The "Belt and Road" Monograph2015 by China Energy Fund Committee

Monograph Promoting Cooperation on Energy and Resources under the

“One Belt and One Road” Initiative

China Energy Fund Committee (CEFC) is a non-governmental Chinese think-tank registered in Hong Kong. It has Special Consultative Status with the United Nations Economic and Social Council (UN ECOSOC). With partners and associates in China and overseas, CEFC conducts research and related activities focusing on transnational topics such as energy security, issues relating to China’s emerging place in the world, and Chinese culture and thought. CEFC is dedicated to promoting international dialogue and understanding via offices throughout China and the United States.

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Monograph Promoting Cooperation on Energy and Resources under the

“One Belt and One Road” Initiative

Monograph Promoting Cooperation on Energy and Resources under the

“One Belt and One Road” Initiative

Editorial Board (編輯委員會)

Chairman: YE Jianming (葉簡明) Executive Vice Chairman: HO Chi Ping, Patrick (何志平) Vice Chairman: CHAN Chau To (陳秋途) Member: LO Cheung On (路祥安)

Editor-in-Chief (主編) HO Chi Ping Patrick (何志平)

Deputy Editor (副主編) LO Cheung On (路祥安)

Executive Editor (執行編輯) ZHANG Ya (張雅)

Assistant Editors (助理編輯) Daniyal NASIR (黎庭耀) WANG Dingli, Leo (王鼎立)

for internal circulation only (非賣品)

Monograph Promoting Cooperation on Energy and Resources under the

“One Belt and One Road” Initiative

Table of Contents 目錄

Section 1: Preface

前言

Patrick Ho Chi-ping (何志平)

Section 2: “One Belt and One Road” at a Glance “一帶一路”概覽

Section 3: Chronology of Events of the “Belt and Road” Initiative “一帶一路”相關事件時序表

P13

Section 4: Landmark Speeches pertaining to the “One Belt and One Road” Initiative “一帶一路”相關的重要講話

P18

The Diplomacy of Promoting Cooperation P37 on Energy and Resources under the “One Belt and One Road” Initiative— China Institute of International Studies Research Report 推進“一帶一路”能源資源合作的外交運籌— Section 5:

中國國際問題研究院（CIIS）研究報告 SHI Ze (石澤), YANG Chenxi (楊晨曦)

Section 6:

Energy Development Fund: Promoting Energy Cooperation under the “One Belt and One Road” Initiative

P111

“能源發展基金”推進“一帶一路”能源資源合作

China Energy Fund Committee (中華能源基金委員會)

Section 1: Preface

Section 1:

Preface

前言

Monograph Promoting Cooperation on Energy and Resources under the

“One Belt and One Road” Initiative

Preface: 前言

New Silk Road will lead to A China Dream 新絲綢之路引領中國夢 Dr. HO Chi-ping, Patrick (何志平) Editor-in-Chief Deputy Chairman and Secretary General of China Energy Fund Committee

In 2013, President Xi Jinping expressed his strategic vision of a new model of connectivity among peoples known as the “One Belt and One Road” (Silk Road Economic Belt and 21st Century Maritime Silk Road) initiative. Connectivity “should be a three-dimensional combination of infrastructure, institutions and people-to-people exchanges … measured in terms of policy communication, infrastructure connectivity, trade links, capital flows and understanding among peoples”. “People” is the central element of this new initiative for regional cooperation. It is not just a government-to-government platform but involves people-to-people exchanges since materialization of this grand vision revolves around people, as it did when many ordinary people across the continent actually brought the East and West together through interactions, exchanges and trade. The second characteristic of this new model of connectivity is “good will”. It is open to all countries and peoples interested in being connected for mutual development, whatever their forms of government, cultural and religious backgrounds, or geographic location.

Section 1: Preface

“Common development” bonded together different countries along the ancient Silk Roads, and “equal footage” is what made this possible. No matter the race or religion, Christians, Muslims and Buddhists benefited equally from trade and exchanges. Western media often term China’s recent rise a threat, but in the last 5,000 years China has recorded at least four periods of peaceful prosperity without colonization or threats. No battle was fought, no colony seized, and nobody was enslaved. The West’s Julius Caesar said, “I came, I saw, I conquered”; the Chinese said, “I came, I saw, I made friends, and I went home.” Motivated by good will, “connectivity” is China’s way of peacefully reaching out and offering friendship and peace so peoples and countries along the Silk Roads can build a community of shared interests and common destiny. Though our pasts may differ, we face a common future. Indeed the “One Belt and One Road” initiative is expected to bring about shared economic, cultural and social prosperity. But unlike other regional cooperation projects with a fixed policy agenda and a set mechanism, Xi’s initiative is a grand vision. It provides ample and infinite room for creative solutions and possibilities. Compared with the ancient Silk Roads, it is on the one hand more ambitious and farsighted, but on the other more flexible, accommodating and adaptable to new conditions and challenges. It provides an overarching theme and umbrella under which all sorts of cooperation are possible. All partners will be free to enrich its content and explore additional facets of cooperation and shared benefits. It is neither about competing for spheres of influence nor striving for hegemony. It is about connecting countries and peoples, accommodating differences, embracing diversity, realizing potential, and achieving various goals and prospects. Mutual understanding is the most difficult challenge in international cooperation. Let us review how, century after century, the West has failed to understand what constitutes “China” and “Chinese-ness”.

Monograph Promoting Cooperation on Energy and Resources under the

“One Belt and One Road” Initiative

The first attempt by the West to open up China began in the Yuan Dynasty (1271-1368) with Marco Polo, followed in the late Ming Dynasty (1368-1644) with the visits of the Jesuit priests Matteo Ricci and Joachim Bouvet. The second “knock” came in 1840, when Britain invaded China and launched the First Opium War. China’s doors were pried ajar against her will. The third “knock” on China’s door came during the Cold War in 1972, when US president Richard Nixon visited China, offering China an olive branch to integrate into the existing global economic system of the era and community of nations. More than 150 years after being brought to its knees at gunpoint by the West, China has awakened, realizing it must catch up with the West. When Deng Xiaoping launched China’s economic open-door policy and accelerated its progress, the country quickly achieved moderate prosperity for a vast section of its population, at the same time lifting hundreds of millions out of poverty in under three decades — a truly unprecedented achievement in history. China first knocked on the West’s door in the Han Dynasty 2,000 years ago, when Zhang Qian travelled along the original Silk Road offering trade and peace; then in the 15th Century, Admiral Zheng He championed the second Silk Road at sea. The two previous Silk Roads traded tea, silk, spices, exotic fruits, jewelry and gold. This 21 century Silk Roads will deal in creative ideas, views and perspectives, traditions, cultures st

and legacies. It will exchange values, offer kindness and promote peace. It will traverse neither land nor sea, but travel through the inner workings of the human mind, driven by a desire to join our neighbors to engage in peaceful competition to achieve the common good in a globalized world. It is a dream of peace under heaven, and the world as one. This dream belongs to all of us. It belongs to you, and me.

Editor’s note: This is a summary of the presentation made by Patrick Ho Chi-ping, deputy chairman and secretary-general of China Energy Fund Committee, at a recent international conference in December,2014 in Istanbul, Turkey, entitled “The New Silk Roads: Inspirations and Opportunities.”

Section 2: “One Belt and One Road” at a Glance

Section 2:

“One Belt and One Road” at a Glance

“一帶一路”概覽

Monograph Promoting Cooperation on Energy and Resources under the

“One Belt and One Road” Initiative

“One Belt and One Road” at a Glance “一帶一路”概覽

During his overseas visits in 2013, President Xi Jinping put forward the strategic conception of building the “Silk Road Economic Belt” and “21st Century Maritime Silk Road”, known shortly as the “One Belt and One Road” initiative. The “Belt and Road” Initiative is an ambitious transEurasia and across-ocean economic strategy aiming to boost the connectivity among countries and peoples by borrowing the concept of the historical Silk Road.

． The Silk Road Economic Belt The “One Belt” begins in Xi’an in Northwest China before stretching west through Urumqi to Central Asia. From there it goes to northern Iran before swinging west through Iraq, Syria, and Turkey. From Istanbul, it crosses the Bosporus Strait and heads northwest through Europe, including Germany and Netherlands. It then heads south to Venice, Italy.

． The 21st Century Maritime Silk Road The other part of the plan is the ‘One Road’ that begins in China’s Quanzhou in Fujian province and heads south to the Malacca Strait. From Kuala Lumpur, it heads to India and then crosses the rest of the Indian Ocean to Nairobi, Kenya. From Nairobi, the Maritime Silk Road goes north around the Horn of Africa and moves through the Red Sea into the Mediterranean. Then it meets the land-based Silk Road in Venice.

Section 2: â&#x20AC;&#x153;One Belt and One Roadâ&#x20AC;? at a Glance

Background The initiative is designed to uphold the global free trade regime and the open world economy in the spirit of open regional cooperation. It is aimed at promoting orderly and free flow of economic factors, highly efficient allocation of resources and deep integration of markets; encouraging the countries along the Belt and Road to achieve economic policy coordination and carry out broader and more in-depth regional cooperation of higher standards; and jointly creating an open, inclusive and balanced regional economic cooperation architecture that benefits all.

Source: CCTV

Reflecting the common ideals and pursuit of human societies, it is a positive endeavor to seek new models of international cooperation and global governance, and will inject new positive energy into world peace and development. The Belt and Road Initiative aims to promote the connectivity of Asian, European and African continents and their adjacent seas, establish and strengthen partnerships among the countries along the Belt and Road, set up all-dimensional, multi-tiered and composite connectivity networks, and realize diversified, independent, balanced and sustainable development in these countries. The connectivity projects of the Initiative will help align and coordinate the development strategies of the countries along the Belt and Road, tap market potential in this region, promote investment and consumption, create demands and job opportunities, enhance people-to-people and cultural exchanges, and mutual learning among the peoples of the relevant countries, and enable them to understand, trust and respect each other and live in harmony, peace and prosperity. 10

Monograph Promoting Cooperation on Energy and Resources under the

“One Belt and One Road” Initiative

The Central Spirit of One Belt and One Road For thousands of years, the Silk Road Spirit – “peace and cooperation, openness and inclusiveness, mutual learning and mutual benefit” – has been passed from generation to generation, promoted the progress of human civilization, and contributed greatly to the prosperity and development of the countries along the Silk Road. Symbolizing communication and cooperation between the East and the West, the Silk Road Spirit is a historic and cultural heritage shared by all countries around the world. In the 21st century, a new era marked by the theme of peace, development, cooperation and mutual benefit, it is all the more important for us to carry on the Silk Road Spirit in face of the weak recovery of the global economy and complex international and regional situations.

Principles The Belt and Road Initiative is in line with the purposes and principles of the UN Charter. It upholds the Five Principles of Peaceful Coexistence: mutual respect for each other’s sovereignty and territorial integrity, mutual non-aggression, mutual non-interference in each other’s internal affairs, equality and mutual benefit, and peaceful coexistence.

