Publication: China Brief Volume: 4 Issue: 20

The year is 2008. The setting is the vast West Pacific region. To break the US-Japan-Taiwan military containment of China, the combined air, navy and armed forces of the Chinese Liberation Army (PLA), equipped with newly established carrier battle groups, have destroyed all U.S. military bases in the region, taken control of all strategic sea routes from the Strait of Malacca to the Persian Gulf, and imposed an oil embargo to choke the U.S., Japan, Taiwan and their allies.

As fantastic as this scenario seems, it has recently been analyzed in a newly published book, Liberating Taiwan, from the Chinese Military Publishing House. The attention paid to strategic oil routes only highlights the fact that energy supply is closely linked to China’s national security and the nation’s future.

As the world’s fastest growing economy in the past quarter century, China’s appetite for more energy has grown rapidly. In only ten years, China has turned from a petroleum exporter to the second largest oil importer in the world after the United States, burning 6.3 million barrels of oil a day. The commonly held view that the Chinese market alone is responsible for 40% of the global increase in oil demand since 2000 explains the driving up of oil prices according to many analysts. The Chinese government and some scholars have countered by pointing out that China is not the decisive factor in the rise of oil prices, as it accounts for only 6% of the world’s total oil consumption and less than 3% of the world’s total oil trade.

The debate continues, but what is certain is that China’s economy and its increasing consumption of energy will not slow down in the foreseeable future: while the Chinese economy grew by 9.7% in the first six months of this year, its oil imports jumped 40%. The forecasts say that the Chinese demand for crude will increase annually by 12% until 2020.

A fast growing economy typically requires more energy, but China’s modernization drive has produced a manufacturing structure that requires huge increases in energy consumption, creating an inefficient energy consumption system and a consumer trend that is difficult to sustain. China is now the “factory of the world.” The major portion of its economic output is oriented toward industries that are primarily energy-driven. With less than 4% of global GDP, China consumes 31% of the world’s coal, 30% of iron, 27% of steel, and 40% of cement. Accompanying this heavy industrial structure is the tremendous waste of energy. To generate every US$1 of GDP, China uses three times or more as much energy as the global average, 4.7 times higher than in the U.S., 7.7 times higher than in Germany and 11.5 times higher than in Japan.

Yet the country is building one of the most extensive highway infrastructures on earth to replace its one billion bicycles with cars. In 1999, only 220,000 vehicles were sold. Last year, the number was 2.04 million, with a 69% sales growth and an 80.7% production increase year-on-year. With 24 million cars in 2003, the People’s Republic is projected to have 56.69 million private automobiles by 2010 and 130 million by 2020. Oil consumed in transportation will account for half of the total oil consumption. Thus China will not only rival the United States in overall national strength in a few decades, but it will also have the most number of cars – that is if such a growth can be sustained.

Last year at this time, Beijing’s traffic authorities were busy setting up a special unit to cope with more than 300,000 new drivers who were about to begin their first winter on the slippery city highways. But China’s obsession with cars has led to more than traffic jams and higher pollution levels. According to UPI Energy Watch, the annual average fuel consumption per car in China is 2.28 tons, 10 to 20% higher than the United States and 100% higher than Japan. Going beyond cars, consumer goods such as air-conditioning, refrigerators and other electronic gadgets are all growing at an unprecedented rate.

No wonder energy has become a bottleneck for the Chinese economy in recent years: factories are forced to take night shifts to avoid peak consumption times or their power supply is cut off altogether; all major cities experience power shortages on a regular basis; rationed supply of electricity is imposed in the summer time and power cuts have become common phenomena; even the decorative lights on the skyscrapers along the Yangtze River in Shanghai’s tourist center had to be dimmed to conserve power this summer.

The broader picture is even more alarming: if every 1.3 billion Chinese were to use 20 times more energy everyday, i.e. the same per capita consumption as in North America, China would require 80 million barrels of oil a day – more than the entire world’s current daily consumption.

Not surprisingly, a major debate has been going on in China for sometime on how to solve this energy problem. Some advocate for securing the energy supply primarily by traditional means. They argue that by 2020, China’s dependence on foreign oil will increase from today’s 36% to 60%, and thus China must establish a strategic oil reserve and develop a strong military force, especially a blue water navy equal to the U.S. and Japan. When necessary, Beijing should be ready to use force to secure the nation’s oil sources from abroad, from dealing with increasing piracy in Southeast Asia to confronting a potential US-Japan military strangle-hold of China’s supply routes.

Others argue that China must curb its demand for more energy and focus on conservation. If each car had saved 20% of fuel consumed last year, China could have cancelled out the entire increase in demand for the year’s finished oil products. They push for cooperation between China and other major powers to explore energy and secure the oil supply, thus easing China’s energy crisis through non-traditional means.

Yet others point to China’s energy system and promote the diversity of energy sources. Most of China’s power is still generated by coal today. The country’s nine nuclear power plants account for just 2.29% of the nation’s total power supply (in contrast to more than 30% in Japan). China has a large deposit of natural gas yet it makes up only 2% of its energy supply, far below the world average of 23%. There is also great potential in wind energy, solar energy and other renewable energy resources.

The Chinese government seems to have adapted and combined all the above approaches in its overall energy strategy. In the draft of China’s medium and long-term energy development program, covering the period from 2004 to 2020 (just approved by the State Council [China’s cabinet]), strategic reserves, energy conservation, diversification, security, further exploration and environmental preservation are all on the agenda.

In their overseas trips, top Chinese leaders have a particular focus on energy. China has signed billions of dollars in deals around the world in energy purchasing and pipeline building. It has forged closer ties with countries ranging from Austria to Saudi Arabia to Venezuela to Iran. Beijing wants to have a strategic partnership with anyone that can supply China with energy. Chinese companies have also stepped up their investment abroad to acquire direct control or partial rights in some of the world’s potential petroleum fields.

While the rest of the world is debating about the increasing danger of nuclear energy, China has just announced that it will build 27 more nuclear power plants by the year 2020, generating twice the power capacity of the Three Gorges Dam, which is already the world’s largest hydroelectric plant. And Chinese scientists have confidently claimed that they have successfully developed a way of using nuclear energy to produce power without any risk to humans or the environment. At the same time, bulldozers are working day and night to turn China’s ancient Silk Road to the West into a new Eurasian Continental Bridge that will serve as energy and supply routes.

China’s quest for energy security is indeed beyond its borders. Beijing’s growing prominence and its competition for energy has alarmed Washington and Tokyo and caused long-term strategic adjustments in all the three capitals. But more importantly, the Chinese leadership knows well that its own legitimacy depends in large part on providing economic benefits to its people. With a huge population longing for jobs, continuous prosperity will be the primary answer to China’s social stability.

Will China have to venture into war as described by the aforementioned book scenario, or will China rise peacefully and pursue peaceful means in solving its energy crisis in the 21st century? This is a mega-ton question of world proportion. At present, as one Chinese academic put it, China is anxious and proactive, but not paranoid. By this account, China would not emulate the predatory behavior of the United States over oil.