China's energy policy dr paramonov

China’s energy policy and interests in Central Asia

Project “Central Eurasia”, www.ceasia.ru Еmail: [email protected] ; [email protected]

Copyright © 2012

Vladimir Paramonov, Ph.D.,Tashkent, Uzbekistan

The project is covers political, economic, security, and energy issues in Central Eurasia. Country and regional level relationships within Central Eurasia are explored.The issues of integration, activities of the countries within regional institutions, country and regional level relationships, policy of Russia, China, and other major players in Central Asia are widely researched and discussed. Interviews and power point presentations done by the team members are also available.

Project “Central Eurasia”

Presentation is based on Research Report "Chinese Presence in Energy Sectors of Central Asian Countries - Is It New Threat or New Opportunity?", which was prepared during 2006-2011. The Report covers the issue of China's modern policy in the energy sectors of Central Asian countries, including its' nature in the light of interests of Russia, which is considered to be strategic partner of the regional states .

"Central Asia" means the area of central Eurasia comprising five states – Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan – which were established by their declarations of independence and the collapse of the USSR in 1991.

Central Asia is land-locked region. On the one hand, during periods when the state formations on the territory of modern Central Asia were integrated into the system of regional and inter-regional economic ties they experienced an intensive development.

On the other hand, when these ties collapsed there was an economic recession.

Introduction

Notion of the “Central Asia”

The Central Asian region has traditionally been an area of special interest in the foreign policies of China.

For many centuries the state formations on the territory of modern Central Asia were integrated into a global system of economic (trade) ties, namely the Great Silk Road.

In the days of the Great Silk Road, which flourished until about 1500 AD, state staging-posts, located on the territory of modern Central Asia, served as a transport bridge between China and Europe. It was China that drove the economic development of the region, being the principal source of scientific knowledge and technology.

Introduction

History of relations of China with Central Asia

The development of shipping in the Age of Discovery (the 16th century) meant that sea transport routes became more important for world trade than land routes such as the Great Silk Road, and the relatively low cost of transporting goods by sea led to the geographical and economic isolation of Central Asia, which continued right up to the middle of the 19th century.

Introduction

Introduction

In the latter part of the 19th century, when Central Asia became part of the Russian Empire it became less isolated and developed stronger economic links, mainly with Russia.

Introduction

As was the case during the heyday of the Great Silk Road, especially from the second half of the XIX century Central Asia experienced an economic upsurge. Central Asia began to escape from its economic and geographic isolation. Strong trade links were forged.

The fall of the Russian Empire in 1917 saw the beginning of a radically different relationship between Russia and Central Asia, as the Soviet period was a time of great economic progress for this region.

Until the disintegration of the Soviet Union, Russia remained the main locomotive of economic progress in Central Asia and played the major role in developing the modern economic character of the region. As a result Central Asia’s states turned into a developed agrarian-industrial republics with a high level of education, health care, culture, art, science and public welfare. The disintegration of the USSR in 1991 led to the virtual collapse of economic relations between the Russian Federation and the countries of Central Asia, giving a boost to the development of economic relations between these countries and the People's Republic of China.

Introduction

The exceptionally close integration in the Soviet period has resulted in the economies of Russia and Central Asia (and other CIS countries) remaining interdependent today.

Introduction

Economic interdependenceof Russia and Central Asia

During existence of the USSR energy sector of the Russia and Central Asian republics used to be a single organism, vitality of which was secured by close links between all of the key branches of energy sectors of these republics, and enhanced during the decades of cooperation through operational schemes and algorithms of coordination.

In turn, functioning of the branches of energy sector was fully complied with the objectives of the development of real sector of economy within the framework of unified by integrated and long-term state plan and common strategy for both Russia and Central Asia in the fields of policy, economy, and security.

Introduction

Interdependence of energy sectors and collapse of the USSR

- tides of efferent- disintegration trends supported by Russia and Central Asian countries' policies on multiple-vector course.