Framework The Belt and Road Initiative is a way for win-win cooperation that promotes common development and prosperity and a road towards peace and friendship by enhancing mutual understanding and trust, and strengthening all-round exchanges. The Chinese government advocates peace and cooperation, openness and inclusiveness, mutual learning and mutual benefit. It promotes practical cooperation in all fields, and works to build a community of shared interests, a community of shared destiny and a community of shared responsibility, featuring mutual political trust, economic integration and cultural inclusiveness.

Section 2: â&#x20AC;&#x153;One Belt and One Roadâ&#x20AC;? at a Glance

Cooperation Priorities Countries along the Belt and Road have their own resource advantages and their economies are mutually complementary. Therefore, there is a great potential and space for cooperation. They should promote policy coordination, facilities connectivity, unimpeded trade, financial integration and people-to-people bonds as their five major goals. In particular, infrastructure building can offer a key foothold in facilitating investment and trade between countries along the one Belt and Road. To achieve these goals, China should work together with relevant countries in expanding financial cooperation, promoting cultural exchange, ecological conservation as well as strengthening dialogue and communication.

The Future The development of the Belt and Road should mainly be conducted through policy communication and objectives coordination. It is a pluralistic and open process of cooperation which can be highly flexible, and does not seek conformity. China will join other countries along the Belt and Road to substantiate and improve the content and mode of the Belt and Road cooperation, work out relevant timetables and roadmaps, and align national development programs and regional cooperation plans. The Belt and Road cooperation features mutual respect and trust, mutual benefit and winwin cooperation, and mutual learning between civilizations. As long as all countries along the Belt and Road make concerted efforts to pursue this common goal, there will be bright prospects for the Silk Road Economic Belt and the 21st Century Maritime Silk Road, and the people of countries along the Belt and Road can all benefit from this Initiative.

Monograph Promoting Cooperation on Energy and Resources under the

“One Belt and One Road” Initiative

Section 3:

Chronology of Events of the “Belt and Road” Initiative

“一帶一路”相關事件時序表

Section 3: Chronology of Events of the “Belt and Road” Initiative

Chronology of Events of the “Belt and Road” Initiative “一帶一路”相關事件時序表 2013 September The Silk Road Economic Belt concept was introduced by Chinese President Xi Jinping during his visit to Kazakhstan. In a speech delivered at Nazarbayev University, Xi suggested that China and Central Asia cooperate to build a Silk Road Economic Belt. It was the first time the Chinese leadership mentioned the strategic vision.

October

President Xi proposed building a close-knit China-ASEAN community and offered guidance on constructing a Century Maritime Silk Road to promote maritime cooperation. In his speech at the Indonesian parliament, Xi also proposed establishing the Asian Infrastructure Investment Bank (AIIB) to finance infrastructure construction and promote regional interconnectivity and economic integration.

November The Third Plenary Session of the 18th Central Committee of the Communist Party of China called for accelerating infrastructure links among neighboring countries and facilitating the Belt and Road initiatives.

December Xi urged strategic planning of the Belt and Road initiatives to promote connectedness of infrastructure and build a community of common interests at the annual Central Economic Work Conference.

February

Xi and his Russian counterpart, Vladimir Putin, reached a consensus on construction of the Belt and Road, as well as its connection with Russia’s EuroAsia Railways.

Monograph Promoting Cooperation on Energy and Resources under the

“One Belt and One Road” Initiative

2014 March

Premier Li Keqiang called for accelerating Belt and Road construction in the government work report. The report also called for balanced development of the Bangladesh-China-India-Myanmar Economic Corridor and the China-Pakistan Economic Corridor.

May

The first phase of a logistics terminal jointly built by China and Kazakhstan went into operation in the port of Lianyungang in east China’s Jiangsu Province. The terminal, with a total investment of 606 million yuan (98 million U.S. dollars), is considered a platform for goods from central Asian countries to reach overseas markets.

October

Twenty-one Asian countries willing to join the Asian Infrastructure Investment Bank (AIIB) as founding members signed the Memorandum of Understanding on Establishing AIIB. As agreed, Beijing will be the host city for AIIB’s headquarters. The AIIB is expected to be formally established by the end of 2015.

November President Xi announced that China will contribute 40 billion U.S. dollars to set up the Silk Road Fund. During the Beijing APEC meetings, Xi announced that the fund will be used to provide investment and financing support for infrastructure, resources, industrial cooperation, financial cooperation and other projects in countries along the Belt and Road.

December The Central Economic Work Conference sketched out priorities for the coming year, which include the implementation of Belt and Road initiatives. Earlier in the month, Thailand approved a draft memorandum of understanding between Thailand and China on railway cooperation.

Section 3: Chronology of Events of the “Belt and Road” Initiative

2015 January

The number of AIIB founding members, many of which are important countries along the Silk Road routes, rose to 26 after New Zealand, Maldives, Saudi Arabia and Tajikistan officially joined.

February 1 At a special meeting attended by senior leader Zhang Gaoli, China sketched out priorities for the Belt and Road initiatives, highlighting transportation infrastructure, easier investment and trade, financial cooperation and cultural exchange.

February 16 The Silk Road Fund Co Ltd starts operation. The company was jointly backed by China’s foreign exchange reserves, the China Investment Corp., the ExportImport Bank of China and China Development Bank (CDB).

March 5

Premier Li, in his government work report, again highlighted the initiatives, saying China will move more quickly to strengthen infrastructure with its neighbors, simplify customs clearance procedures and build international logistics gateways.

March 8

Chinese Foreign Minister Wang Yi dismissed comparisons of the initiatives to the U.S.-sponsored Marshall Plan. The initiatives “are the product of inclusive cooperation, not a tool of geopolitics, and must not be viewed with an outdated Cold War mentality,” Wang said, adding that China’s diplomacy in 2015 will focus on making progress on the Belt and Road initiative.

March 12

Britain intends to join the AIIB. In doing so, Britain is the first major Western country to apply to become a member of the bank.

March 17

Germany, France and Italy confirmed their respective intentions to join AIIB.

Monograph Promoting Cooperation on Energy and Resources under the

“One Belt and One Road” Initiative

March 28

The National Development and Reform Commission, Ministry of Foreign Affairs and Ministry of Commerce jointly released an action plan on the principles, framework, and cooperation priorities and mechanisms in the Belt and Road Initiative after President Xi Jinping highlighted the strategy the same day while addressing the opening ceremony of the 2015 annual conference of the Boao Forum for Asia (BFA) in the coastal town of China’s southernmost island province of Hainan.

Source: Xinhuanet

Section 4: Landmark Speeches pertaining to the “One Belt and One Road” Initiative

Section 4:

Landmark Speeches pertaining to the “One Belt and One Road” Initiative

“一帶一路”相關的重要講話

Monograph Promoting Cooperation on Energy and Resources under the

“One Belt and One Road” Initiative

Landmark Speeches pertaining to the “One Belt and One Road” Initiative “一帶一路”相關的重要講話

1. Speech by H.E. Xi Jinping, President of the People’s Republic of China, at Nazarbayev University, Astana, Kazakhstan, 7 September, 2013 2. Speech by H.E. Xi Jinping, President of the People’s Republic of China, at the People’s Representative Council of Indonesia, Jakarta, Indonesia, 2 October, 2013

Section 4: Landmark Speeches pertaining to the “One Belt and One Road” Initiative

1. Speech by H.E. Xi Jinping, President of the People’s Republic of China, at Nazarbayev University, Astana, Kazakhstan, 7 September, 2013

It was during this landmark speech in Kazakhstan that President Xi first proposed the concept of the Silk Road Economic Belt:

“To forge closer economic ties, deepen cooperation and expand development space in the

Eurasian region, we should take an innovative approach and jointly build an ‘economic belt along the Silk Road’. This will be a great undertaking benefitting the people of all countries along the route.”

Monograph Promoting Cooperation on Energy and Resources under the

“One Belt and One Road” Initiative

Promote Friendship Between Our People and Work Together to Build a Bright Future Your Excellency President Nazarbayev, President of Nazarbayev University, Dear Faculty Members and Students, Ladies and Gentlemen, Dear Friends, Good morning. I have come to Kazakhstan, China’s great neighbor, on a state visit at the invitation of President Nazarbayev. It is my great pleasure today to come to Nazarbayev University and meet with all of you. Let me begin by conveying the sincere greetings and best wishes of the Chinese people to the friendly people of Kazakhstan, the faculty members and students of this university and all the friends present today. As a Kazakh proverb goes, “The history of a land is the history of its people.” Since independence, Kazakhstan, under the leadership of President Nazarbayev, has seen sustained political stability, robust economic growth, significantly higher living standards and markedly growing international influence. The city of Astana, where we are today, has grown into a beautiful, modern city in less than two decades. It is a success story written by the people of Kazakhstan on their magic land. Standing here, I could see both the hard work and ingenuity of the Kazakh people and the bright future ahead of them. Ladies and Gentlemen, Dear Friends, Over 2,100 years ago during China’s Han Dynasty, a Chinese envoy Zhang Qian was sent to Central Asia twice with a mission of peace and friendship. His journeys opened the door to 21

Section 4: Landmark Speeches pertaining to the â&#x20AC;&#x153;One Belt and One Roadâ&#x20AC;? Initiative

friendly contacts between China and Central Asian countries as well as the Silk Road linking east and west, Asia and Europe. Shaanxi, my home province, is right at the starting point of the ancient Silk Road. Today, as I stand here and look back at that episode of history, I could almost hear the camel bells echoing in the mountains and see the wisp of smoke rising from the desert. It has brought me close to the place I am visiting. Kazakhstan, sitting on the ancient Silk Road, has made an important contribution to the exchanges between the Eastern and Western civilizations and the interactions and cooperation between various nations and cultures. This land has borne witness to a steady stream of envoys, caravans, travelers, scholars and artisans travelling between the East and the West. The exchanges and mutual learning thus made possible have contributed to the progress of human civilization. The ancient city of Almaty is also on the ancient Silk Road. In Almaty, there is a Xian Xinghai Boulevard, which got its name from a true story. At the outset of the Great Patriotic War in 1941, Xian, a renowned Chinese composer, arrived in Almaty after much travail. By then, he was worn down by poverty and illness and had no one to turn to. Fortunately, the Kazakh composer Bakhitzhan Baykadamov took care of Xian and provided him with the comfort of a home. It was in Almaty that Xian composed his famous works Liberation of the Nation, Sacred War and Red All over the River. He also wrote a symphony Amangeldy based on the exploits of the Kazakh national hero. These pieces served as a rallying call to fight Fascists and proved immensely popular with the local people. Throughout the millennia, the people of various countries along the ancient Silk Road have jointly written a chapter of friendship that has been passed on to this very day. The over 2,000-year history of exchanges demonstrates that on the basis of solidarity, mutual trust, equality, inclusiveness, mutual learning and win-win cooperation, countries of different races, beliefs and cultural backgrounds are fully capable of sharing peace and development. This is the valuable inspiration we have drawn from the ancient Silk Road.

