China’s Thirst for Energy Fuels Improved Relations with Brunei

Since 2000, the People’s Republic of China (PRC) has been paying a good deal more attention to Brunei Darussalam than in the past. Emblematic of this newfound interest in Brunei was Chinese President Hu Jintao’s state visit to the Southeast Asian state in April 2005, followed by Vice Premier Wu Yi’s visit in September. Several factors account for China’s heightened interest in this small, Malay-majority sultanate located on the northern coast of Borneo. First, regular high-level visits, and the signing of a clutch of bilateral agreements that invariably accompany such visits, are key elements in Beijing’s on-going “charm offensive” in Southeast Asia—a diplomatic campaign aimed at assuaging regional anxieties concerning China’s rising economic and military power. Second, China’s insatiable thirst for energy resources has become the key driver of Sino-Bruneian relations. The sultanate is rich in oil and gas (Brunei is the third largest producer of oil in Southeast Asia and the Asia-Pacific’s fourth largest exporter of Liquefied Natural Gas, [LNG]), commodities that allow Brunei’s 360,000 citizens to enjoy one of the highest standards of living in Asia. This article examines the development of this little-known but increasingly important relationship.

Modern Sino-Brunei relations have been very slow to develop. During the Cold War, Brunei—a British protectorate since 1888—had very limited contact with Beijing. Brunei’s foreign policy was dictated by London, and was primarily focused on relations with countries in the immediate neighborhood, particularly Malaysia, Indonesia, and Singapore. At the stroke of midnight on December 31, 1983, Brunei gained independence from Britain. Although Beijing immediately recognized the newly independent sultanate, it was not until September 30, 1991 that Brunei and China established formal diplomatic ties.

The Bruneian government waited nearly eight years for several reasons. First, the country’s foreign policy priorities in the period immediately following independence were to establish a diplomatic presence in the five capitals of its fellow Association of Southeast Asian Nations (ASEAN) members (Brunei had joined the organization one week after independence), important trade partners (such as Britain, the United States, Japan, Australia, France, and West Germany), and certain Islamic countries (such as Saudi Arabia, Oman, Jordan, and the United Arab Emirates). The PRC did not fit into any of these categories, and with qualified diplomatic staff a scarce resource, opening an embassy in Beijing was not considered a priority [1]. Second, like neighboring Indonesia, Brunei’s ruling elite questioned the loyalty of the country’s ethnic Chinese population (which accounted for nearly 20 percent of the population) and viewed the presence of a PRC embassy as a potential security risk. A third and related factor was Sultan Haji Hassanal Bolkiah’s ideological aversion to communism—an understandable aversion for a Muslim monarch. Although Brunei was clearly in no hurry to establish diplomatic relations with the PRC for these three reasons, it was out of step with its ASEAN partners after Indonesia and Singapore formalized ties with Beijing in August and October 1990 respectively. Peer pressure is likely to have played some role in Brunei’s September 1991 decision to upgrade relations.

During the 1990s relations between the two countries remained at a modest level. Sultan Hassanal Bolkiah paid a state visit to China in 1993 and a working visit in 1999. At the conclusion of the Sultan’s second trip a joint communiqué was issued calling on the two countries to strengthen bilateral relations, especially economic cooperation and trade. Yet during the first decade of diplomatic relations, economic interaction was decidedly lackluster: total two-way trade was stuck in the USD $20-30 million per annum bracket, and in 1998 actually fell to pre-1990 levels, according to the Chinese Statistical Yearbook.

It was not until the turn of the century that Sino-Brunei relations began to take-off. The principal cause of this take-off was China’s growing interest in the purchase of energy resources from Brunei. This thirst for the country’s hydrocarbons—principally crude oil but also LNG—was not only driven by the PRC’s booming economy, but also by Beijing’s policy of diversification of energy imports away from Middle East countries, primarily for geostrategic reasons (Jane’s Intelligence Review, May 2005). In November 2000 President Jiang Zemin became the first Chinese head of state to visit Brunei, following his attendance at the Eighth Asia Pacific Economic Cooperation (APEC) Leader’s Summit. One of the most important outcomes of Jiang’s visit was an agreement between China International United Petroleum and Chemicals Company (UNIPEC, part of the state-owned China Petro-Chemical Corporation or SINOPEC group) and the Brunei Shell Petroleum Company to purchase 10,000 barrels of Bruneian crude oil per day (Southeast Asian Affairs 2001). Since 2000, the Chinese government has directed other state owned oil companies to actively pursue investment opportunities in Brunei’s energy sector.

