China's Energy Strategy & Policy in Sudan (2004) PDF

China and other consumers of imported natural gas look ahead and see a natural gas landscape even more suited to their needs for the next decade or longer. Australia and the United States together could bring nearly 50 percent more LNG to global markets by 2020. Looking out two more decades, LNG...

China and other consumers of imported natural gas look ahead and see a natural gas landscape even more suited to their needs for the next decade or longer. Australia and the United States together could bring nearly 50 percent more LNG to global markets by 2020. Looking out two more decades, LNG supply appears set to increase by more than two-thirds. Lower than expected increases in demand growth—owing to dampened Chinese growth or the resumption of nuclear power by Japan—could further deepen this glut. China now finds itself in a surprisingly comfortable position: it has contracted for more natural gas in the coming years than it expects to use, even if it meets its objective of transitioning to a more natural-gas-intensive economy. e critical link between energy, growth, and the legitimacy of Chinese Communist Party rule is still strong, and as a result Chinese leaders will not become complacent about securing needed energy from abroad. But much of the urgency and anxiety around procuring these resources has been moderated. is change in temperature has subtle, but extremely important, repercussions for China’s foreign policy, given the central role that securing energy has played in the past. As we will see, the new energy abundance gives China an opportunity to rethink and revise core elements of its foreign policy, as well as provides more leeway for China to focus on objectives other than securing energy. In doing so, e new energy realities further align China with the current international order, rather than pitting it against it. Downsizing the Gallery of Rogues Aer months of careful consideration, extensive study, and vigorous debate within the U.S. State Department, Secretary of State Colin Powell was ready to issue a verdict. e date was September 9, 2004, and he was seated in front of the Senate Foreign Relations Committee, testifying on recent events in Sudan. Aer detailing the situation there and the administration’s response, Powell wound his way to the key moment: “We concluded—I concluded—that genocide has been committed in Darfur and that the government of Sudan and the Janjaweed bear responsibility—and that genocide may still be occurring.” is was the first time the executive branch of the U.S. government had ever used the word “genocide” in relation to an ongoing conflict. Nine days later, the paltry fruits of American efforts to get the United Nations to pressure Khartoum to protect civilians and cooperate with African Union monitors were announced to the world. e title of the U.N. press release sums it up: “Security Council Declares Intention to Consider Sanctions to Obtain Sudan’s Full Compliance with Security, Disarmament Obligations on Darfur” (italics added). China, which ultimately abstained, managed to dilute the resolution referred to in the press release so as to make it almost meaningless, and threatened to veto any subsequent efforts to sanction Sudanese leaders. China’s position toward Sudan, which it maintained for much of the rest of the decade, had two main drivers. Beijing sought to shield Khartoum’s domestic behavior from international scrutiny, in the hopes that it could similarly dissuade the world from peering into China’s own internal affairs. Equally important, China aimed to protect its substantial investment in Sudan’s oil industry, even aer shareholders had forced out Western companies on moral grounds. By 2004, China had invested substantially in Sudan’s oil industry and was importing more than four-fihs of Sudan’s oil output. China’s deputy foreign minister, Zhou Wenzhong, was unapologetic about China’s stance. “Business is business,” he stated. “We try to separate politics from business. Secondly, I think the internal situation in the Sudan is an internal affair, and we are not in a position to impose upon them.” While China’s approach to Sudan drew more international attention and outrage than its policies toward other countries, it was not one of a kind. In fact, at the time, Beijing’s policy toward Sudan was fairly representative of China’s long-standing “going out” strategy. In essence, the “going out” approach was and is an effort by the Chinese government to encourage Chinese companies—state-owned ones in particular—to seek investment opportunities in a wide array of resources beyond China’s borders. is encouragement was not just rhetorical but came in many forms. ese included arranging high-level visits by government officials to countries where Chinese companies were seeking deals, tying development aid and other financial assistance to resource-wealthy countries to the completion of deals, and extending preferential credit to Chinese companies seeking to compete with international firms. Adding to the attractiveness of such deals was the Chinese government’s indifference to the domestic policies of the country in question. Investment, finance, and aid were predicated on ownership of oil and other resources. Human rights, fiscal policies, domestic subsidies—none of these things appeared to matter to prospective Chinese investors and their government backers with deep pockets. First articulated in 1997, China’s “going out” strategy originally seemed geared toward diversifying China’s investments and introducing competition to some of China’s largest state-owned firms. But by the early 2000s, a sharper objective had come into focus. e Chinese government and China’s NOCs joined forces to seek and obtain equity oil investments worldwide, particularly in Africa and Latin America. Chinese presidents, premiers, and development ministers