Faculty of Contemporary Studies
Department of International Relations
Reseacrh Paper
China’s Energy Policy towards Central Asia
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1. Introduction
China is a leading runner on the political arena by displacing USA and Russia in the Central
Asia. The energy reserves of the neighboring Central Asian States are the largest and China is
changing its energy strategy to reduce its dependence on energy supplies from Middle East.
China is Fortunate that she is 1st to put a hand on these reserves and appeared as a new energy
giant in Central Asia. There is a struggle going on in Central Asia between the major powers for
energy, which is named as “New Great Game”. China also emerged as a big player in this “New
Great Game”.
During 90s, China could not make a strong policy towards central Asia and remained focused on
political and military issues like stability of borders, minimize the military presence in the border
areas and combat Uyghur separatist movement in Xinjiang.
In 2004, China became the 2nd largest consumer of energy after United States by surpassing
Japan. Since 2000, economic growth and domestic energy demand-supply gap increased the need
of energy imports. The production Cost of central Asia may be higher than the Middle East but
China still believes it safe investment in the long run. Continuous reduction in energy resources
of Middle East also motivates China to have a strong hold on neighboring states largest
reservoirs.
The investment made by China can be considered as aggressive and back up by the Beijing.
China has made numerous deals in energy sector and emerged a strong competitor for Russia.
Despite huge efforts, India and Japan while pursuing their interests in the energy sector remained
less successful than china.
China’s heavy overseas investment and strategy lead to a very comprehensive debate. We will
assess China's energy strategy towards Central Asia and respectively the energy diplomacy
and its investments in Central Asia, and friendly interactions with Russia.
The whole issue be discussed in neo realist paradigm, as the new realists believe that states seeks
the hegemony for their survival and also seeks the power to maximize the interests. China is also
using the same tactics here, because of china’s growing influence in this region; the whole
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Central Asian states will become dependent upon china. And by doing this china will not only
become the hegemon but also china’s interests (energy needs) will be served.
2. China’s Foreign Policy towards Central Asia
In a report of European Council on Foreign Relations, Central Asia is considered a laboratory for
Chinese foreign policy.1 Although Central Asian leaders maintain a low key approach of their
big neighbor as they might be worried on the long run consequences.
Collapse of USSR posed a threat but at the same time it emerged as an opportunity for China in
central Asia.2 China recognized the sovereignty of these states in 1991 and firstly she tried to
settle border disputes. China agreed to Russian proposal to initiate border negotiations on multi-
lateral basis. Consequently, in September 1992, a working group was set up in Minsk, known as
the “4+1 formula” and including Russia, Kazakhstan, Kyrgyzstan, and Tajikistan versus China.3
China signed different agreements of good neighborhood Co-operation, and friendship with
Russia five Central Asian States strategic partnership with Kazakhstan (2005), and agreements
on borders’ demarcation with Kazakhstan (2002), Kyrgyzstan (1996, 1999) and Tajikistan
(2002).4
3. Energy Security Concept
In simple words, energy security means securing better reliable energy supplies at reasonable
Cost. The Chinese definition is a bit broader, according to them, energy security means
guaranteeing access to the energy resources needed for economically and socially sustainable
development, while ensuring that the production and use of these resources do not impact
negatively on the environment.5
1
http://www.ecfr.eu/page/-
/China%20Analysis_The%20new%20Great%20Game%20in%20Central%20Asia_September2011.pdf
2
Umarov, Adiljan and Pashkun, Dmitriy (January 2006): “Tensions in Sino-Central Asian Relations and their
Implications for Regional Security”, Conflict Studies Research Centre, Central Asian Series, p. 4.
3
Paramonov, Vladimir and Stolpovsky, Oleg (2008): Chinese Security Interests in Central Asia, Shrivenham,
Defence Academy of the United Kingdom, p. 3.
4
Dwivedi, Ramakant: China’s Central Asia Policy in Recent Times”, China and Eurasia Forum Quarterly, vol.
