Rethinking energy security in China

Author: Andrew Kennedy, ANU

If China’s rise is one of the most important stories of this new century, China’s soaring appetite for energy is one of its most striking subplots. Between 2000 and 2008, China’s demand for energy grew so quickly that it single-handedly accounted for 51 per cent of world demand growth during that span. By 2008, China was consuming 43 per cent of the world’s coal, 19 per cent of its hydroelectric power, and 10 per cent of its oil. If current trends continue, China will overtake the US as the world’s largest energy consumer in the next few years.

China’s soaring energy needs have generated considerable anxiety among Chinese strategists about the country’s ‘energy security’ and its strategic position more broadly. Traditionally, the focus has been on China’s energy imports and the external dependence that these imply. While China only became a net oil importer in 1993, it now meets more than 50 per cent of its oil needs through imports, and that figure may reach 80 per cent by 2030. Most of these imports are shipped from Africa and the Middle East, wending their way to China through the Indian Ocean and the narrow Malacca Strait. Worries about the vulnerability of these supply lines have helped motivate a range of Chinese policies in recent years; Beijing has supported its national oil companies (NOCs) as they invest overseas, approved pipeline projects to overland neighbours, concluded long-term supply contracts with producer states, started construction of a strategic petroleum reserve, and looked to build a more powerful navy.

Nonetheless, China’s deliberations about energy security are much broader and varied than this narrow and relatively nationalistic set of policies would suggest. Despite the high oil prices of recent years, some Chinese experts now hold a more optimistic view of energy imports, and seek to reassure their compatriots that ‘external dependence is not scary,’ as one expert has put it. In this view, China needs to deepen its integration with international energy markets and institutions, rather than striking out on its own. Indeed, some of the more nationalistic policies and proposals of recent years have been criticised as misguided, ineffective, and even provocative. Whereas it is commonly believed that the NOCs’ investments abroad provide China with a more reliable source of foreign oil, for example, market-friendly critics deride this view as naïve, and suggest that national support for the NOCs merely causes Beijing to embrace international pariahs like Sudan. Other analysts have questioned the enthusiasm for pipeline projects, not only because pipelines are immobile and thus relatively easy to disrupt but also because Russia’s reliability as an energy supplier remains open to question.

More fundamentally, some of China’s energy experts now maintain that the traditional obsession with external dependence misses the real problem: the weaknesses of China’s own energy system. Such weaknesses were readily apparent as early as 2004, when surging demand for electricity led to crippling power shortages across most of the country. The unreliability of China’s power sector has since been underscored by additional shortages in early 2008 and 2010. Following the 2008 episode, Zhu Chengzhang, a former energy official in the central government, was moved to argue that ‘electric power security is the most important energy security problem’ for China. And yet the reliability of power is not the only domestic concern. China’s heavy reliance on coal means that its rising consumption has taken a devastating toll on its own environment and people, while also making China the world’s leading producer of greenhouse gas emissions.

China’s leaders are clearly rethinking their approach to energy security as well. While they remain wary of international energy markets, they have clearly expanded their conception of energy security to include domestic challenges. As early as 2006, President Hu Jintao proposed a ‘new energy security concept’ while speaking at the G8 summit in St. Petersburg, noting among other things the need to control domestic demand and for ‘sustainable development of human society.’  Such rhetoric is not merely cheap talk. Together, Hu and Premier Wen Jiabao have made a real effort to reform China’s energy system, setting targets to increase the economy’s energy efficiency and boosting the spread of renewable technologies. At the same time, they have moved to strengthen the hapless institutions that attempt to govern the country’s sprawling energy sector, albeit with limited success. A serious beginning has been made, therefore, even as much work remains to be done.

The outside world should look for ways to encourage these more progressive trends in Chinese thinking about energy security. To reinforce arguments that a multilateral approach to energy interdependence is the best way forward for China, other countries should make it clear that Beijing would be welcome in institutions like the International Energy Agency. Chinese membership in the IEA would not only offer China new opportunities to collaborate with the outside world, it would also help to ensure that the organisation remains relevant in the future, as more and more of the world’s energy demand comes from outside its traditional OECD membership. The US has already stated its support for China joining the IEA; it is time for other prominent members to voice such support as well.

The outside world should also encourage the Chinese government to devote more attention and resources to its domestic energy problems – and not just by pressing Beijing to slow its greenhouse gas emissions.  Despite the steps taken in recent years, China’s governance of the energy sector remains woefully inadequate, and greater efforts to strengthen central oversight are warranted, culminating in the re-establishment of a central Ministry of Energy. Foreign governments should thus be open to concluding capacity-building agreements with China’s National Energy Administration, which has limited ability to develop and implement central energy policies. Perhaps even more important, developed countries should strive to set a better example for China.

Countries like the US and Australia, to name two prominent examples, would be more credible advocates of demand management and pollution control if their national legislatures passed new laws in pursuit of these goals. In short, as the outside world asks more of China, it must also ask more of itself.

Andrew Kennedy is Assistant Professor in the Public Policy Program in the Crawford School of Economics and Government at the ANU.

For more on this topic see Survival: Global Politics and Strategy, vol. 52, no. 3, June–July 2010, pp. 137–158, available here.

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