Increased energy sales to China have resulted in burgeoning two-way trade: $100 million in 2001, $262 million in 2002, and $340 million in 2003 (the figure dropped to $300 million in 2004), according to People’s Daily (February 23, 2004). By 2004 the PRC was purchasing 20,000 barrels of oil per day from Brunei, accounting for 10 percent of the country’s daily oil producing capacity (Ibid.). Brunei’s major imports from the PRC are food, textiles, building materials, and household electronic and communication equipment. The two countries have set a target of $1 billion in annual two-way trade by 2010 (Borneo Bulletin, April 22). Given the PRC’s current energy demands and increasing interest in Brunei’s LNG reserves, this target does not seem wildly optimistic.

While energy resources have become the backbone of Sino-Brunei relations, the two countries are looking to broaden their economic interaction. For the past few decades the Brunei government has sought to diversify its economy away from natural resource extraction. Overseas investment, including in China, is a central plank of this policy. The Borneo Bulletin (September 24) reported that by mid-2005 Brunei’s total cumulative contractual FDI in the PRC was $1.27 billion, while actual cumulative FDI was $240 million. Brunei has also been keen to attract tourists from the PRC. By 2004, approximately 20,000 PRC nationals were visiting Brunei each year: the Brunei government hopes to raise this figure to 100,000 by 2010 (China Daily, April 20). Chinese investment in Brunei’s non-energy sectors is currently very small, but this situation is starting to change. China’s Huawei Technology Co. Ltd is blazing the trail with a contract to set-up a next-generation 3G cell phone system in the sultanate (Associated Press, April 21).

The only outstanding problem between the two countries is an overlapping territorial claim in the South China Sea. In 1982 Brunei announced its sovereignty claims over Louisa Reef, a small atoll located in the disputed Spratly archipelago. Louisa Reef falls within both China and Malaysia’s territorial claims in the South China Sea. Within a year of Brunei’s declaration, Malaysian troops had constructed a lighthouse on the reef. However, despite its proximity, Brunei has refrained from occupying Louisa Reef, and is the only disputant not to have occupied any of the atolls in the Spratlys. On the whole, Brunei views its territorial claim in the South China Sea as a bilateral issue with Malaysia, and by implication does not recognize China’s claims. However, Brunei also recognizes that the dispute is, in reality, multilateral in nature, and therefore requires a multilateral solution.

Since the early 1990s Brunei has supported multilateral efforts to resolve the dispute, and the Sultan has referred to the November 2002 ASEAN-China Declaration on the Conduct of Parties in the South China Sea as “a big step forward” in managing the dispute. When the Sultan met President Hu in September 2004 during a visit to Beijing, the two leaders declared that ASEAN and China should move forward on a formal code of conduct for the South China Sea. During his visit to Brunei in April, China Daily (April 20) reported President Hu as stating that priority should be given to the joint development of resources “on the basis of mutual respect, equality and benefit in an open and flexible manner.” Brunei has not commented publicly on the March 2005 agreement between the Philippines, China, and Vietnam to conduct seismic studies in the disputed waters of the South China Sea, seemingly because the secret tripartite agreement does not cover the area claimed by Brunei. In late 2002 the outgoing Chinese ambassador to Brunei, Qu Wenming, told Brunei’s Borneo Bulletin (December 12, 2002) that the two countries’ overlapping claims in the South China Sea had had no impact on the development of bilateral ties, and by and large this would appear to be true.

On his arrival at Bandar Seri Begawan airport in April 2005, President Hu Jintao characterized the development of Brunei-PRC relations thus: “Our mutual trust has strengthened, cooperation in various fields has scored notable achievements, personal contacts have become more frequent and we have maintained sound coordination and cooperation in international and regional affairs” (Xinhua, April 20). Hu was correct to praise the development of bilateral cooperation since 1991, yet strangely neglected to mention the one area that has become the backbone of the relationship: Bruneian exports of oil and gas to the PRC, a trade that is part of Beijing’s policy to enhance the country’s energy security. China is currently Brunei’s eighth biggest buyer of crude oil: in the future its position will undoubtedly rise. Yet Brunei’s natural energy resources are limited, and within the next two decades or so might be exhausted. Once this scenario comes to pass, what might sustain the relationship is Brunei’s participation in the joint exploitation of hydrocarbons in the disputed waters of the South China Sea.

The views expressed in this article are those of the author and do not necessarily reflect the official policy or position of the APCSS, U.S. Pacific Command, the U.S. Department of Defense, or the U.S. Government.

Notes

1. I am indebted to Mr. A.V.M. Horton for this observation.