4, no. 4, (2006), pp. 145-147; 149.
5
Zhongwei, Lu (ed.) (2003): Feichuantong anquan lun [On Non-Traditional Security], Beijing, Shishi
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China’s energy security mainly consists of these elements: investing more on the imports of
energy and increase the share of oil and natural gas from Russia and Central Asia; raise the
foreign investment of state oil companies; diversify the ways of trade to avoid the transaction
risk; more and more investment in oil and gas and creating more channels to imports;
establishing strategic petroleum reserves controlled by the Government; adjustment in
production structure and energy consumption; building up a regional energy system and
development of nuclear power.
In the 10th Five-Year Plan of Economic and Social Development, it was proposed: (1) to
encourage the use of advanced technologies, (2) to increase national production, (3) to develop
gas industry,(4) to improve the competitiveness of the NOCs on the international markets, (5) to
build up the national strategic oil reserves,(6) to improve the conservation and efficiency level of
oil consumption, (7) to improve the regulatory and overseeing framework of the industry, and (8)
to deepen the reforms of oil industry.6 Side by side, Medium and long term energy plans are
made from 2004 to 2020 for energy development and conservation.
In the 12th 5 year plan 2011-2015, the plan focused on the following points:
1. It will continue to implement resource strategies to accelerate the pace of oil and gas
exploration and development, to expand international oil and gas cooperation;
2. It will seize favorable opportunities for the development of the low-carbon economy;
3. It will accelerate the optimal adjustment of the downstream business structure, and speed up
business integration and production base construction;
4. It will speed up the construction of strategic oil and gas channels, marketing networks and
storage facilities;
5. It will quicken the pace of technological progress and break the bottleneck of resource
development and that of clean development;
Chubanshe, p. 166.
6
Constantin, Christian (2005): “China’s Conception of Energy Security: Sources and International Impacts”,
Centre of International Relations, Working Paper, no. 43 (March 2005), p. 11, at
http://www.ligi.ubc.ca/sites/liu/files/Publications/Constantin_WP43.pdf.
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6. It will vigorously carry out mutually beneficial international cooperation.7
4. National Institutions
National Development and Reform Commission (NDRC) a powerful authority which is mostly
responsible for planning long term energy projects and approving investments on domestic as
well as on international energy projects. Other ministries like land and resources, finance,
commerce and foreign affairs given a decreased role in energy policy making.
Initially Energy Bureau was established in 2003 but it lacked manpower, resources and authority.
After the 2003-4 energy crises, in May 2005 an Energy leading group (ELG) formed headed by
the premier ven Jiabao.
In 2008, both energy bureau and Energy Leading Group were dissolved and two new institutions
were formed with the name of National Energy Administration (NEA) and National Energy
Commission (NEC).
7
“Report on Domestic and Overseas Oil and Gas Industry Development in 2009”, CNPC Research Institute of
Economics and Technology (2010), pp. 20-21.
5
National Energy Administration (NEA) was formed within National Development and Reform
Commission, institution which is responsible for developing and implementing energy industry
planning, industrial policies and standards, and assuming the responsibilities of the Office of the
National Energy Commission.
In 2008, National Standardization Technical Committee for the Oil and Gas Industry was
established. Petroleum geology, oil drilling, oil exploration, oil and gas field development,
offshore oil engineering, gas production, storage and transportation, logging, oil and gas
measurement and analysis, oil pipes, production safety and environmental protection were its
main responsibilities. In July 2008, the National Energy Bureau was set up. Its decisions are
examined by the National Development and Reform Commission and submitted to the State
Council for approval. Also, it will serve under China’s National Energy Commission.
National Energy Conservation Centre was formed in 2009. It is responsible for giving technical
support to the government to implement energy efficiency and conservation management
initiatives.8
8
“APEC Energy Overview 2009”, Asia Pacific Energy Research Centre (2010), pp. 42-44, accessible at
http://www.iadb.org/intal/intalcdi/PE/2010/04945.pdf.
