With more than 136 countries (end-July 2019) reported to have signed up to the Belt and Road Initiative (BRI hereafter) since it was announced by President Xi Jinping in 2013, estimates for China's potential BRI investments vary significantly, from around US $1 trillion to as much as US $8 trillion.
China’s spectacular economic rise over the last three decades has been accompanied by a sharp increase in its energy demand. As a result, China is the world’s largest energy consumer. As its economy continues to grow, even at lower rates than before, its dependence on oil and gas imports will increase over the next two decades.
Energy occupies a prominent place in Beijing's BRI plan. The World Bank estimates that BRI projects in all sectors (that are already executed, in the implementation phase, and planned) is worth US $575 billion. Total investment in energy is estimated to represent over 45 percent of the BRI's total.
In this context, there are several broad energy security objectives that Beijing wishes to achieve through the BRI:
- Securing energy resources that China needs for its economic development
- Seeking energy security by using the BRI to diversify its relations, supplies, and routes
- Accelerating the building of strategic reserves to mitigate any future supply shocks
- Exporting over-capacity and open up new markets for Chinese energy firms.
Currently, China is the world’s largest crude importing country and its oil import dependency is over 70 percent, above the Chinese government target of capping it at around 62 percent. Importantly, China will continue to be a formidable consumer and importer of oil over the next decade. However, the pace of crude imports looks set to slow from previous years, due to slowing economic growth, a structural shift away from fuel-intensive heavy industries and the introduction of stricter domestic environmental laws.
Meanwhile, China imports nearly half its natural gas (through pipelines or liquefied natural gas, “LNG”) with most of imports coming from Russia, Central Asia and Australia. Looking forward, China’s natural gas imports will expand at a robust pace across the next decade, as domestic gas use expands alongside Beijing’s coal-to-gas policies, as part of a broader push towards cleaner energy sources. Here it must be said that if some gas supplies are at risk, Beijing may increase its dependence on Russia, or use coal temporarily.
Thus, Beijing's primary focus on energy security is on oil imports. More than three quarters of China’s oil imports and less than one-fifth of natural gas imports transit through the South China Sea and Strait of Malacca. Importantly, despite China's efforts to diversify its oil imports, its dependence on Middle Eastern and African supplies still represent about two thirds of its total crude imports.
This rising dependence on seaborne oil imports at a time of increasing geopolitical tension with the US and growing instability in the Middle East and North Africa (MENA) region is likely to cause concerns among the decision makers in Beijing. Indeed, China has every reason to be concerned. Beijing’s stakes are very high in MENA given its strategic energy supply importance, its enormous economic ties, and the welfare or security of hundreds of Chinese who live and work there.
Escalating oil prices and tensions in the region may be economically costly for Beijing. To be sure, the annual cost of China’s oil imports exceeded US $239 billion in 2018. Much more than the US $75 billion in the previous year, and almost double the bill of 2016.
These costs are also likely to have increased again in 2019. Last year, China imported a record 506 million tonnes of crude oil (that is equivalent to 10.12 million barrels per day), 9.5% above 2018's level, according to data from China's General Administration of Customs. In short, any significant rise in world oil prices could put greater pressure on the Chinese economy.
China has a few short-term options to mitigate its strategic vulnerabilities associated with rising seaborne supplies and rising instability in several BRI countries. Beijing will rely primarily on diplomatic and economic means to protect theses interests in troubled BRI regions.
However, in the medium and long term, with China continuing to develop its military capabilities, there will be the potential for a global power shift. China’s persistence in actively securing energy resources, expanding BRI interests, and building strategic alliances could create the need for some level of state and military protection. Or Beijing could become more adventurous in using its military to advance and protect these interests in the coming decades.
However, this will also force Beijing to make some hard choices. If China wants to increase its influence in BRI countries, it will have to involve itself in the complicated geopolitics of these regions and be more assertive in its use of its strategic assets there.