China’s “Malacca Dilemma”

Publication: China Brief Volume: 6 Issue: 8

Energy security, and particularly oil supply security, has become a major concern for the Chinese government over the past several years. The focus of this anxiety is the vulnerability of seaborne energy imports. At present, China lacks the naval power necessary to protect its sea lanes of communication (SLOCs). Beijing fears that during a national security crisis ships carrying energy resources could be interdicted by hostile naval forces. Any disruption to the free flow of energy resources into China could derail the economic growth on which the Chinese government depends to shore-up its legitimacy and pursue its great power ambitions.

China’s heavy use of the Malacca and Lombok/Makassar straits in Southeast Asia is emblematic of this concern. The Malacca Strait is a narrow and congested waterway separating Indonesia and Malaysia, with Singapore located at its southern tip. As the shortest route between the Indian and Pacific oceans, the strait is one of the world’s most important waterways. More than 60,000 vessels transit the strait each year, carrying 25 percent of global trade. The Lombok/Makassar Strait passes through the Indonesian archipelago and is used mainly by Very Large Crude Carriers. In terms of volume of oil shipped, this route is of near equivalent importance to the better known Malacca Strait.

For China, the strategic significance of these straits increases every year. At present, approximately 60 percent of China’s crude oil imports originate in the Middle East, and this figure is expected to rise to 75 percent by 2015. Oil from the Persian Gulf and Africa is shipped to the PRC via the Malacca or Lombok/Makkasar straits. Over the past few years Chinese leaders have come to view the straits, especially the Malacca Strait, as a strategic vulnerability. In November 2003 President Hu Jintao declared that “certain major powers” were bent on controlling the strait, and called for the adoption of new strategies to mitigate the perceived vulnerability. Thereafter, the Chinese press devoted considerable attention to the country’s “Malacca dilemma,” leading one newspaper to declare: “It is no exaggeration to say that whoever controls the Strait of Malacca will also have a stranglehold on the energy route of China” (China Youth Daily, June 15, 2004).

Over the past 18 months the Malacca Strait has attracted the attention of security analysts for reasons other than China’s oil supply security. During 2003-2004 the straits witnessed an upsurge in pirate attacks. Perceived lax security in the strait engendered concerns that transnational terrorist groups might link up with pirates to disrupt maritime traffic and hence global commerce. International criticism led the littoral states (Indonesia, Malaysia, and Singapore) to step-up strait security through the establishment of coordinated air and naval patrols. As a result of these and other initiatives, the number of pirate attacks in the area declined in 2005. Yet piracy and other transnational threats in the strait remain major concerns. Due to sensitivities over sovereignty, Indonesia and Malaysia have firmly rejected the idea of external powers such as the U.S., Japan or India permanently stationing military forces in the strait. They have welcomed help from external powers, however, in the form of capacity building, intelligence exchanges, and training.

As a heavy user of the Malacca Strait, the PRC has a vested interest in the elimination of transnational threats in the waterway. Yet Beijing remains uneasy at the prospect of a greater role for external powers in securing the strait. Chinese security analysts have accused the U.S. and Japan of using the threat of terrorism as a pretext to expand their naval presence in and around the strait. The PRC has also watched with concern India’s enhanced presence in the area, especially the modernization of military facilities on the Andaman and Nicobar Islands located near the northern entrance to the Malacca Strait. Some Chinese newspaper commentaries have bordered on the paranoid. For instance, when the United States restored the International Military Education and Training (IMET) program to Indonesia last year, one Chinese newspaper accused U.S.-Indonesia military cooperation as “targeting China” and aimed “at controlling China’s avenue of approach to the Pacific” (Takungpao, March 7, 2005). Nevertheless, China does not want to be left out and has offered the littoral states its assistance to improve security in the strait. At a meeting held in Jakarta in September 2005 to discuss strait security, Ju Chengzi, director general of China’s Ministry of Transportation, said the PRC government was willing to assist the littoral states with capacity building, technical support, training programs, hydrographic surveys, and navigation aids (Xinhua, September 7, 2005). More specific details have yet to be released.

Meanwhile, China is pursuing a number of options to mitigate its dependence on oil imports and reduce the country’s strategic vulnerabilities. In an effort to reduce import dependence, the PRC continues to rely on domestically produced coal for its energy needs. Beijing has also emphasized energy conservation and efficiency, the expansion of nuclear power generation, and the development of alternative and renewable energy supplies. In 2004 construction began on four Strategic Petroleum Stockpile (SPS) facilities on China’s eastern seaboard capable of stockpiling 20 to 30 days supply of oil imports. Two more are likely to be built in Guangdong province and another on Hainan Island.