Introduction Collapse of the USSR resulted not only in disappearance of the united economic, political, defense, and energy area, but it also led to two other key main implications:

- undermining the key function of energy sector: providing sustainability of the production of material values in general;

In consequence, many of the branches of the energy sector (firstly, oil-and-gas branch) of Russia and Central Asian states ceased to comply with the strategic objectives of development of real sectors of their corresponding economies. Nowadays energy sectors of Russia and Central Asian countries mainly focused, at the best, on short-term national interests, and, at the worst, on specific corporate and pure commercial business-purposes.

China in Central Asia

Stages of China’s energy policy

In the post-Soviet era, China’s energy policy in Central Asia has been consistently placing greater importance on the region as one of Beijing’s domestic and foreign policy energy-related priorities.

In the first half of the 1990s, China’s economic interest in Central Asia was fairly limited, concentrating mainly on trade with Kazakhstan and Kyrgyzstan. In fact, at that time, the Central Asian countries never considered China an important economic partner, their hopes being pinned on Russia and the West, as well as on some of the financially attractive and culturally close Islamic states.


In the mid-1990s, China displayed the first flickers of interest in the Central Asian energy complex, which has been steadily growing since that time along with Beijing’s interest in other spheres of the region’s economy. China clarified its interests in Central Asia to help promote the newly launched program of accelerated development of its inland territories. But in general, in the latter half of the last decade of the 20th century, the project activities of China and Chinese companies in the Central Asian energy segment were concentrated in Kazakhstan’s oil and gas sector.

In the early 21st century, Chinese energy interest began gradually spreading to the rest of the region to become diversified by the industry’s branches. Central Asia’s importance was boosted by the changed economic, energy, and geopolitical factors. In the wake of 9/11, the region, which had so far remained in the backwater of world development, found itself in the center of hectic political activities. Today, China is showing a lot of interest in the oil and gas of Kazakhstan and Turkmenistan and in the nuclear power (uranium) production of the former. China is paying enough attention to the energy complexes of the rest of the region.

Proportions of Chinese and Russian trade in overall foreign trade of Central Asian countries

Comparison of volume of Russian and Chinese trade with Central Asian countries

Domestic policy. China’s general strategy is geared toward boosting the efficiency of the planned and centralized state administration and management of its developing economy, while liberalizing economic activities at home. This calls for a balance between the traditional socialist and the capitalist conceptual and ideological attitudes, principles, and goals designed to preserve the country’s integrity and security and ensure its sustainable development.


The role and place of energy in China’s domestic and foreign policy

The national-state ideology and the leading role of the Communist Party of China are never questioned.


Chinese energy complex is intended to ensure consistent development of all the economic segments, social and economic stability, and stronger military and political might. China’s energy policy was and is concentrated on the following:(1) stage-by-stage development of the domestic raw material base of the national energy complex;(2) its accelerated technological modernization; and(3) diversification of national power production by using all types of energy sources.

Foreign policy. China is seeking a place among the key players on the global economic and political scene. It is placing its stakes on greater efficiency and attractiveness of the Chinese economic model while trying to find a niche for the country in the global processes and the quest for mechanisms of their efficient management badly needed to preserve its integrity, sustainable development, and security, as well as its position in the world.

Applied to the energy sphere, the above means that Beijing should protect its economic interests and its influence in the global and regional energy markets by acquiring firm positions in long-term contacts with energy-rich countries to guarantee a consistent in flow of raw materials into its energy complex.


Today, its interests in Central Asia are concentrated on hydro carbons; tomorrow they will spread to uranium.


The role and place of Central Asia and Russia. On the whole, Central Asia and Russia plays a secondary roles in China’s energy strategy: it is a strategic rear to be relied upon for greater political efficiency (in the security, economic, and energy spheres) of China’s relations with the leading Western countries and Asia-Pacific neighbors, which are priority vectors for China.


China and its companies are mainly interested in the oil and gas sector of Kazakhstan and Turkmenistan, the hydrocarbon and export potential of which look preferable. So far, the oil and gas sector remains the core of China’s economic and energy regional policies; the Chinese, however, are showing much more interest than before in other economic branches as well.