Monograph Promoting Cooperation on Energy and Resources under the

“One Belt and One Road” Initiative

Ladies and Gentlemen, Dear Friends, Over the past 20 years and more, the relations between China and Eurasian countries have developed rapidly and the ancicnt Silk Road has gained fresh vitality. In a new way, it is taking the mutually beneficial cooperation between China and Eurasian countries to a new height. A near neighbor is better than a distant relative. China and Central Asian countries are friendly neighbors connected by common mountains and rivers. China highly values its friendship and cooperation with these countries and takes them as a foreign policy priority. At present, China’s relations with Central Asian countries face a golden opportunity of development. We hope to work with these countries to strengthen trust, friendship and cooperation, and promote common development and prosperity so as to bring benefits to our people. - We need to pass on our friendship from generation to generation and always be good neighbors living in harmony. China is committed to the path of peaceful development and the independent foreign policy of peace. We respect the development paths and domestic and foreign policies chosen independently by the people of every country. We will in no circumstances interfere in the internal affairs of Central Asian countries. We do not seek to dominate regional affairs or establish any sphere of influence. We stand ready to enhance communication and coordination with Russia and all Central Asian countries to strive to build a region of harmony, - We need to firmly support and trust each other and be sincere and good friends. To render each other firm support on major issues concerning core interests such as sovereignty, territorial integrity, security and stability is the essence and an important part of China’s strategic partnership with Central Asian countries. We will deepen trust and cooperation with Central Asian countries bilaterally and within the Shanghai Cooperation Organization (SCO) to combat the “three forces” of terrorism, separatism and extremism as well as drug trafficking and transnational organized crime to create a favorable environment for the economic development and the well-being of the people in this region.

Section 4: Landmark Speeches pertaining to the “One Belt and One Road” Initiative

- We need to vigorously enhance practical cooperation and be good partners of win-win cooperation. Both China and Central Asian countries are at a crucial stage of development with unprecedented opportunities and challenges. We have all set medium- to long-term development goals based on our national conditions. Our strategic goals are the same, which is to ensure sustained and stable economic development, build a prosperous and strong nation and achieve national revitalization. Therefore, we need to enhance practical cooperation across the board, turn our good political relations, geographical proximity and economic complementarity into drivers of practical cooperation and sustained growth, and build a community of shared interests and mutual benefit. - We need to expand regional cooperation with a more open mind and broader vision and achieve new glories together. The world is going through faster economic integration and regional cooperation is booming. The Eurasian region has quite a few regional cooperation organizations. The members and observers of the Eurasian Economic Community (EAEC) and the SCO are from Eurasia, South Asia and West Asia. By intensifying cooperation between the SCO and the EAEC, we will create even more space for development. Ladies and Gentlemen, Dear Friends, To forge closer economic ties, deepen cooperation and expand development space in the Eurasian region, we should take an innovative approach and jointly build an “economic belt along the Silk Road”. This will be a great undertaking benefitting the people of all countries along the route. To turn this into a reality, we may start with work in individual areas and link them up over time to cover the whole region. First, we need to step up policy communication. Countries should have full discussions on development strategies and policy response, work out plans and measures for advancing regional cooperation through consultation in the spirit of seeking common ground while reserving differences, and give the policy and legal “green light” to regional economic integration.

Monograph Promoting Cooperation on Energy and Resources under the

“One Belt and One Road” Initiative

Second, we need to improve road connectivity. The SCO is working on an agreement on transportation facilitation. If signed and implemented at an early date, it will open up a major transportation route connecting the Pacific and the Baltic Sea. Building on that, we will actively discuss the best way to improve cross-border transportation infrastructure and work toward a transportation network connecting East Asia, West Asia and South Asia to facilitate economic development and travel in the region. Third, we need to promote unimpeded trade. The proposed “economic belt along the Silk Road” is inhabited by close to 3 billion people and represents the biggest market in the world with unparalleled potential. The potential for trade and investment cooperation between the relevant countries is enormous. We should discuss a proper arrangement for trade and investment facilitation, remove trade barriers, reduce trade and investment cost, increase the speed and quality of regional economic flows and achieve win-win progress in the region. Fourth, we need to enhance monetary circulation. China and Russia have already had sound cooperation on settling trade in local currencies, and have gained gratifying results and rich experience. There is no reason not to share this good practice with others in the region. If our region can realize local currency convertibility and settlement under current and capital accounts, it will significantly lower circulation cost, increase our ability to fend off financial risks and make our region more competitive economically in the world. Fifth, we need to increase understanding between our people. Amity between the people holds the key to good relations between states. To have productive cooperation in the above-mentioned areas, we need the support of our people. We should encourage more friendly exchanges between our people to enhance mutual understanding and traditional friendship and build strong public support and a solid social foundation for regional cooperation. Dear Faculty Members and Students, Young people are the future of a nation. The great Kazakh poet and philosopher Abay Qunanbayev once noted, “The world is like an ocean and our time is like strong wind. Waves in the front are the cider brother while those behind are the younger brother. Driven by wind, the 25

Section 4: Landmark Speeches pertaining to the “One Belt and One Road” Initiative

waves from behind constantly press on those in the front. This has been the case since ancient times.” Seeing so many young glowing faces in the audience, I could not but recall with fond memories my own life in university. It was such an unforgettable time of youth! The Kazakh people often say, “Knowledge brings light to the world; without it, confusion will reign.” Indeed, knowledge is power. Young people are in the very prime of life, the best time to acquire knowledge, build character and develop ability. I am sure that the young people to graduate from this university will become future pillars in Kazakhstan’s national revitalization. To facilitate youth exchanges within the SCO framework, China will, in the coming ten years, provide 30,000 government scholarships to SCO member states and invite 10,000 teachers and students from Confucius Institutes in these countries to China for study tours. I hope you will seize these opportunities to come to China for study and exchange. I also wish to invite 200 faculty members and students from Nazarbayev University to go to China next year and attend summer camp activities. Ladies and Gentlemen, Dear Friends, Young people are the mainstay of friendship between our people. The common interest and ideal they hold for life all bring them together in true friendship. Here let me share with you two touching stories involving Chinese and Kazakh people. Back in the early 1950s, a Chinese young man working in Xinjiang met a pretty girl called Valentina at a local hospital. They fell in love, got married and had a son. However, due to the political climate and for other reasons, Valentina returned to her home country when their son was only six years old. When the boy grew up, he tried all means to find his mother but to no avail. In 2009, at the age of 61, he finally found out that his mother was living in Almaty. He visited his 80-year-old mother there and took her to China for sightseeing. This happy family reunion, though overdue for half a century, is a strong testament to the friendship between our people. 26

Monograph Promoting Cooperation on Energy and Resources under the

“One Belt and One Road” Initiative

The other story is about a young Kazakh student whose name is Ruslan. You may know that the RH-negative blood type is called “panda blood” in China because it is as scarce as a panda. It is very hard for RH-negative patients to find compatible blood source. Ruslan, who studied at Hainan University in China, happens to be RH-negative. Since 2009, he has been donating blood twice a year, helping to save Chinese patients of his same blood type. When praised by his Chinese friends, he simply said, “I feel this is what I should do. It is my duty to help others.” The stories 1 have just told are two episodes from the epic of friendly exchanges between our people, yet they fully demonstrate how close the Chinese and Kazakh people are to each other. I believe that young people from China and Kazakhstan, including those of you in the audience, are the future envoys of friendship between our two countries. You will contribute your youth and energy to the growth of China-Kazakhstan comprehensive strategic partnership. Ladies and Gentlemen, Dear Friends, China and Kazakhstan are friendly neighbors as close as lips and teeth. Our 1,700-kilometer long common border, two millennia of interactions and extensive common interests not only bind us closely together, but also promise a broad prospect for bilateral ties and mutually beneficial cooperation. Let us join hands to carry on our traditional friendship and build a bright future together. Thank you. Source: Ministry of Foreign Affairs of the People’s Republic of China

Section 4: Landmark Speeches pertaining to the “One Belt and One Road” Initiative

2. Speech by H.E. Xi Jinping, President of the People’s Republic of China, at the People’s Representative Council of Indonesia, Jakarta, Indonesia, 2 October, 2013

As the first foreign leader to address the Indonesian parliament, President Xi Jinping in this speech at the People’s Representative Council of Indonesia put forward the notion of the 21st Century Maritime Silk Road:

“Southeast Asia has since ancient times been an important hub along the ancient Maritime

Silk Road. China will strengthen maritime cooperation with ASEAN countries to make good use of the China-ASEAN Maritime Cooperation Fund set up by the Chinese government and vigorously develop maritime partnership in a joint effort to build the Maritime Silk Road of the 21st century.”

Monograph Promoting Cooperation on Energy and Resources under the

“One Belt and One Road” Initiative

Dear Friends, Apa Kabar! Good morning. It gives me great pleasure to come to the People’s Representative Council of Indonesia and meet all the friends here. I am visiting Indonesia, known as “country of thousands islands”, at the invitation of President Susilo Bambang Yudhoyono. This is the first leg in my current visit to Southeast Asia. It is a journey for carrying forward traditional friendship and also for planning future cooperation. I visited Indonesia 20 years ago, during which I personally experienced the development, colorful scenery and diversified culture of Indonesia. How time flies. But what I saw 20 years ago is still vivid in my mind, as if it only happened yesterday. As I set foot on this beautiful land again this time, I am even more impressed by the robust vitality of our bilateral relations and the profound friendship between the two peoples. In recent years, under the leadership of President Yudhoyono, the Indonesian people have pulled together, made tremendous efforts and achieved success in economic development, social stability and growing national strength. I sincerely wish the Indonesian people further success in forging a better future through hard work and creativity. Ladies and Gentlemen: Dear Friends, China and Indonesia face each other across the sea. The friendly ties between us have a long history. Together, our peoples have composed one piece after another of beautiful music about their exchanges and interactions over the centuries. Just as the Indonesian folk song Bengawan Solo, a household musical piece in China, goes “Your water springs forth from Solo, caged by a thousand mountains. Water flows to reach far distances, eventually to the sea.” Like the beautiful river Solo, China-Indonesia relations have traversed an extraordinary journey, past mountains and eventually to the sea. As early as the Han Dynasty in China about 2,000 years ago, the people of the two countries opened the door to each other despite the sea between them. In the early 15th century, Zheng He, the famous Chinese navigator of the Ming Dynasty, made seven voyages to the Western Seas. He stopped over the Indonesian archipelago in each of his voyages and toured Java, Sumatra and Kalimantan. His visits left nice stories of friendly exchanges between the Chinese and Indonesian peoples, many of which are still widely told today. Over the centuries, the vast oceans have served as the bond of friendship connecting 29