crisscrossed the vast continents of South America and Africa in the company of Chinese oil executives. Almost without fail, they le in their wake dozens of signed trade, investment, and even military cooperation agreements as well as billions of dollars of investments, many of them in equity oil. In 2010 alone, Chinese NOCs spent nearly $30 billion on acquiring oil and gas assets globally, with nearly half that sum invested in Latin America. In the decade following 2004, China invested more than $45 billion in exploring and producing oil and gas acquisitions in continental Africa. At least initially, China seemed to believe that equity ownership of African or Latin American oil would help insulate it from growing international competition for resources. Anticipating an ever-more- competitive energy landscape, the duo of the Chinese government and the country’s NOCs aggressively sought equity investments with the expectation that, in some future time of crisis, China would be able to ensure this oil flowed in its direction. In seeking out such investments, Chinese NOCs initially felt disadvantaged and unable to compete with international oil companies that already had substantial presences on both continents. Seeing themselves as late to the game of overseas resource development, Chinese NOCs targeted countries that—for a variety of reasons oen related to sanctions or high political risk—did not have access to Western capital or markets. From Venezuela to Sudan, China provided much needed capital to at-risk governments in return for actual ownership over their resources, or claims to guaranteed flows of oil. e result—intended or not—was that Beijing appeared to be cultivating its own gallery of rogues across Latin America and Africa. Such relations oen contained an anti-American or anti-Western tinge. For instance, between 2007 and 2015, Beijing loaned Caracas approximately $50 billion, most of it to be repaid in shipments of oil. For years, these loans-for-oil arrangements have brought with them close political ties. In late 2004, Venezuelan president Hugo Chávez told a group of Chinese businessmen, “We have been producing and exporting oil for more than 100 years. But these have been a 100 years of domination by the United States. Now we are free, and place this oil at the disposal of the great Chinese fatherland.” e “going out” strategy has also been perceived as a challenge to Western efforts to promote good governance, environmental protection, and economic reform in Africa and Latin America. Western governments generally view the investments made by international companies domiciled in their countries as entirely separate from development aid and finance to countries in need, much of which is administered by multilateral development banks. China, in contrast, saw the two as complementary. When given the choice between Beijing’s unconditional assistance and the highly structured and conditional aid packages of the World Bank, IMF, and Western governments, few developing countries chose the more stringent option. Perhaps the most o-cited example of how this Chinese approach undermined Western efforts to promote certain liberalizing economic and political policies occurred in Angola. In 2002, Angola emerged from twenty-seven years of civil war with its countryside and cities devastated and half a million of its people dead. Once an exporter of food, by the 1980s, Angola had become an importer of grains and a country in which nearly half of the children were suffering from malnutrition. Like other countries in dire need of basic infrastructure and development, it turned to the IMF to provide a significant loan for such purposes. As was common practice, the IMF required an accompanying “stabilization program” through which Angola would agree to greater transparency and certain economic reforms; Angola was already a significant oil exporter, and according to the IMF, at least $8.5 billion of public funds had been unaccounted for over the previous five years. Abruptly, in 2004, Angola broke off these negotiations with the IMF and soon aerward announced it would be the recipient of $2 billion in so loans from Beijing, granted at very favorable interest rates. Angola would repay the loan in shipments of oil over the following twelve years. Around the same time, negotiations were concluded in which Sinopec, one of the Chinese NOCs, secured a 50 percent stake in Angola’s Block 18, which had belonged to Shell before being sold to the Angolan company Sonangol earlier that year. Two years later, in June 2006, when the prime minister Wen Jiabao visited Angola, Angolan president José Eduardo dos Santos summed up the relationship, “China needs natural resources, and Angola wants development.” Soon thereaer, China’s EximBank announced a $2 billion loan for Angolan infrastructure projects. As of 2017, Angola was China’s second largest supplier of crude oil imports, providing more oil to China than did Russia, Iraq, or Iran. “Going Out” Blowback e new energy abundance is one of several factors that have called into question the value of this “going out” strategy. Beyond doubt, China’s “going out” strategy has brought benefits to Latin America and, especially, Africa. Over the last decade and a half, China has built critical infrastructure within countries and across the continents. By far the largest financer of African infrastructure, Chinese institutions have supported the construction of dams intended to boost hydropower-generating capacity and rehabilitated or constructed from scratch roads, railways, and airports across the continent. Africa’s telecommunications sector has also been transformed by China’s investment and financing. Little wonder that China remains generally popular in Africa; a 2014 Pew poll found that, except in South Africa, the overwhelming majority of those polled in five African states had a favorable view of China.