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5. China’s Oil and Gas Companies
Important Chinese energy companies include: China National Petroleum Corporation (CNPC),
China National Offshore Oil Corporation (CNOOC), China Petroleum and Chemical
Corporation (Sinopec Corp.), National Oil and Gas Exploration and Development Corporation
(CNODC). Because of political, financial, and economic resources, Chinese Companies exercise
great influence in the energy policy decision making process.
China National Petroleum Corporation (CNPC), set up in 1988, is China’s largest oil and gas
producer and supplier, providing services in 49 countries around the world.9 China Petroleum and
Chemical Corporation (Sinopec Corp.), founded in 2000, is China’s largest producer and
supplier of refined oil products and the second largest crude oil producer.10 CNOOC Limited,
created in 1982, is China’s largest producer of offshore crude oil and natural gas. 11 PetroChina
Co. Ltd., founded in 1999 as part of the restructuring of CNPC, occupied the position 13 in 2007,
considering its reserves in oil.
The Chinese NOCs have traditional areas of operation. CNPC has focused mainly on oil and gas
exploration and production, while Sinopec has been engaged in downstream activities such as
refining and distribution. CNPC tends to dominate upstream and in the north and west, Sinopec -
downstream and in the south, and CNOOC in the offshore regions.
6. China’s Energy Policy in Central Asia
US presence in Middle East, instability of the Arab peninsula and 80% of oil imports from
Malacca straits with its security problems made Beijing to reconsider its energy policy and to
diversify its energy suppliers. China had the possibility to secure its energy imports from
extraction to terminal through continental pipelines.
7. Energy Diplomacy
9
China National Petroleum Corporation (CNPC), at www.cnpc.com.cn/en.
10
China Petroleum and Chemical Corporation (Sinopec), at http://english.sinopec.com.
11
China National Offshore Oil Corporation Limited (CNOOC), at www.cnoocltd.com.
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China is very involved in the energy geopolitics of Central Asia through political, military and
financial instruments. The political support of the Chinese NOCs was pursued bilaterally and
multilaterally. China has agreements of strategic partnership with Kazakhstan and good
neighborly relations with Kazakhstan and Kyrgyzstan. It supported Kazakhstan’s bid to join the
World Trade Organization. The Chinese trying to obtain long-term agreements through exchange
of visits at the highest level backed up various energy deals. Although China preferred to
negotiate bilaterally its energy investments in Central Asia, the Shanghai Cooperation
Organization contributed a lot to build mutual trust and to balance Russia’s historical influence
in the region: “The purposes of the SCO are: strengthening mutual trust and goodneighbourly
friendship among the member states; encouraging effective cooperation among the member
states in political, economic and trade, scientific and technological, cultural, educational, energy,
communications, environment and other fields; devoting themselves jointly to preserving and
safeguarding regional peace, security and stability; and establishing a democratic, fair and
rational new international political and economic order.”12
With Kazakhstan and Kyrgyzstan especially, China’s military support to Central Asian republics
meant conventional arms transfers, trainings and joint military exercises. Within the Shanghai
Cooperation Organization, common military exercises took place in October 2002, August 2003,
August 2006, September 2007, etc.13
Chinese financial support was represented by investments in different sectors of the local
economies, loans with low interest rates and aid packages, given by China Eximbank and China
Development Bank. China invested in: aluminum (Tajikistan), and uranium (Kazakhstan);
hydroelectricity sector (Kazakhstan, Kyrgyzstan, Tajikistan); mineral industry, especially gold
(Kazakhstan, Kyrgyzstan), infrastructure sector – roads, tunnels, and railways, both in Central
Asia and Afghanistan, in order to develop a new Silk Road and to connect itself with Iran and
Pakistan; and in the telecommunications market.
12
“Declaration on Establishment of SCO”, Shanghai Cooperation Organization (SCO) (20 April 2006), at
http://english.scosummit2006.org/en_bjzl/2006-04/20/content_85.htm.