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the two peoples, not a barrier between them. Vessels full of goods and passengers travelled across the sea, exchanging products and fostering friendship. A Dream of Red Mansions, a Chinese classic novel, gives vivid accounts of rare treasures from Java. The National Museum of Indonesia, on the other hand, displays a large number of ancient Chinese porcelains. All these bear witness to the friendly exchanges between the two peoples. And they are convincing interpretation of the Chinese saying that “A bosom friend afar brings a distant land near.” Our two peoples sympathized with and supported each other in their respective struggle for national independence and liberation in the last century. Indonesia was among the first countries to establish diplomatic ties with the People’s Republic of China after its founding in 1949. In 1955, China and Indonesia, together with other Asian and African countries, jointly initiated the Bandung spirit at the Bandung Conference. With the principles of peaceful coexistence and seeking common ground while shelving differences at its core, the Bandung spirit remains an important norm governing state-to-state relations, and has made indelible contribution to the building of new international relations. Our two countries resumed diplomatic ties in 1990 and established a strategic partnership in 2005, which marked the start of a new phase in the growth of our bilateral relations. Ladies and Gentlemen: Dear Friends, During my current visit, President Yudhoyono and I have jointly announced our decision to upgrade our bilateral relations to a comprehensive strategic partnership, with a view to building on past achievements and bringing about allround and in-depth growth of our relationship. The growing mutual trust between the two countries has put our bilateral relations on a more solid political basis. Our practical cooperation has expanded from such traditional areas as economy, trade, finance, infrastructure, energy, resources and manufacturing to include new fields such as space and maritime affairs. Our wideranging cooperation, from space to ocean, has delivered tangible benefits to the two peoples. The Surabaya –Madura Bridge, a China-Indonesia joint project, is the longest cross-sea bridge in Southeast Asia. The cooperation project of Jatigede Dam is about to finish. Once completed, it will have an irrigation area of 90,000 hectares, which will greatly facilitate the work and life of the local people. We have enhanced our cooperation on major regional and international issues. Our relations have increasingly gained regional and international influences. All this is of positive significance to the building of a more just and equitable international political and economic order. All these are important landmarks of China-Indonesia friendship in the new era. 30

Monograph Promoting Cooperation on Energy and Resources under the

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People in Indonesia often say, “It’s easy to make money but difficult to make friends.” The sincere friendship between the Chinese and Indonesian people is indeed our cherished, priceless treasure. On 26 December 2004, a sudden massive earthquake of magnitude 9 hit the once tranquil Indian Ocean and triggered a large tsunami. The whole world was shocked to see Aceh of Indonesia suffering huge losses of life and property. After the tsunami, China immediately activated the emergency response mechanism and announced on the day of the earthquake that it would provide assistance to Indonesia and other disaster-affected countries. It became the largest overseas rescue and relief operation that China had ever launched after the founding of the People’s Republic. Trucks carrying relief supplied were given green lights all the way and rushed from factories to airport, and airplanes, loaded with the love and sympathy of the Chinese people toward the Indonesian people, flew to Aceh and other disaster-hit areas. The Chinese international rescue team was the first foreign team to arrive at Aceh. They provided medical treatment to over 10,000 victims in a short span of 13 days. Many local people learned to speak Chinese and hailed members of the Chinese rescue team in Chinese, “zhongguo, beijing, wo ai ni” (China, Beijing, I love you.) The Chinese people, too, offered their sympathy and assistance in a variety of ways to the Indonesia people hit by the disaster. An old man in Hangzhou, who was not rich himself as his wife was hospitalized for a long time and he himself had just gone through a surgery, donated 1,000 yuan of his hard earned money to Indonesian kids in disaster-affected areas for their continued schooling. The donation, though not a bit sum, speaks to the profound goodwill of the Chinese people to the Indonesian people. Likewise, the Indonesian people have extended a helping hand when the Chinese people experienced major natural disasters. On 12 May 2008, a massive earthquake hit Wenchuan, China. People in the affected areas were in dire need of assistance and relief. Indonesia responded immediately and sent its medical team to quake-hit areas. As soon as it arrived, the Indonesian medical team worked around the clock in spite of the many aftershocks. They treated 260 earthquake victims and provided free medical treatment to 844 local residents and 120 students. Before returning to Indonesia, they donated all their valuable belongings to the quake-affected areas. Back in Indonesia, people made donations both in cash and kind to the quake-stricken Wenchuan. Some Indonesians personally visited the Chinese Embassy in Indonesia to express their prayers and blessings to the people in Wenchuan. What they did has deeply moved the Chinese people. There are countless touching stories like these about friendly ties between our peoples. They are all examples of what is captured by one 31

Section 4: Landmark Speeches pertaining to the “One Belt and One Road” Initiative

common proverb in both the Chinese and Indonesian languages, namely “going through thick and thin together”. Ladies and Gentlemen: Dear Friends, China and ASEAN countries are linked by common mountains and rivers and share a historical bond. This year marks the tenth anniversary of the China-ASEAN strategic partnership. Our relationship now stands at a new historical starting point. China places great importance on Indonesia’s status and influence in ASEAN. China wishes to work with Indonesia and other ASEAN countries to ensure that China and ASEAN are good neighbors, good friends and good partners who would share prosperity and security and stick together through thick and thin. By making joint efforts, we will build a more closely-knit China-ASEAN community of common destiny so as to bring more benefits to both China and ASEAN and to the people in the region. To that end, we should focus our efforts in the following areas: First, build trust and develop good-neighborliness. Trust in the very foundation of both interpersonal and state-to-state relations. China is committed to a relationship of sincerity and friendship with ASEAN countries and to enhanced mutual political and strategic trust. There is no one-size-fits-all development model in the world or an unchanging development path. Both the Chinese people and people in ASEAN countries have embraced change and innovation with an open mind, and explored and found, in a pioneering and enterprising spirit, development paths in light of their specific national conditions that conform to the trend of times. All these efforts have opened up a broad prospect for their economic and social development. We should respect each other’s right to independently choose social system and development path as well as each other’s efforts to explore and pursue economic and social development, and improve people’s lives. We should have full confidence in each other’s strategic direction, support each other on issues of major concern, and never deviate from the general direction of ChinaASEAN strategic cooperation. China is ready to discuss with ASEAN countries the prospect of concluding of a treaty of good-neighborliness, friendship and cooperation in a joint effort to build good-neighborly relations. China will continue to support ASEAN in growing its strength, building ASEAN community and playing a central role in regional cooperation. Second, work for win-win cooperation. As a well-known Chinese saying goes, “The interests to be considered should be the interests of all,” China is ready to open itself wider to ASEAN 32

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countries on the basis of equality and mutual benefit to enable ASEAN countries to benefit more from China’s development. China is prepared to upgrade the China-ASEAN Free Trade Area and strive to expand two-way trade to one trillion US dollars by 2020. China is committed to greater connectivity with ASEAN countries. China will propose the establishment of an Asian infrastructure investment bank that would give priority to ASEAN countries’ needs. Southeast Asia has since ancient times been an important hub along the ancient Maritime Silk Road. China will strengthen maritime cooperation with ASEAN countries to make good use of the China-ASEAN Maritime Cooperation Fund set up by the Chinese government and vigorously develop maritime partnership in a joint effort to build the Maritime Silk Road of the 21st century. China is ready to expand its practical cooperation with ASEAN countries across the board, supplying each other’s needs and complementing each other’s strengths, with a view to jointly seizing opportunities and meeting challenges for the benefit of common development and prosperity. Third, stand together and assist each other. China and ASEAN countries are as close as lips and teeth. We share the responsibility for regional peace and stability. Historically, the people of China and ASEAN countries had stood together through thick and thin in the fight to take our destiny back into our own hands. In recent years, our peoples have stood side by side and forged strong synergy in responding to various crises from Asian financial crisis to the international financial crisis, and from the Indian Ocean tsunami to China’s Wenchuan earthquake. We should cast away the Cold War mentality, champion the new thinking of comprehensive security, common security and cooperative security and jointly uphold regional peace and stability. We should deepen cooperation in disaster prevention and relief, cyber security, combating crossborder crimes and joint law enforcement to create a more peaceful, tranquil and amicable home for the people in the region. China is ready to work with ASEAN countries to improve ChinaASEAN defense ministers’ meeting mechanism and hold regular dialogues on regional security issues. With regard to differences and disputes between China and some Southeast Asian nations on territorial sovereignty and maritime rights and interests, peaceful solutions should be sought, and differences and disputes should be properly handled through equal-footed dialogue and friendly consultation in the overall interests of bilateral ties and regional stability.

Section 4: Landmark Speeches pertaining to the “One Belt and One Road” Initiative

Fourth, enhance mutual understanding and friendship. Just as a Chinese saying goes, “A big tree grows from a small seedling; and a nine-storeyed tower is built out of soil.” To ensure that the tree of China-ASEAN friendship remains evergreen, the soil of social support for our relations should be compacted. Last year saw 15 million people traveling between China and ASEAN countries with over 1,000 flights between the two sides each week. Increased interactions have nurtured deeper bonds between us and enabled our people to feel ever closer to each other. We should encourage more friendly exchanges between youth, think tanks, parliaments, NGOs and civil organizations of the two sides, which in turn will generate more intellectual support to the growth of China-ASEAN relations and help increase the mutual understanding and friendship between our peoples. China is ready to send more volunteers to ASEAN countries to support their cultural, educational, health and medical development. China has proposed to set 2014 as the year of China-ASEAN cultural exchanges. In the coming three to five years, china will offer ASEAN countries 15,000 government scholarships. Fifth, stick to openness and inclusiveness. The sea is big because it admits all rivers. In the long course of human history, the people of China and ASEAN countries have created splendid and great civilizations renowned around the world. Ours is a diversified region. Various civilizations have assimilated and interacted with one another under the influence of different cultures, which affords and important cultural foundation for the people China ASEAN countries to learn from and complement one another. We should draw upon the experience of other regions in development and welcome a constructive role by non-regional countries in the development and stability of the region. At the same time, these, non-regional countries should respect the diversity of the region and do more to facilitate regional development and stability. The China-ASEAN community of shared destiny is closely linked with the ASEAN community and the East Asia community. The two sides need to bring out their respective strengths to realize diversity, harmony, inclusiveness and common progress for the benefit of the people of the region and beyond. A more closely knit China-ASEAN common destiny conforms to the trend of the times for seeking peace, development, cooperation and mutual benefit, and meets the common interests of the people of Asia and the world, hence enjoying a broad space and huge potential of growth. Ladies and Gentlemen: Dear Friends, Since the founding of the People’s Republic of China over 60 years ago, in particular the launch of reform and opening-up over 30 years ago, China 34

