Finance
China’s Energy Investments in
Central Asia: Achilles Heel for
Economic Growth?
“Energy is the priority issue in the economy.”
–Deng Xiaoping, 1980
By Mudje Mumin
C
hina’s expanding economy and its need to meet its
growing energy demands made the Chinese energy
policy gain significance in recent years. Particularly,
the importance of oil and gas investments increased. In the last
decade, China focused its energy investments heavily in Central
Asia. However, Beijing’s energy policy in this region could be a
great challenge for China’s economic growth, due to the interplay
of unpredictably changing international and domestic factors.
This could turn into an Achilles Heel for economic growth.
The concept of the Great Game is helpful in explaining
the possible risks for the Chinese energy policy and why the
energy investments in Eurasia could become the Achilles Heel
for economic growth.
“Great Game” is a term introduced 200 years ago by
Rudyard Kipling who used it to describe the struggle between
Russia and Great Britain for spheres of influence in Central Asia.
Today, the rivalry is not only for influence, but also for energy
resources.
The growing Chinese quest for energy in Eurasia, expressed
in attempts to enlarge the pipeline infrastructure, could result
in a new “Great Game” for control of oil resources. The main
players today are China, Russia and the U.S., all of them trying
to secure energy supplies for their economies. More influence
for any one player could come at the expense of another.
For Russia, Eurasia is the inheritance from the past and
an important reservoir of resources. For China Central, Asia is
a trading area strongly influenced by the Chinese culture and
a new emerging energy corridor. The American presence in
Eurasia does not have a long history; nevertheless, it is also
moved by energy interests and attempts to ensure that the
energy routes are not monopolized by Moscow or Beijing.
Currently, Russia seems to be the winner in the geopolitical
energy chessboard in Central Asia. After Russia, Kazakhstan,
Uzbekistan and Turkmenistan declared in 2007 their intention to
upgrade and expand gas pipelines along the Caspian Sea coast
directly to Russia, which, as the “Big Brother,” reasserted its preeminent position in the Caspian. With this project, Turkmenistan’s
gas output will be almost entirely bought up by Russia for 25
years. Russia seems to dominate the early play with the most
important energy suppliers. However, who will be the long-term
winner is still not clear. The Chinese and the U.S. positions in the
region are of vital importance for the future geopolitical map.
U.S. foreign policy faces many challenges in Eurasia. The
United States is a latecomer in that region compared to Russia
and China. Many local policy makers view with suspicion the
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China is the most populous, fastest-growing economy in world history.
American political and economic engagement, especially
America’s attempts to gain more influence by establishing military bases. The ad hoc military presence based on war against
terrorism and the American-backed pipeline projects, such as
Nabucco (linking Azerbaijan and Central Asia with Eastern
Europe) and Baku-Tbilisi-Ceyhan (linking Azerbaijan, Georgia
and Turkey), resulted in a stronger Sino-Russian cooperation
to exclude the U.S. from the region. Russia and China seem
to have succeeded in squeezing the U.S. out of Central Asia
(CA) with their own pipeline projects and by expanding military
cooperation with the CAS. Future U.S. foreign policy in Central
Asia depends strongly on the political changes in CA states
and states such as Iran and Afghanistan, which have strategic
significance for the balance of power in the region.
China is trying to move into the Russian sphere of influence.
This could cut into Russian interests, create Sino-Russian political competition and change Central Asia’s place in the order
of importance in the long-term. Beijing’s strategy is to secure
energy sources in the region for domestic economic growth.
As its domestic economy grows, China can afford to be more
assertive and can try to influence the Eurasian states to the
degree that they will view the PRC as the main actor.
China often benefits from the institutional framework of the
Shanghai Cooperation Organisation (SCO) in order to gain more
advantage in Central Asia. The Chinese led SCO was initially
drawn by issues such as terrorism, separation and extremism.
Currently, the establishment of a free trade area and common
energy projects are subjects of discussion among the member
Finance
China’s growing energy demands made the Chinese energy policy gain significance in recent years.
states. The SCO institutional structure offered Beijing good opportunities for building relations with the region’s indigenous political, economic and military elite. This was used for the enforcement of better Sino-Eurasian relations, in particular the energy
projects. The agreements with Kazakhstan and Turkmenistan
allowed China to gain a greater role in the region.
Difficulties
There are several factors that could make it difficult for Beijing
to count on Central Asia as a guaranteed source of energy
and be the winner in the “Great Game.” In the long-term, the
volatile political regimes in Eurasia are hardly predictable by
China. Political and economic dependence on Russia are still
quite strong and Russia seems to be successful in upholding
these relations on different levels — political, economic and
military. China has the chance to decrease Russian importance
with its rising economy and non-interventionist approach, which
offers the Central Asian states the opportunity to ensure that
none of the players becomes dominant. However, the energy
sector would be a difficult field to gain the upper hand in, since
the Russian energy giants have competitive advantages in the
already existing energy infrastructure.
The domestic instabilities in Central Asia and the unpredictability of the interplay among the great powers make the energy
investments in oil and gas in Eurasia an unreliable pillar of the
Chinese energy policy. Central Asia offers long-term profitable
opportunities for energy supplies. However, the region hides
risks with its unstable and unpredictable political regimes that
could make reliance on energy resources from this region the
Achilles heel for Chinese growth. The Chinese energy policy
should develop multiple energy resources, so that dependence
on an energy supply from Eurasia would not be a burden for
the economic growth of the Asian dragon. In this context, the
alternative energy solutions, in particular renewable energy investments, gain increasing significance. As the White Paper on
China’s energy conditions and policy issued on December 26,
2007 stresses, the development of multiple energy resources
will be among the guidelines of the Chinese energy policy.
In 2006, the Chinese government passed a renewable
energy law that encourages the growth of the clean energy
market. The external factors, such as growing oil prices and
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MINING.com September 2008
concerns about energy security, as well as the increasing energy
demand, make the energy policy turn toward developing high
technologies for alternative energy. This would decrease the
“Achilles Heel” of dependence on the vulnerable energy markets
in Eurasia.
Mudje Mumin is a research assistant at The Balloch Group, a
China-based investment advisory firm that works with a number
of mining clients both in China and abroad.
Links and References
China Expanding its Global Empire.“ Business
Weekly, UK, 23 January 2008
How can growing energy demand be met safely
and efficiently? The Millennium Project, World
Federation of UN Associations, August 2006
Understanding China’s Energy Policy. Background
Paper Prepared for Stern Review on the Economics
of Climate Change by the Research Centre for
Sustainable Development, Chinese Academy of
Social Sciences. HM Treasury, UK
Baku-Tbilisi-Ceyhan Pipeline
China
Chinese energy policy
Nabucco Gas Pipeline Project
Pipeline 101
Russian Energy Giants
The Energy Exchange: Oil and Gas Investments
The Eurasia Foundation
The Great Game
The Kipling Society
The Shanghai Cooperation Organisation (SCO)
U.S. Foreign Policy
White Paper on Energy
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