New Transit Routes

As a means to reduce strategic vulnerabilities, the PRC is diversifying its sources of energy imports away from the Middle East and is considering financing transit routes that would bypass the Malacca Strait altogether. Yet all of the proposals involve significant financial outlays, technical problems, and security concerns. The most fanciful proposal thus far has been to construct a canal across the Kra Isthmus in southern Thailand. The idea of an “Asian Panama Canal” linking the Andaman Sea with the Gulf of Thailand, and hence the Indian and Pacific oceans, has been around for centuries. First suggested in 1677, the idea has been revisited at least a dozen times since then. Yet on each occasion the project has been shelved due to lack of financial resources, technical difficulties and security problems. The idea was most recently revisited in 2001. Proponents envisaged a two-lane canal, an east-west highway running parallel, and harbors, oil refineries and storage facilities at each end (Bangkok Post, July 6, 2003). The canal, it was argued, would create jobs, generate revenue in the form of transit fees and oil refining, and benefit the global economy because ships could save 3-4 days sailing time by avoiding the Malacca Strait.

Initially the idea seemed to arouse great interest in the PRC. Beijing, however, baulked at the estimated $20-25 billion price tag. In 2003 the government of Thaksin Shinawatra effectively killed the project when it declared it would not provide any financial support for the proposed canal. Instead, the Thaksin government championed the Strategic Energy Land Bridge (SELB), a 150-mile underground oil pipeline across southern Thailand. At an estimated cost of $600-800 million the SELB would cost a fraction of the Kra Canal. The PRC has expressed an interest in the project, although its enthusiasm seems to have waned somewhat because of cost concerns and escalating political violence in Thailand’s southern provinces (The Nation, February 14, 2005). Moreover, the SELB would not really lessen the vulnerability of seaborne energy imports into the PRC, as tankers would still have to sail to and from Thailand, therefore merely shifting the focus of the problem slightly.

As far as China is concerned, it would be far better if oil deliveries could be made closer to home. With this in mind, Beijing is giving serious consideration to two large infrastructure projects. The first is a 750-mile pipeline from Sittwe in Burma to Kunming in Yunnan province, with an estimated cost around $2 billion (Asia Times, September 23, 2004). A Burma-China pipeline is appealing to Beijing for two reasons. First, oil tankers from the Middle East and Africa would be able to bypass the Malacca Strait by sailing directly to Sittwe. Second, the project is politically appealing given the close links between Rangoon and Beijing. Talks between the Chinese and Burmese governments on the feasibility of the project began in mid-2004. Then in December 2005 the Burmese junta signed a deal with PetroChina to supply 6.5 trillion cubic feet of natural gas to the PRC over a 30 year period. It was reported that the gas would be transferred to China via a pipeline to Kunming (Straits Times, February 2). If a gas pipeline is constructed, it is likely that China would also build an oil pipeline running parallel.

Another proposal is to transfer oil and gas from Pakistan into China’s Xinjiang province. This route would involve oil tankers off-loading their cargoes at the Pakistani port of Gwadar, a facility heavily financed by the PRC government (China Brief, February 15, 2005). Energy resources would then be transported by road, or more likely rail or a pipeline, to Islamabad 900 miles to the north. From there, the energy supplies would be sent a further 750 miles to Kashi (Kashgar) in Xinjiang province along the Karakoram Highway that links Pakistan with China. Pakistani President General Pervez Musharraf has pushed the idea of a China-Pakistan “energy corridor” for several years now, arguing that the Pakistani economy would benefit from the construction of oil refineries and oil and gas storage and transshipment facilities, while China would gain an alternative to the Malacca Strait.

A China-Pakistan energy corridor would be an expensive proposition for Beijing given the long distances and rugged terrain involved. Gwadar’s Baluchistan province is also prone to separatist violence. At the geopolitical level, however, the proposal is attractive for two reasons. First, Gwadar is very close to the Persian Gulf and all maritime choke points save for the Strait of Hormuz would be effectively bypassed. Second, Pakistan is a close ally of the PRC. Accordingly, the Chinese leadership seems to be taking the proposal seriously. During President Musharraf’s visit to China in February 2006, the two sides agreed in principle to upgrade the Karakoram Highway. Chinese press reports speculated on the feasibility of a pipeline running alongside the upgraded highway (Shiji Jingji Baodao, February 24). China and Pakistan also signed an energy cooperation framework agreement. According to the joint statement issued at the end of Musharraf’s trip, China agreed to help Pakistan develop oil refineries, natural gas terminals, and oil and gas storage and transit facilities (Xinhua, February 24).

The solution to China’s Malacca dilemma consists of three parts: reducing import dependence through energy efficiencies and harnessing alternative sources of power, investment in the construction of pipelines that bypass the Malacca Strait, and building credible naval forces capable of securing China’s SLOCs. Each of these components is expensive, time consuming and problematic. In the meantime, China will have to contend with the dilemmas and insecurities posed by its dependence on the public goods provided by the U.S. Navy.