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has blazed a successful path of development and made tremendous progress. China has laid out a strategic plan and set clear goals for its future development, namely, to double its 2010 GDP and per capita income of its urban and rural residents and finish the building of a moderately prosperous society in all respects by 2020; and turn China into a modern socialist country that is prosperous, strong, democratic, culturally advanced and harmonious and realize the great renewal of the Chinese nation by the middle of this century. This is a dream that has long been cherished by the Chinese nation and people. It is also a prerequisite for China to make even greater contribution to mankind. As an ancient Chinese maxim goes, “only with high ambition and hard work can one make great achievements.” We have the confidence, conditions and capabilities to attain our goals. Having said that, we are soberly aware that China remains the largest developing country in the world. We still face many difficulties and challenges on the way ahead. For all the Chinese people to enjoy a happy life, we have to make unrelenting efforts for a long time to come. We will firmly stay on the course of reform and opening-up, adhere to the path of socialism with Chinese characteristics, focus on managing our own affairs well, press ahead with modernization and improve people’s wellbeing. China cannot achieve development in isolation from the world, and the world also needs China for development. China is fully committed to the path of peaceful development, the independent foreign policy of peace and the opening-up strategy for win-win results. A stronger China will add to the force for world peace and the positive energy for friendship, and will present development opportunities to Asia and the world, rather than posing a threat. China will continue to share opportunities for economic and social development with AESAN, Asia and the world. Ladies and Gentlemen: Dear Friends, The Chinese people are working hard to realize the Chinese dream for the great renewal of the Chinese nation. And here, the Indonesian people are vigorously implementing their overall economic development plan for the rise of Indonesian nation. To realize our respective dreams, it is all the more necessary for both sides to understand, support and cooperate with each other, and for more people of vision in both countries to get involved and make effective efforts to this end. In this connection, I recall the song Hening(Silence) composed by President Yudhoyono. In October 2006, he came to Guangxi, China for the commemorative summit marking the 15th anniversary of China-ASEAN dialogue relations. On the Lijiang River, President Yudhoyono was overwhelmed by inspiration and wrote down these beautiful lyrics. “The beautiful days 35

Section 4: Landmark Speeches pertaining to the “One Belt and One Road” Initiative

I spend with my friends have kept recurring in my life.” The mountains and rivers in China deeply touched President Yudhoyono and reminded him of his childhood and hometown. This shows just how strong the bond and affinity are between our two peoples. Amity between people holds the key to good relations between nations. It is through the efforts of these envoys of friendship who have built bridges of friendship and opened windows to sincere understanding that the friendship between our two peoples has been everlasting and has grown stronger and more robust as time goes by. Young people are full of dynamism and dreams. When the young prosper and are strong, the country will prosper and be strong. Young people represent the future and hope for exchanges between the two countries. President Yudhoyono and I have agreed that the two countries will expand and deepen cultural and people-to-people exchanges. In the next five years, each side will send 100 young people to visit the other every year, and China will provide 1,000 scholarships to Indonesia. I am convinced that with more and more young people involved in the building of friendship between the two countries, China-Indonesia friendship will flourish and pass on from generation to generation. Ladies and Gentlemen: Dear Friends, China and Indonesia have a combined population of 1.6 billion. As long as our two peoples work hand in hand with one heart and one mind, we will pool the huge strength of one fourth of mankind and be able to create new miracles in the history of human development. Let our two peoples join hands, write a new chapter in growing our bilateral relations, work for a bright future for the China-ASEAN community of shared destiny, and make greater contribution to the lofty cause of world peace and development. Terima Kasih!(Thank you!) Source: chinadaily.com.cn

Monograph Promoting Cooperation on Energy and Resources under the

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Section 5:

The Diplomacy of Promoting Cooperation on Energy and Resources under the “One Belt and One Road” Initiative

推進“一帶一路”能源資源合作的外交運籌

China Institute of International Studies Research Report 中國國際問題研究院（CIIS）研究報告 37

Section 5: The Diplomacy of Promoting Cooperation on Energy and Resources under the “One Belt and One Road” Initiative

CIIS Research Report CIIS研究報告

The Diplomacy of Promoting Cooperation on Energy and Resources under the “One Belt and One Road” Initiative

推進“一帶一路”能源資源合作的外交運籌 SHI Ze（石澤）

YANG Chenxi（楊晨曦）

Issue 7 September 2014

China Institute of International Studies 中國國際問題研究院

Monograph Promoting Cooperation on Energy and Resources under the

“One Belt and One Road” Initiative

About China Institute of International Studies China Institute of International Studies (CIIS) is the think tank of China’s Ministry of Foreign Affairs. It conducts research and analysis on a wide range of foreign policy issues. Research at the Institute is focused primarily on medium and long-term policy issues of strategic importance, particularly those concerning international politics and world economy. It also includes comments and policy recommendations on the world’s major events and hot-spot issues. The Institute was founded in 1956 as the Institute of International Relations of the Chinese Academy of Sciences. It was renamed Institute of International Relations in 1958, and assumed its present name in December 1986. In 1998, the China Center for International Affairs, formerly a research institution of China’s State Council, was incorporated with CIIS. CIIS now boasts 7 Research Departments and 6 Research Centers. The Departments are the Department for American Studies, International and Strategic Studies, Asia-Pacific Security and Cooperation, European Studies, Developing Countries Studies, Eurasian Studies, and World Economy and Development. Research Centers are focused on Sino-US Relations, the Shanghai Cooperation Organization, Arms Control and National Security, China’s Energy Strategy, Global Governance, and Maritime Security and Cooperation. CIIS also has an Office of Research Management and an International Exchanges Office. The staff of CIIS consists of over one hundred researchers and other professionals, 40% of which occupy senior positions. Since 1992, each year researchers from CIIS have been awarded with special government grants by the State Council for outstanding contributions. So far, 49 individuals have been bestowed with this honor. The CIIS Library is the leading professional library in China pertaining to international studies. It currently holds over 300,000 volumes in Chinese, English, French, Russian, German, 39

Section 5: The Diplomacy of Promoting Cooperation on Energy and Resources under the â&#x20AC;&#x153;One Belt and One Roadâ&#x20AC;? Initiative

Japanese and Spanish. The collection covers a wide range of subjects relating to politics, economy, military, foreign policy, and international law, etc. The Institute has a dedicated Editorial Department, responsible for editing and publishing the bimonthly International Studies and its English-language edition, China International Studies. International Studies was first published in 1959 and is one of the oldest academic journals in china on international studies. China International Studies was formally launched in 2005, and is the first ever English academic journal in China on diplomacy and international politics for openly circulation.

Monograph Promoting Cooperation on Energy and Resources under the

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About the Authors Mr. SHI Ze（石澤）is a senior research fellow at CIIS. He obtained a BA in Russian language and literature from Xi’an Foreign Languages Institute (now renamed Xi’an International Studies University) in 1973, and later an MA in world history from Peking University. Since joining CIIS in 1983, Mr. Shi has served as deputy director of the Division for Soviet Union and East European Studies, director of the Division for Comprehensive Studies, as well as Vice President of CIIS. Since 1996, he has enjoyed a special allowance from the State Council, and was named a Fellow of the Institute in 1997. From 2000 to 2011, he served as Counselor in Chinese embassies in Kazakhstan, Tajikistan and Russia successively. Mr. Shi currently serves as a Council Member of the China-Russia Friendship Association and China-Central Asia Friendship Association; a Standing Council Member of the China Center for Shanghai Cooperation Organization (SCO) Studies and the Chinese Society for Russian, Eastern European & Central Asian Studies; and Council Member of the China Association for International Friendly Contact and the China Foundation for International Studies. Mr. Shi formerly served as an appointed expert at the Xinjiang Office of the State Council and on Arms Control Issues at the State Administration for Science, Technology and Industry for National Defense. He has also hosted and participated in a number of national and ministerial research projects. Main Research Fields: Russian and Central Asia affairs; The Commonwealth of Independent States; the Shanghai Cooperation Organization; Great power relations; China’s peripheral security; Energy diplomacy and energy security; and regional economic cooperation.

Dr. Yang Chenxi（楊晨曦）graduated from the Department of International Politics, Jilin University in 2005 and 2013, obtaining a Bachelor’s Degree and a doctorate in International Politics respectively. Dr. Yang joined the China Institute of International Studies in 2013. Currently, he is an Assistant Research Fellow at the Department for International and Strategic Studies, CIIS. His major areas of interest include international energy strategy and Asia-Pacific international relations. 41

Section 5: The Diplomacy of Promoting Cooperation on Energy and Resources under the “One Belt and One Road” Initiative

Executive Summary In 2013, the Chinese leadership proposed two major initiatives: To join hands in building a Silk Road Economic Belt and a 21st Century Maritime Silk Road, known jointly as the “One Belt and One Road”. Considering the economic and social development needs as well as the comparative advantages of China and countries in regions to the West and South of the country, cooperation on energy and resources should be given great importance within these initiatives. China should promote energy and resource cooperation under the one Belt and Road initiative through policies aimed at winning the support of key major powers, coordinating with regional countries and international mechanisms, and fostering a favorable international environment. Firstly, energy and resource cooperation under the One Belt and One Road should leverage the influence of the great powers: The strategic energy partnership between China and Russia should be strengthened; China and the US should cooperate on major projects in the regions along the one Belt and Road, and constructive cooperation on hot issues should be promoted; Common interests between China and India in energy should also be expanded. Secondly, China should appropriately manage its relationships with regional countries and international mechanisms: Energy cooperation with Kazakhstan and Turkmenistan can be strengthened by coordinating with them on pipelines, trade and water resources; China should maintain a pragmatic political and economic relationship with the future Eurasian Economic Union; It should make full use of the China-Pakistan Joint Energy Working Group to steadily advance the construction of pipelines between the two countries and achieve real results through cooperation on power generation with new energies; The scale of the ChinaASEAN energy and resource trade should be expanded, along with relevant investments. Joint maritime security operations should also be conducted; In the Middle East, China should seek to obtain high-quality oil and gas resources. It should actively take part in safeguarding regional stability and should expand cooperation with the region on natural gas; China and the GCC (Gulf Cooperation Council) should accelerate negotiations on the China-GCC Free Trade Area, as well as cooperate on new energy and the provision of infrastructure.

Monograph Promoting Cooperation on Energy and Resources under the

â&#x20AC;&#x153;One Belt and One Roadâ&#x20AC;? Initiative

Furthermore, China should create a favorable international environment: It should actively respond to terrorism and other regional issues such as energy transport security and border and water resource disputes; It should cultivate relatively flexible laws and treaties governing the trade of energy and resources, promote the enactment of treaties and laws for the management of cross-border oil and gas pipelines, and actively participate in regional and global energy governance, thereby constructing a more conducive legal environment. China should rely on the combined efforts of official diplomacy, track II diplomacy and public diplomacy to publicize its policies and foster favorable public opinion.