13
Plater-Zyberk, Henry: “Who’s Afraid of the SCO?”, Conflict Studies Research Centre, Central Asian Series
(September 2007), p. 4.
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8. Investments in Oil and Gas Sector
Chinese companies developed a methodical strategy of acquisitions as arrived late on the Central
Asian energy market. It was a great surprise for China when Chinese National Petroleum
Corporation acquired 60% Gas in Kazakhstan and 20 years user License for Zhanazhol gas site
and the Kenkiyak oil site. The CNPC have invested $ 4 billion until 2010. In 2003, CNPC
bought other 25% in that company, with $ 150 million. China National Petroleum Corporation
also obtained a participation in Uzen oil field, in 1997, but it withdrew from the project in
1999.14
In Turkmenistan, China National Petroleum Corporation and Mitsubishi proposed the export of
the Turkmen gas to China in 1992. Three years later, CNPC, Mitsubishi, and Exxon agreed to
conduct a feasibility study, which was completed in 1996.15 In 2004, China Petroleum
Technology and Development Corporation and Turkmen gas signed a $ 14.5 million contract to
supply equipment, while, in April 2006, China and Turkmenistan signed an agreement regarding
the delivery of 30 bcm of Turkmen gas to China in 2009.16
9. Oil and Gas Pipelines
Due to internal instability in Xinxiang which caused frequent disruption, China had several
concerns regarding energy supply from central Asia. Shanghai co-operation organization will
take strong steps to remove threats of separatism, terrorism and extremism both in Xinxiang g
and central Asia. Therefore, China adopted the Great Western Development Drive, in January
2000, focusing on five priorities: quest for equality, foreign investments, infrastructure
investments, sustainable development, tackling the nationalities issues.17
14
Sébastien Peyrouse: “The Economic Aspects of the Chinese-Central Asia Rapprochement”, Central Asia-
Caucasus Institute, Silk Road Papers, (September 2007), pp. 50-51, at
http://www.silkroadstudies.org/new/docs/Silkroadpapers/2007/0709China-Central_Asia.pdf.
15
Tønnesson, Stein and Kolås, Åshild: “Energy Security in Asia: China, India, Oil and Peace”, International
Peace Research Institute (April 2006), pp. 31-32.
16
See Peyrouse, “The Economic Aspects...”, op.cit., pp. 64-65.
17
See Szadziewski, op. cit., p. 212.
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The idea of a gas pipeline between china and central Asia developed in 1993 which officially
came into existence in 1997 when CNPC and Kazmunay signed a memorandum to build an
eastward oil pipeline to China. China delayed its construction due to competition with Baku-
tiblisi-ceyhan project but later China renewed its commitments to build that pipeline during the
1st visit of ho Jintao in 2003.18
The pipeline was inaugurated in December 14, 2009, and it follows the route Turkmenistan-
Uzbekistan- Kazakhstan- Erdos- Urumqi- Lanzhou- Xian- Shanghai, reaching 4350 miles. The
project’s costs are nearly $ 10 billion, and the pipeline should transport annually 30-40 Bcm of
natural gas for thirty years, beginning with 2012.19
Other Competitors with in Asia
Russian NOCs. In 2003, Russia concluded an agreement with KazMunayGas for the joint
exploitation of three sites – Kurmangazy (Rosneft), Tsentralnoye (Gazprom) and Khvalinskoye
(Lukoil). Then, in January 2004, Lukoil got an exploration contract with KazMunayGas to
develop the Tiyub-Karagan structure. Also, in 2005, Gazprom and KazMunayGas agreed to a
joint venture to exploit the Imashevskoye gas fields in the Caspian Sea. In September 2006,
KasRosGas, created in May 2002, set up the Orenburg gas processing plant.20
Indian NOCs. In Central Asia, the Indian corporations, such as Oil and Natural Gas Corporation
(ONGC), Oil India Ltd. (OIL), Bharat Petroleum Corporation Ltd. (BPCL), Hindustan Petroleum
Corporation Ltd. (HPCL), GAIL India Ltd., tried to adapt to the Chinese competition.
