Belt and Road Initiative: Chinese Energy Security and Trade Policy

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Mengtao is a second year student, studying Philosophy, Politics and Economics with a focus on global energy and international relations. He is also serving as the KCLSU International Finance Network Organizer and research assistant at Department of Political Economy.

The Belt and Road Initiative (BRI) is perhaps the most famous diplomatic proposal by Chinese President Xi Jinping, inspired by the ancient Silk Road linking Asia and Europe, covering a wide array of areas of international cooperation and aiming principally to strengthen China’s connectivity with the world.

The BRI reflects China’s determination to play a more active role in the international arena and President Xi has emphasized on different occasions that China, as a responsible major country, will stand firmly for peace, development, cooperation and win-win outcome. Unofficial statistics show that the initiative includes 138 countries with a combined Gross Domestic Product (GDP) of 29 trillion and about 4.6 billion people in 2019.

The BRI has considerably potential political and economic gains for China. It is an opportunity for China to increase its influence, spread its culture, and benefit from globalization. Additionally, it will also help China to maintain its energy security.

In 1973, China began exporting crude oil to Japan and exports increased to 20 million tons in 1985. Due to the reform and opening up and the rapid economic growth associated with it, China started consuming a larger amount of oil to power its rumbling machines and sustain its role as the world factory. By 1993, domestic demand for oil exceeded domestic production and China became a net oil importer. It is now the world’s largest oil and gas importer. According to China Customs Statistics, China imported approximately 41.24 million tons of crude oil and 8.21 million tons of natural gas monthly.

The Chinese leadership is aware that heavy reliance on oil import is a threat to China’s energy security. Securing energy supply and transport has always been a priority on government’s agenda.

The BRI is helping China secure energy supply and transport. World’s Top Exports shows that Russia, Saudi Arabia, Angola, Iraq, and Oman are the top 5 China’s main crude petroleum suppliers, taking up around 55.2% of total China’s crude oil imports for 2018. Unsurprisingly, all of them are members of the BRI. Russia was actually one of the most active supporters of the BRI when it was first proposed. Xi and Putin met more than 20 times from 2013 to 2017 and they upgraded the Sino-Russia relations to comprehensive strategic partnership a few years ago. Saudi Arabia is also among the first to join the BRI in and the Crown Prince Mohammad Bin Salman is expecting China’s help with his Vision 2030.

For a long time, the majority of oil import is from the middle east, therefore, to transport crude oil to the East coast of China, oil tankers need to pass through the Strait of Malacca. Geographically, the average depth of the Strait is only 25 meters and the minimum width is 2.8 km, which limits the size of ships and the amount of cargo, such as Chinese manufactured products and crude oil, they can carry each time. Malaccamax ships are the largest oil tankers designed to pass through the Strait of Malacca. Larger vessels like Chinamax and Capesize need to detour a few thousand nautical miles and use the Lombok Strait, Makassar Strait, Sibutu Passage, or Mindoro Strait instead. Politically, the Strait of Malacca is under joint jurisdiction of Singapore, Malaysia, and Indonesia. The U.S. Navy, Japan Maritime Self-defense Force, and Indian Navy maintain regular patrol in the sea lanes. Geopolitical risk is apparently high for China and future conflicts which those countries would possibly result in China’s oil supply being cut off.

To reduce dependence on the Malacca Strait, China has shifted its focus to Central Asia, Pakistan, and Myanmar. The Gwadar Port is a deep-sea port located on the Arabian Sea at Gwadar in Baluchistan province of Pakistan, initially built by the Pakistan government and was officially leased to China for 43 years in 2015, which is a prominent project of the China- Pakistan Economic Corridor (CPEC) and the BRI. South China Morning Post reports “China financed more than 80 per cent of the US $248 million development cost of the port on the Arabian Sea, as part of a plan to open up an energy and trade corridor from the Gulf, across Pakistan to western China.” Oil pipelines connecting Gwadar of Pakistan and Kashgar of China would significantly reduce the transport distance and the provisional capacity of the oil pipeline will be one million barrels per day with the potential to be further increased.

Myanmar is a key partner of China under the Belt and Road initiative. In 2007, Myanmar announced that it would build a deepwater port in Kyaukphyu for transporting oil and natural gas to China, with US$2.45 million Chinese investment. In 2018, Aung San Suu Kyi and Xi Jinping agreed to launch the China-Myanmar Economic Corridor (CMEC) which will “connect China’s Kunming to Mandalay and then extending east and west respectively to Yangon and Kyaukpyu,” where the strategic 1,060 km gas and crude oil pipeline begins, enabling China to transport 400,000 barrels of oil per day. Therefore, Chinese oil tankers can avoid passing through the Malacca Strait and significantly reduce the geopolitical risk and shipping distance. Similar projects can also be found in Kazakhstan and other Central Asian countries, allowing China to transport oil and gas from Russia to mainland China.

China is also developing national strategic petroleum reserves, which is estimated to be approximately 400 million barrels in total, and it is planning to increase its reserves to 90 days of supply by 2020. The combination of securing energy supply and increasing oil reserves will significantly enhance China’s ability to sustain its future economic development.

Footnotes:
King, Byron (June 2005), “Investing in Oil: A History”, The Daily Reckoning
China Power. “How Will the Belt and Road Initiative Advance China’s Interests?” ChinaPower

Project, 18 Oct. 2019, https://chinapower.csis.org/china-belt-and-road-initiative/.
Workman, Daniel. “Top 15 Crude Oil Suppliers to China.” World’s Top Exports, 6 Oct. 2019,

http://www.worldstopexports.com/top-15-crude-oil-suppliers-to-china/.

“Ship Sizes.” Maritime Connector, http://maritime-connector.com/wiki/ship-sizes/.

“Pakistan Hands Management of Strategic Gwadar Port to China.” South China Morning Post, 18 July 2018, https://www.scmp.com/news/asia/article/1153524/pakistan-hands-management- strategic-gwadar-port-china.

Cpec. “CPEC to Connect Gwadar and Kashgar through an Oil Pipeline.” CPEC Latest News, http://www.cpecinfo.com/news/cpec-to-connect-gwadar-and-kashgar-through-an-oil-pipeline/ NTMyNA==.

中国石油战略 – 搜索结果 – 知乎, https://www.zhihu.com/search?type=content&q=中国石油战 略.

Yhome, K. “Emerging Dynamics of the China-Myanmar Economic Corridor.” ORF, https:// http://www.orfonline.org/expert-speak/emerging-dynamics-of-the-china-myanmar-economic-corridor- 50847/.

Photo credits: https://www.alliancebernstein.com/library/can-investors-make-money-in-a-us-china-trade-war.htm

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