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Contents P46

Introduction 1. Connotations of the “One Belt and One Road” Concept 2. Energy and Resources Cooperation under the “One Belt and One Road” Initiative 3. The Significance of Energy and Resources Cooperation in the Building of “One Belt and One Road” 4. The Role of Diplomacy in Energy and Resources Cooperation along the Belt and Road

Chapter 1: Challenges and Opportunities for Energy and Resources Cooperation along the Belt and Road

P59

1. Opportunities for Energy and Resources Cooperation 2. Challenges Facing Energy and Resources Cooperation

Chapter 2: Winning the Support of Key Countries

P70

1. Deepening Sino-Russian Strategic Cooperation on Energy and Resources 2. Strengthening Constructive Communication and Cooperation between China and the United States 3. Expanding Common Interests between China and India in Energy and Resources 4. Planning Eurasian Vertical Cooperation 44

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Chapter 3: Managing Relationships with Regional Countries and International Mechanisms

P85

1. Strengthening Cooperation with Regional Mechanisms and Countries in Central Asia 2. Promoting Cooperation with South Asian and Southeast Asian Countries 3. Closer Cooperation on Energy and Resources with Middle Eastern Countries and Mechanisms 4. Strengthening Cooperation with International Financial Institutions

Chapter 4: Building a Favorable International Environment

P98

1. Actively Addressing Regional Issues 2. Creating a Favorable Legal Environment 3. Gaining the Support of International Public Opinion 4. Implementing New Concepts of China’s Diplomacy

Conclusion

P110

Section 5: The Diplomacy of Promoting Cooperation on Energy and Resources under the “One Belt and One Road” Initiative

Introduction In 2013, the Chinese leadership proposed two major initiatives: To join hands in building a Silk Road Economic Belt and a 21st Century Maritime Silk Road, known jointly as the “One Belt and One Road” (OBOR). The “One Belt and One Road” is a strategic conception for deepening economic, social, cultural and various other modes of cooperation between China and countries in regions to the west and south of China. Given the economic and social development needs as well as the complementary strengths of China and these neighboring countries, cooperation on energy and resources should be given great importance within these initiatives. Diplomacy is a fundamental driver and necessary condition for promoting energy and resources cooperation under the “One Belt and One Road” initiative. First of all, energy and resources cooperation is a strategic issue involving many countries and complex interests. It requires gaining the support of key countries through substantial diplomatic efforts while utilizing existing international mechanisms. Secondly, energy and resources cooperation along the One Belt and One Road also faces regional issues and challenges such as transnational terrorism, border and water resource disputes, and transportation security. This requires considerable support from international treaties and public opinion, and, furthermore, requires diplomatic efforts in coordinating with relevant countries to jointly manage regional issues in building a favorable international environment. This paper examines how to provide diplomatic support for promoting energy and resources cooperation along the Belt and Road. It offers specific policy recommendations and is of great theoretical and practical significance.

1. Connotations of the “One Belt and One Road” Concept (i) The Essence of the “One Belt and One Road” Initiative The ancient Silk Road is a treasured legacy of the people of Asia and the Eurasian continent. Two thousand years ago, the industrious and audacious inhabitants of Eurasia blazed numerous trade routes linking Asia, Europe and Africa, later known as the Silk Road. Countries along the ancient Silk Road, large and small, all benefited greatly. Entering the 21st Century, in face 46

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of complicated international and regional dynamics, the spirit of solidarity and mutual trust, equality and mutual benefit, tolerance and mutual learning, and win-win cooperation once embodied in the ancient Silk Road seems all the more important and valuable today. The essence of the “One Belt and One Road” initiative is in congruence with the spirit of the ancient Silk Road. In promoting trade and economic cooperation, cultural and interpersonal exchanges with countries along this Belt and Road, China seeks to uphold the spirit of the ancient Silk Road by offering leniency and concessions, appropriately managing the interests of parties and understanding similarities and differences, thereby garnering the support and consensus of countries along the route. This is also consistent with China’s continued adherence to the “correct concept of righteousness” in fostering a “harmonious, secure and prosperous neighborhood” through its foreign policy, as well as with newly established concepts of peripheral diplomacy such as “amity, sincerity, mutual benefit and inclusiveness”. (ii) Key Regions under the “One Belt and One Road” Initiative Openness and inclusiveness is a key feature of the OBOR project, and this is why nations located along the ancient Silk Roads and those having good relations with China can freely participate in OBOR. Russia and countries located in Central Asia, South and Southeast Asia will be priority targets, while Middle-Eastern and East African countries will be located at the crossroads of OBOR. In the long term, Europe, the Commonwealth of Independent States (CIS) and certain countries in Africa may also become a part of the initiative as well. Even more countries may become involved as the OBOR project is developed. Therefore, it can be said that OBOR is open to all countries along the Silk Road, and, in the long term, may even expand its scope to include cooperation with countries beyond these regions on specific projects. This will help to garner support in strengthening regional peace, development and cooperation, and promote a balanced interdependence among various countries, with the ultimate aim of forging a community of common destiny. (iii) Key Elements of the “One Belt and One Road” Initiative Supported by human and cultural exchanges, OBOR is founded upon economic cooperation and will impact on areas such as economy and society. This cooperation relies heavily on infrastructure and creative modes of collaboration, thereby promoting economic cooperation among countries and “connectivity in five areas” - policy, transport, trade, currency and the hearts and minds of people.

Section 5: The Diplomacy of Promoting Cooperation on Energy and Resources under the “One Belt and One Road” Initiative

In terms of infrastructure, mutual benefits are relatively concentrated in areas such as transportation, energy, gas and oil pipelines, water resource facilities and power distribution between China and countries along the OBOR. Therefore, projects that cover these areas can play a pivotal role in launching the OBOR initiative. In a speech delivered by President Xi Jinping in Kazakhstan in September, 2013, he claimed that,” We will actively discuss the best way to improve cross-border transportation infrastructure and work toward a transportation network connecting East Asia, West Asia and South Asia to facilitate economic development and travel in the region.” His speech supports the idea of taking transportation connectivity as the first step to implementing OBOR. Some of the countries along the OBOR have already established a sound platform for cooperation with China on oil and gas pipelines and energy infrastructure, and this too can be further built upon in order to deepen cooperation. In terms of creative collaboration, China as well as countries along the OBOR all hope to create an environment that is conducive for the connectivity of policy, trade, currency and hearts and minds. This has set the stage for the creation of new and innovative mechanisms. Specifically, countries share more interests in terms of dissolving trade barriers, lowering the costs of trade and investment, RMB exchange, RMB settlement and financing services, and developing measures and plans for regional cooperation. These areas should therefore be considered first for building creative modes of collaboration. The aim of the above measures is to enhance cooperation among different regions and to achieve “connectivity in five areas”. These achievements can help enhance collaboration between China and countries along the OBOR on economic, social and cultural levels, and, in particular, great strides are expected in terms of economic cooperation. “Connectivity in five areas” will be vital to such achievements. (iv) Ways to Implement the Concept of “One Belt and One Road” There are already bi- and multilateral mechanisms in place between China and other relevant countries. Building upon these and relying on existing and effective platforms for cooperation, OBOR will serve more as a concept and initiative for cooperation than a mechanism per se. Existing major international mechanisms along OBOR include the Shanghai Cooperation Organization (SCO), Eurasian Economic Union (EEU), ASEAN-China Free Trade Area, League of Arab States, Cooperation Council of the Arab States of the Gulf, and the 48

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Meeting of RIC (Russian, Indian and Chinese) Foreign Ministers. Through these international mechanisms, countries can reach consensus through comprehensive discussion over matters of infrastructure, travel, monetary finance, trade, and cooperation on energy and resources, and subsequently establishing official cooperation documents. Therefore, the OBOR initiative will not compete directly with these mechanisms, but instead enriches them. The OBOR project should also make good use of international monetary and financial institutions like the World Bank, International Monetary Fund, Asian Development Bank and Islamic Development Bank to finance the building of infrastructure. Existing cooperation projects and those under planning will also be integrated and combined under the OBOR initiative. This will allow for the potential of these projects to be fully exploited.

2. Energy and Resources Cooperation under the “One Belt and One Road” Initiative (i) The Substance of Energy and Resources Cooperation In terms of the variety of energy and resources, OBOR primarily focuses on energy cooperation first, and then extends its scope to all types of energy and resources. Energy includes both fossil (coal, oil, natural gas, etc) and non-fossil sources (nuclear, wind, solar, geothermal, marine, and biomass). In terms of resources, there are mainly two categories mineral and non-mineral resources. The former includes fossil energy and metal and nonmetal minerals, whereas the latter includes non-fossil energy, water resources and biological resources such as fisheries and forestry. China and countries along the OBOR can complement each other in terms of their resource endowment, capital and technologies. Moreover, they bear the responsibility for developing their economies as well as creating better social conditions. These factors show that there is great potential for all parties to cooperate on various forms of energy and resources, including, in particular, oil and gas resources.

Section 5: The Diplomacy of Promoting Cooperation on Energy and Resources under the â&#x20AC;&#x153;One Belt and One Roadâ&#x20AC;? Initiative

Many of the processes carried out by the energy and resources industry, from upstream to downstream, such as infrastructure construction, exploration and development, trading, transportation, transportation safety, processing, and marketing channels can serve as platforms for cooperation. In upstream segments, the capital and technology China possesses and the resource endowments of countries along the route are inherently complementary. In the midstream segment, a shared concern among countries is transportation and its security. In the downstream segment, markets and high value-added industrial cooperation can help closely align the interests of all parties. Cooperation on all segments of energy and resources between China and countries along the route will help boost the entire OBOR initiative. (ii) The Characteristics of Energy and Resources Cooperation Firstly, energy and resources cooperation is economically-motivated. Energy and resources are commodities. In other words, they are essential to countries along the OBOR project that seek to pursue economic and social development through mass production and consumption, and are an also an important source for increasing international trade volumes. Factors such as the pricing mechanisms, means of trading and settlement, and transportation costs for energy and

Monograph Promoting Cooperation on Energy and Resources under the

â&#x20AC;&#x153;One Belt and One Roadâ&#x20AC;? Initiative

resources have an enormous impact on the costs of socio-economic development for countries. Petroleum is playing an increasingly important role in the financial system: it has become an important component of the investment portfolio; the worldâ&#x20AC;&#x2122;s major powers are competing fiercely in the oil futures market and over oil pricing rules; the futures market is having an increasing influence on the price of oil; while the financial derivatives market is making its mark as a tool for arbitrage in the oil trade. As OBOR involves many major energy producing and consuming countries, cooperation amongst them will inevitably touch upon the financial role of energy and resources. Secondly, energy and resources cooperation has spillover effects. International cooperation on energy and resources covers areas such as commodity trading, transportation and energy infrastructure, the construction and management of cross-border pipelines, and pricing rules for energy and resources. These have spillover effects on the economic departments of many industries, as well as on cooperation in terms of tariffs, finance, law and other areas. Lastly, there is a strategic aspect to energy and resources cooperation. For major energy producing countries, the export of energy and resources is often an important source of income; for energy consuming countries, the import of energy and resources is vital for sustainable economic and social development. For all countries, cooperation on energy and resources is a matter of national security and political stability. And it is for this reason that energy and resources cooperation has always been considered as a means of achieving major policy objectives. (iii) Methods of Cooperation The mode of collaboration on energy and resources between China and countries along the OBOR can be divided into two types - cooperation on specific projects, and the creation of a favorable environment for cooperation. The former includes increasing trade in energy and resources, exploration and development and the construction of infrastructure, land-based transportation, the joint construction and operation of oil and gas pipelines, smelting and processing and market cooperation, the joint construction and operation of new energy facilities, and cooperation on new energy technologies. The China-Russia agreement of increasing petroleum supply, China-Turkmenistan agreement of increasing natural gas supply and the

Section 5: The Diplomacy of Promoting Cooperation on Energy and Resources under the “One Belt and One Road” Initiative

construction of transnational pipelines around China are great examples of such cooperation. Continuing to implement, deepen and develop new modes of pragmatic cooperation on energy and resources will serve to further substantiate the OBOR initiative. On the other hand, creating a favorable environment for cooperation involves making investing and trading more convenient, promoting the use of RMB for trade settlement, creating innovative collaboration modes, strengthening bilateral and multilateral relationships, and fostering a favorable international legal environment and favorable public opinion.