18
Handke, Susann (August 2006): Securing and Fuelling China’s Ascent to Power - The Geopolitics of the
Chinese-Kazakh Oil Pipeline, Clingendael Institute of International Relations, Energy Programme (August
2006), pp. 43-44, at http://www.clingendael.nl/publications/2006/20060900_ciep_paper_handke.pdf.
19
Paik, Keun-Wook; Marcel, Valerie; Lahn, Glada; Mitchell, John V. and Adylov, Erkin (2007): “Trends in
Asian National Oil Company Investments Abroad: An update”, Royal Institute of International Affairs, Chatman
House, Working Background Paper (March 2007), p. 6, at
http://www.chathamhouse.org.uk/files/6427_r0307anoc.pdf.
20
Laruelle, Marlène and Peyrouse, Sébastien (2009): China as a Neighbor: Central Asian Perspectives and
Strategies, Central Asia-Caucasus Institute & Silk Road Studies Program, p. 42.
10
Oil and Natural Gas Corporation has 15% in the oil field Alibekmola (Kazakhstan). It announced
an investment of $ 1.5 billion in the Kurmangazy oil field, with Russia and Kazakhstan, but it
also received exploration or exploitation rights in Darkhan, Karzahanbas and Aktyubinsk.21
Does China have any Soft Power in Central Asia?
China has increased its stakes in central since last decade. China in fact has soft power in
Central Asia as a significant force? Obviously Yes. But I do know this: China is now
emerging to stand firmly in a competitive position. China has made modest gains in Africa
and South East Asia. In Central Asia, where the countries have a choice of European,
Russian, or American influences to choose from in addition to Chinese, China has been as
wildly successful.
Conclusion
China’s energy strategy in Central Asia was influenced both by geopolitical and geo-economics
considerations. Although it has had several weak points, it has succeeded to achieve its goals.
Therefore, we consider China’s energy strategy in Central Asia one of the most efficient, in
comparison with other competitors’ energy strategies.
Usually, the Chinese NOCs win the bids and are quite visible on the international energy
markets, but their efforts have been constrained by strong competition from an increasingly
nationalistic Russian energy policy, the established position of IOCs, and by energy nationalism
within Central Asia itself.
India has not been yet a strong competitor for China in Central Asia, but Japan has the potential
to win bids as it demonstrated in the Angarsk struggle. There is possible cooperation between the
Indian and Japanese NOCs in order to present more attractive offers and reach the Chinese gross
overpayment auctions.
21
MacDonald, Juli A.: “Rethinking India’s and Pakistan’s Regional Intent”, in MacDonald, Rutland and Blank,
op. cit., p. 16; Monsonis, Guillem : “Les limites et contrecoups du rapprochement Indo-Américain dans le
domaine de la
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China has promoted and built its oil and natural gas pipelines from Central Asia faster than other
actors. Through investments, China’s influence and visibility grew significantly and it is
perceived in a relatively positive way in the region.
In order to improve the efficiency of its energy strategy and increase the number of successful
deals in Central Asia, China can develop: the bilateral relations with the host countries through
loans, aid packages, trade, investments, security cooperation, education programs; public
diplomacy campaigns and improved business practices; new regional cooperation initiatives with
the five republics and other actors engaged in the region (free trade agreements, energy security,
environment protection), etc.
China’s energy strategy in Central Asia is a durable policy. The agreements signed with the
Central Asian countries demonstrate a long term vision. But the strategic competition will
continue, especially with Russia. Although China and Russia are partners in the Shanghai
Cooperation Organization today, they have similar interests in Central Asia, inclusively in the
energy field, which can become divergent in the long term. Once the United States of America’s
influence can be reduced in this region, the new Great Game will be played between these two
Eurasian powers China and Russia which is dominantly leading by China at this very moment.
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