China’s energy interests in Central Asia

In recent years, China has been demonstrating a lot of interest in nuclear energy (Kazakhstan); power production (Kazakhstan, Tajikistan, Uzbekistan, and Kyrgyzstan); and coal mining (Kyrgyzstan). This means that China is gradually spreading its economic influence to Tajikistan and Kyrgyzstan, two countries with no considerable hydrocarbon resources, and Uzbekistan with considerable (so far not exported on a great scale) oil and gas reserves.

There are several reasons for China’s interest in Central Asian energy resources.


Reasons of China’s energy interest

First, the region is attractive both geographically and strategically: one of China’s closest neighbors, it is part of the Eurasian heartland, which means that China can rely on the energy routes from Central Asia as being fairly secure.

Second, Kazakhstan, Turkmenistan, and Uzbekistan boast fairly large deposits of oil and natural gas, the production of which can be increased; this means that these countries can be regarded as alternative and additional (!) sources of hydrocarbons.


China in Central AsiaKazakhstan The proven oil reserves of Kazakhstan are assessed at about 5.4 billion tons (about 3% of the world’s total); the figures for gas are about 1.8 trillion cu m (about 2% of the world’s total).Turkmenistan The proven oil reserves of Turkmenistan are assessed at about 100 million tons (about 0.06% of the world’s total), and gas reserves at about 2.9 trillion cu m (3.2% of the world total). Turkmenistan assesses its oil reserves at 15 billion tons, and gas at about 24 trillion cu m.Uzbekistan The forecasted gas reserves of Uzbekistan are about 2.2% of the world’s total. Its share in the world’s total gas production is 2.5%. In 2008, its proven gas reserves were assessed at over 2 trillion cu m; oil reserves at 82 million tons, and gas condensate at 160 million tons. The figures for the republic’s forecasted gas reserves are 5.9 trillion cu m; for oil, 817 million tons of oil; and for gas condensate, 360 million tons. In recent years Uzbekistan has been producing over 60 billion cu m of gas, between 40 and 49 billion cu m of which are used inside the country; 10 to 16 billion are exported. At the same time, Uzbekistan depends on oil imports, this dependence increasing even more in the future. In 2011, it will have to buy no less than 4.2 million tons of oil.Kyrgyzstan and Tajikistan both have vast hydroelectric resources but practically no stocks of non-renewable fuels. There are virtually no hydrocarbon deposits and only limited coal stocks in these countries.


Third, Kazakhstan and Uzbekistan are rich in uranium (used for nuclear power production), which adds another dimension to China’s greater interest in the region: Beijing’s plans in this sphere are very ambitious indeed.


Fourth, Central Asia is very attractive as a possible transit area for Iranian and Mid-Eastern energy resources: the land routes, much shorter and much cheaper than the currently used U.S.-controlled marine routes, are potentially much more profitable and effective; the fact that the region has a ramified system of pipelines (some of them going toward Iran) adds to its attraction.


Fifth, theoretically, the hydropower potential of Kyrgyzstan and Tajikistan is fairly tempting, however in the short-term perspective the large-scale development of these two countries’ hydro resources is unlikely to become an important factor for the simple reason that water and energy are the region’s sore spots.

Uzbekistan and, to a lesser extent, Turkmenistan and Kazakhstan (which heavily rely on the region’s water resources) are very concerned about the intention of Kyrgyzstan and Tajikistan (which control over 90% of the region’s water resources) to build fairly large hydropower stations in their territories. It does not seem likely that the water and energy problem will be resolved in this economically and politically fragmented region.


Shanghai Cooperation Organization (SCO) – very important regional institution for China



From today's perspective, the most realistic scenario foreseeable is the gradual economic absorption by China of the Asiatic part of Russia and some parts of Central Asia.

Thank you!

Project “Central Eurasia”, www.ceasia.ru Еmail: [email protected] ; [email protected] © 2012

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China's energy policy dr paramonov