few years. Meanwhile, the U.S. is uneasy about Beijing's cozy relations with major oil producers such as Iran, Saudi Arabia, Sudan, and Venezuela — some of which are hostile toward Washington. Some strategists think China's vast energy needs could eventually be a security threat in a world of diminishing resources.
That kind of talk creates plenty of resentment within the top echelons of Chinese President Hu Jintao's government. For one thing, China is paying a huge energy bill for a still-developing economy, a point not always recognized in the West.
Consider that in 2004, Beijing's oil bill rose by $7 billion thanks to climbing prices (the total energy bill that year topped $42 billion), making crude oil and petroleum products the country's largest single import item.
POLITICAL FIRESTORM. The dominant Western view holds that the worldwide increase in demand, especially from China and India, and tight global production capacity conspire to keep oil prices high. Beijing sees things far differently. The Chinese suspect the real culprit is Western government-backed, profit-seeking “international petroleum crocodiles” that manipulate oil prices. Reports in recent weeks of windfall earnings by Exxon Mobil (XOM), BP (BP), and Royal Dutch Shell (RDS-B) only enhance such perceptions.
Or take last summer's political firestorm in the U.S. over China National Offshore Oil Corp.'s (CEO) $18.5 billion bid for Unocal. CNOOC dropped its bid last August after the U.S. House of Representatives effectively blocked the deal by referring it to the Bush Administration for a national security review. California-based Chevron (CVX) ended up bagging Unocal — and plenty in Beijing came away convinced the U.S. doesn't always live up to the free-market rhetoric it broadcasts to the rest of the world.
Some even suspect the U.S. is committed to slowing down the pace of the mainland's development by keeping energy prices dear and limiting the role of Chinese companies in the global energy market. After getting snubbed on the Unocal bid, the Chinese have looked elsewhere, making a series of high-risk energy investments in Africa, the Middle East, and Latin America. So when they read Western media accounts of Beijing getting into bed with dictators or “rogue states” as defined by the U.S., they feel especially bitter.
SEA BATTLE. Given the perception gap, some Chinese strongly advocate a speedy buildup of the country's navy to protect vital energy shipping routes in Asia. Currently, a popular Chinese online novel, The Battle in Protecting Key Oil Routes, imagines a decisive sea engagement near the Strait of Malacca linking the Indian Ocean and South China Sea, in which the Chinese destroy an entire U.S. Pacific carrier group.
Beijing also objects to the working assumption among many Western analysts that Chinese demand is driving up oil prices. Most of China's energy needs are actually met by coal, a plentiful resource on the mainland. Only 6% of its energy comes from abroad.
True, China is a big and growing importer of oil, but the mainland still only represents about 3% of overall global oil trade. The U.S., with only 5% of the world's population, consumes 20% of the daily global oil supply, vs. 6% in China, home to about 22% of humanity.
DON'T BLAME CHINA. The idea that China's hypergrowth means it will quickly catch up with U.S. demand in absolute terms isn't valid, either. In 2005, with increased domestic energy production, China's oil imports grew by just 3.3% even as the economy surged by nearly 10%. This year oil imports will fall, says Lu Jianhua, director of the Foreign Trade Dept. of the Commerce Ministry. “It is unfair to blame China for rising international oil prices,” Lu says.
Meanwhile, Beijing is aiming for more self-reliance in energy. It's developing sources such as hydropower and nuclear reactors — and has met some initial success. That is crucial to Beijing's foreign policy. China doesn't want to be tarred as a rapacious energy user willing to do deals with any regime, no matter how internationally isolated, to lock up oil and natural gas assets. If China succeeds in keeping demand for oil from growing at explosive rates, it will be less vulnerable on that point.
It would also help remedy two other problems: China's serious environmental degradation and grossly inefficient use of energy. China remains the second-largest emitter of carbon dioxide (after the U.S.), while most of its cities and rivers are severely polluted. The mainland burns three times as much energy as the global average — and many times more than industrialized countries — in producing every dollar of gross domestic product. To change that, it is spending $150 billion on renewable and alternative energy projects during the next 15 years.
WORK TOGETHER. Instead of blaming Beijing for its energy demands or containing China as an energy threat, the industrialized countries should try to capitalize on China's need for new technologies that promote energy conservation and efficiency, environmental protection techniques, and renewable and alternative energy production. China also needs to be engaged in joint-efforts to manage global warming.
A cooperative approach in solving common energy security issues between China and the West will moderate Beijing's foreign policy behavior, making it easier to work out tough issues such as the ongoing Iranian nuclear crisis. Yet all this depends on some clear thinking in the West about what really drives Chinese behavior when it comes to energy security.
Wenran Jiang is a professor of international political economy and director of the China Institute at the University of Alberta, Canada. He can be reached at: [email protected]

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