3. The Significance of Energy and Resources Cooperation in the Building of “One Belt and One Road” OBOR is a comprehensive regional cooperation initiative between China and countries to the west and south of China. It is also an effective means of consolidating diplomatic achievements made in China’s periphery, to realign these diplomatic efforts in favor of coordinated development, and to foster an international environment that is favorable to China’s revival. Energy and resources are at the heart of development and essential for ensuring security; Energy and resources are, in essence, vehicles for achieving strategic security.

Monograph Promoting Cooperation on Energy and Resources under the

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(i) Providing Long-term incentives in support of the “One Belt and One Road” Initiative In order to diversify China’s supply of energy and resources, ensure secure and convenient transportation, and to create reasonable pricing mechanisms, it is important to enhance cooperation on energy and resources among countries along OBOR, and to strengthen the mutually beneficial relationships that exist between China and resource-rich as well as transit countries. This is of particularly significance for ensuring China’s energy and resource security, creating more room for development and to sustain the healthy development of its economy. At the same time, exploiting the complementary advantages that exist between China and resource-rich and transit countries, and the provision of energy and resource infrastructure, can help revitalize energy and resource industries in resource-rich countries and provide export opportunities for China’s capital and value-adding technologies. This will provide ample room for economic development as well as long-term motivation in support of the OBOR initiative. (ii) Building a Community of Shared Destiny among Countries along the Belt and Road Within the OBOR region there is a high concentration of major energy-producing countries. These countries are in desperate need of diversifying their distribution channels as well as Chinese investment and energy technologies. They will thus be able to benefit from the rapid economic development of China and speed up the construction of energy and resource infrastructure. Countries along the OBOR are more complementary with China in terms of energy and resources, markets, capital and technology. Therefore, deepening cooperation in these fields in accordance with their developmental interests will be beneficial to regional development and prosperity on the whole. Moreover, energy and resources cooperation is a strategic issue. Cooperation between China and resource-rich and transit countries in the realms of conventional energy, new energy, uranium, metallic minerals, energy transportation, water conservation, and power generation, have potential economic, social and other spillovers , thereby facilitating “connectivity in five areas” and enhancing strategic mutual confidence. This will help China in accomplishing the strategic objectives of maintaining control over her periphery, breaking out of containment and ensuring national security, as well as strengthen relations between China and countries along the OBOR, forming a community of common destiny.

Section 5: The Diplomacy of Promoting Cooperation on Energy and Resources under the “One Belt and One Road” Initiative

(iii) Safeguarding Regional Peace and Stability The interdependence between countries in terms of energy and resources and the associated spillover effects have the potential to serve as a ballast stone of regional peace. Certain countries in the OBOR regions are less developed economically and socially, energy and resources cooperation will demonstrate an enormous impact on their economy and society, thus contributing to the political stability of the region. In addition, some of China’s neighboring countries are still wary of its rapid development. Here, energy and resources cooperation can serve as a means for China to implement its foreign policies of creating an amicable, secure and prosperous neighborhood; and its new diplomatic principles of amity, sincerity, mutual benefit and inclusiveness. China can thereby demonstrate to its neighboring countries its sincerity in creating a friendly, stable and prosperous region and gradually put to bed concerns over the rapid development of China, creating an environment of cooperation and development conducive to regional peace and stability. (iv) Shaping a New International Energy Order China, at the moment, has limited influence in global energy governance and limited discursive power. If cooperation on energy and resources between China and countries along the OBOR can be successfully strengthened, China’s role in global energy governance will become more significant. China can enjoy more discursive power in global energy issues and the international energy order can be made more fair, reasonable and effective if China establishes fair energy trading rules and pricing mechanisms with OBOR countries; and forms a regional energy cooperation mechanism by applying the principle of “freedom of movement, free from discrimination and interference” in terms of the transportation of energy and resources. Furthermore, as there are numerous countries involved in the OBOR initiative on energy and resources cooperation, with substantial spillover effects, cooperation on energy and resources can serve as a foundation for forming a multilateral regional energy cooperation mechanism, as well as a new platform for international strategic energy cooperation. By the above measures, China and her neighboring countries can construct a unique energy supply-demand scenario, thus restoring balance to the strategic international energy landscape.

Monograph Promoting Cooperation on Energy and Resources under the

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4. The Role of Diplomacy in Energy and Resources Cooperation along the Belt and Road (i) Diplomacy and Market Traction Cooperation on energy and resources is an inevitable consequence of the market requirements of countries along the route of OBOR. The specific needs of each other’s markets motivate their cooperation. For instance, for major energy producing countries on the “Silk Road Economic Belt” such as Russia, Kazakhstan, Turkmenistan, Uzbekistan, Azerbaijan and Iran, the production and export of energy is the foundation of their economy and society; whereas for major energy consuming countries such as China and India, their national economies and socio-economic development depend largely on the import and acquisition of energy. The center of gravity for global energy consumption is gradually shifting towards the Pan-East Asian region, with the region accounting for the bulk of the increase in energy consumption. Energy producing countries in Central-Asia, with their advantages in terms of energy and resources, are eager to share in the rapid growth and development of East Asia, whereas China hopes achieve more sustainable economic development and better energy security by deepening energy cooperating with its neighboring countries. Considering the entire OBOR region, countries in West Asia, North and East Africa are equally dependent on their production and export of energy and resources in order to ensure economic prosperity. These countries can certainly benefit from the emerging markets in East Asia, and vice-versa. Therefore, markets can be seen as a fundamental driving force for developing energy and resources cooperation. Another fundamental driver of OBOR energy and resources cooperation is diplomacy, which is vital for establishing favorable international relations and a better regional environment. Diplomacy with respect to energy and resources cooperation under the OBOR initiative is primarily external efforts that focus on realizing China’s national energy and resource strategies. This includes formulating external strategies and policies with respect to energy and resources, as well as foreign exchanges. Governments (including leaders and departments concerning foreign affairs, economic activities and energy) will play a leading role in the implementation of the project, while enterprises, non-governmental organizations and individuals are important participants. Energy and resource diplomacy is characterized by a combination of governmentbusiness cooperation, track-one diplomacy and public diplomacy.

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Foreign policy objectives with respect to energy and resources broadly cover: high-level state visits and various cooperation agreements, trade, investment, exploration and development, technological cooperation and transportation (securing transport routes, etc). These include bilateral as well as multilateral cooperation (OPEC, the International Energy Agency, etc). As the network of oil and gas pipelines continues to grow in the region, energy diplomacy now extends to the construction, operation and security of transnational pipelines. Diplomacy and markets are the two fundamental drivers for energy and resources cooperation under the OBOR initiative. Markets provide economic incentives for diplomacy, whereas diplomacy provides political assurances for the market. One cannot do without the other and they should be given equal importance. (ii) Deepening International Cooperation In order to build international cooperative relationships for energy and resources under the OBOR initiative, China needs to win over the support of key countries, as well as improve its coordination with international organizations. Major countries with a significant influence in the OBOR region are Russia, the US and India. They possess broad strategic interests and have close political and economic ties with countries in the region. China-Russia relations are strategically significant to both sides, and Russia too has a stake in the deepening cooperation between China and Central Asian countries in the realm of energy and resources. Russia has a well-established presence in Central Asia and considers the region as its “strategic rear”. The US is well aware of this and has attempted on numerous occasions to stem China’s increasing influence in the region. Along the OBOR, the Middle East has always been considered one of the United States’ “strategic centers of gravity”. The US has also called for regional cooperation projects to be established in East and Central Asia, such as “The New Silk Road Initiative” and “The Lower Mekong Initiative”. India, in recent years, has been developing rapidly and its energy and resource imports from East and Central Asian regions have been increasing year by year. It too is actively seeking to expand energy and resources cooperation with countries in this region. On the other hand, countries like Kazakhstan, Uzbekistan, Turkmenistan, Saudi Arabia, Pakistan, Iran and Afghanistan are very influential. These countries are either key sources for China’s energy imports, crucial transit countries, or countries influential in regional security issues. 56

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In the process of gaining support from key countries, it is essential to maintain good relations with them through comprehensive communication, cooperation and coordination, in order to avoid interference and resistance to cooperation on energy and resources and other related fields. This is the objective of diplomacy. Formulating universal and coordinated strategies and polices on external energy and resources, in particular, is the intended purpose of energy and resource diplomacy. Regional mechanisms such as the SCO, EEU, the ASEAN-China mechanism, South Asian Association Regional Cooperation (SAARC), the League of Arab States and the Gulf Cooperation Council (GCC) are influential within the region, and can serve as international platforms for the OBOR initiative. Relying on these mechanisms, countries will be able to respond to different kinds of destabilizing factors more effectively, collaborate on projects and come up with innovative mechanisms. For instance, the SCO can be useful in responding to various destabilizing factors in Central Asia; and the ASEAN-China mechanism can be utilized to implement existing projects and to protect shipping lanes the South China Sea. In addition, as large-scale projects under the OBOR initiative can be very capital-intensive, China’s cooperation with the World Bank, International Monetary Fund (IMF), Asian Development Bank (ADB) and Islamic Development Bank will be all the more important. Managing China’s relationship with key international mechanisms is an equally important function of diplomacy.

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(iii) Creating a Favorable Regional Environment The objectives of diplomacy also include managing key regional issues and to prevent these problems from escalating; as well as to create an environment where public opinion and regulations are favorable to China. In recent years, the “three forces” have been wreaking havoc in the Central Asian region. In addition, there are often overlapping regional issues such as border conflicts, abnormally frequent regime changes, cross-border water disputes and maritime hotspots. Certain countries along the OBOR suffer from complex civic and social issues, mary regions suffer from a range of intertwining religious, racial, economic and geopolitical issues. These issues are unlikely to be resolved in the near future. As a result, diplomacy becomes a crucial channel for the international management of regional issues in order to avoid further escalation. Energy and resources cooperation under the OBOR initiative requires the support of public opinion and regulations, and it involves managing the national interests of relevant countries. Some countries have expressed concern and discomfort over the rise of China. Existing large-scale cooperation projects between China and countries along the OBOR, including the construction and operation of oil and gas pipelines, are mostly contracts between enterprises. These projects therefore lack the protection of bilateral and multilateral treaties. There are still many trade and investment barriers that exist between China and certain countries, and these must be resolved with international treaties. Therefore, China must combine the forces of track I diplomacy, track II diplomacy and public diplomacy, to engage key countries and media, dispel suspicion, deepen bilateral and multilateral relationships, and formulate mutually beneficial international treaties on energy and resources cooperation. These are the key functions of diplomacy.

Monograph Promoting Cooperation on Energy and Resources under the

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Chapter 1: Challenges and Opportunities for Energy and Resources Cooperation along the Belt and Road The “Silk Road Economic Belt” and “21st Century Maritime Silk Road” encompass most of China’s neighboring countries, and are advocated purposefully for the enhancement of regional economic cooperation and the creation of a supportive international environment. Under these initiatives, China faces valuable opportunities and serious challenges in engaging in energy and resources cooperation with countries along these routes.

1. Opportunities for Energy and Resources Cooperation (i) Regional Cooperation and Development is the Prevailing Trend During a conference on the diplomatic work on neighboring countries in October, 2013, President Xi Jinping stated, “China’s neighborhood, full of vigor and vitality, boasts obvious advantages and potential for development. The region is stable on the whole, and most of the neighboring countries have a friendly and mutually beneficial relationship with China.” The prevailing international trend of peace, cooperation and development provides China with a precious opportunity to promote energy and resources cooperation with its neighboring countries.

Section 5: The Diplomacy of Promoting Cooperation on Energy and Resources under the “One Belt and One Road” Initiative

Xi Jinping, President of the People’s Republic of China

Firstly, China is gradually achieving a higher degree of political mutual trust with countries along the OBOR. Historical border disputes between China and Russia, Kazakhstan, Kyrgyzstan and Tajikistan have been settled, laying the political foundation for the development of friendly bilateral and multilateral relations. In March, 2013 and May, 2014, China and Russia respectively signed the “joint statement on deepening the bilateral comprehensive strategic cooperative partnership” and the “China-Russia Joint Statement on a New Stage of Comprehensive Strategic Partnership of Coordination”. Relations between the two countries rose to unprecedented heights. Additionally, China officially established “strategic cooperation” with Brunei. She also acknowledged “strategic partnerships” with Turkmenistan, Tajikistan and Kyrgyzstan, and her relationships with Indonesia and Malaysia were also promoted to “comprehensive strategic partnerships”. Secondly, the first priority of countries along the OBOR is to develop their economies. They are therefore willing to cooperate with other countries for the sake of mutual prosperity and development. Under the wave of economic globalization, regional cooperation has been 60

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accelerating. In recent years, functional cooperation between China and these countries has increased in fields of trade, energy, culture, society, environmental protection and nontraditional security. Furthermore, countries are gaining more control over regional hotspot issues and regional stability is improving. Territorial disputes in the South and East China Seas are effectively under control with no new incidents; China has signed an agreement on border defense cooperation with India that aims to improve crisis management in territorial disputes; and landmark achievements have been made on the Iranian nuclear issue. In recent years China has had disputes with some of its neighbors. However, in light of their future development, these countries have been unwilling to deepen their conflicts with an awakening power. Lastly, the region of OBOR is becoming more and more united. Southeast-Asian countries are determined to unite and strengthen themselves, and to deepen cooperation, such as through numerous “10+N” platforms. Also, progress has been made with the Eurasian Economic Union, and the SCO is also exploring ways to make new achievements in terms of regional cooperation. (ii) China’s Increasing Influence along the “One Belt and One Road” Firstly, trade and economic relations between China and countries along the OBOR are getting closer and closer. China’s fast-growing economy has become an attraction to neighboring countries given its increasing contribution to the regional economy year after year. Importing 2 trillion US dollars worth of goods annually, China has now become the largest trading partner of over 120 countries and regions and has created numerous job and investment opportunities for its trading partners around the world. In 2013, bilateral trade between China and emerging markets such as ASEAN and the five Central Asian countries amounted to 443.61 billion and 50.28 billion US dollars, corresponding to an increase of 10.9% and 9.4% respectively. There are more and more countries hoping to be a part of China’s success, and those located along the OBOR have particularly high expectations on their cooperation with China. Relative to the slowly recovering economies of Europe and USA, Chinese investments are growing. Their technical expertise and managerial experience in manufacturing and infrastructure have stimulated the interests of relevant countries to cooperate with China.

Section 5: The Diplomacy of Promoting Cooperation on Energy and Resources under the “One Belt and One Road” Initiative

Secondly, countries along the OBOR are complementary with China in terms of economic and social development. This further motivates them to cooperate on energy and resources with China. Complementarity in terms of resources, markets, capital and technology provides vast room for development in terms of trade and economic cooperation. Central Asian countries are now hindered by a lack of economic development and diversity, and are eager to expand export volumes and to attract investments. Kazakhstan is now implementing its strategy of industrial innovation and has started to shift its focus towards attracting foreign investment and cooperation in non-resource fields. Other Central-Asian countries have prioritized their transport, mineral and agricultural products processing, light industries and service industries for economic development. South Asian countries have enormous potential for cooperation with China on infrastructure and technology. Creating a “China-Pakistan economic corridor” and “India-China-Bangladesh-Myanmar economic corridor” will help promote economic integration and interconnectivity. Third, changes in the international energy landscape have given more importance to the Chinese market. In light of the USA’s policy of promoting energy independence, the demand for Middle Eastern and Central Asian oil and gas has decreased. Since 2008, there has been an accumulated decrease of 16% in oil imported from the Middle East to the US. Meanwhile, emerging markets such as China and India are becoming an increasingly dominant source of global energy consumption, and have become the most important strategic buyers of oil from the Middle East and Central Asia. Against such a backdrop, oil-producing Middle Eastern and Central Asian countries plan to open their upstream oil and gas industry to China to promote economic cooperation through energy cooperation for the sake of further economic reform. China’s opening up of its downstream energy industry and market presents an even more attractive opportunity to resource-rich countries along the route of OBOR. The Ukrainian crisis at the beginning of 2014 has led the US and Europe to impose sanctions on Russian energy departments and a subsequent decrease in Russian imports. This means that Russia will be putting more emphasis on markets in the Far East and deepening cooperation on energy and resources with China. (iii) A Solid Foundation for Deepening Energy and Resources Cooperation China has established a high degree of institutionalized economic cooperation with countries along the OBOR. For instance, regional trade and economic cooperation has made 62

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historical progress with the establishment of the China-ASEAN Free Trade Area. In October, 2013, Premier Li Keqiang, during the ASEAN-China Summit, proposed the idea of “two-point political consensus and cooperation in seven priority areas” (2+7 cooperation framework), and economic initiatives such as negotiations on upgrading the China-ASEAN Free Trade Area, speeding up the construction of interconnected infrastructure and strengthening financial cooperation. These initiatives have been well received by ASEAN countries. In recent years, economic cooperation under the framework of the SCO has been deepening; negotiations on the “Regional Comprehensive Economic Partnership” and “China-Japan-Korea Free Trade Area” have enjoyed great successes in 2013. At the same time, China and her surrounding countries have been actively participating in multilateral cooperative mechanisms such as APEC, G20 and BRICS. By advancing regional cooperation on energy and resources through continued development, existing international mechanisms can be enriched.

Li Keqiang, Premier of the State Council of the People’s Republic of China

Secondly, countries along the OBOR have a better understanding of China’s situation, and as a result China enjoys a good deal of discursive power within the region. On its path towards peaceful development, the Chinese government puts extensive emphasis on her relationships 63

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with countries in the region. For example, China, when formulating foreign policy, insists on adhering to the principles of friendship and partnership with neighboring countries, and hopes to create a harmonious, secure and prosperous neighborhood. The new concepts of “amity, sincerity, mutual benefit and inclusiveness” are testament to China’s sincerity in joining hands to forge an equal, peaceful, trusting and cooperative regional environment. Through its diplomacy, China is beginning to demonstrate confidence, openness and responsibility characteristic of a major world power. China’s effective and pragmatic foreign policy aimed at promoting harmony in the world is gaining support from more and more countries. Furthermore, some of the countries along the OBOR have already had prosperous results in their cooperation on energy and resources with China. In 2013, China-Russia energy and resources cooperation reached a new height with the announcement to jointly “build a solid strategic partnership between China and Russia on energy cooperation”; both parties also reached agreements on: long-term crude supply, the Tianjin refinery; an increase in crude oil supply; Russian natural gas supply to China via the eastern and western pipelines; China Petroleum Chemical Corporation’s (CNPC) purchase of share rights in the Yamal Peninsula liquefied natural gas project; and nuclear fuel. In May, 2014, with the signing of the Memorandum of Understanding on the eastern route gas pipeline cooperation between China and Russia as well as the Purchase and Sale Agreement to supply Russian gas via the eastern route, the collective efforts of China and Russia for more than 10 years finally paid off, as they now prepare to establish a “comprehensive Sino-Russian energy partnership”. The oil and gas trade between China and Central Asian countries such as Turkmenistan and Kazakhstan is gradually increasing. Construction of the four gas pipelines travelling from Central Asian countries into China – Lines A, B, C and D – has commenced, with certain pipelines already nearing completion. In 2013, the completion of oil and gas pipelines between China and Myanmar marked progress in terms of their energy and resources cooperation. China’s energy trade with traditional oil and gas suppliers in the Middle East is steadily growing. These existing energy trades and industrial cooperation have laid the foundation for an even more mutually beneficial relationship with countries along the OBOR.

Monograph Promoting Cooperation on Energy and Resources under the

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2. Challenges Facing Energy and Resources Cooperation The strategic concept of OBOR provides numerous opportunities to countries along the one Belt and Road. However, there will also be bottlenecks and challenges ahead as a result of the rapidly changing surrounding environment. (i) The Negative Effects of Great Power Games First of all, the US “Pivot to Asia” or its strategy of rebalancing towards Asia has placed the focus of its global strategy on the Asia-Pacific region. The strategy aims to limit China’s influence on security issues. There is still deep concern and prejudice over the rise of China in the United States. US politicians and scholars believe that the root of instability in the East Asian region lies in the rapid development of China’s military and its increasingly assertive foreign policy. In a 2013 annual report on the military power of the People’s Republic of China, the US claimed, “China publicly states that its rise is ‘peaceful’ and that it harbors no ‘hegemonic’ designs or aspirations for territorial expansion. However, China’s lack of transparency surrounding these growing capabilities has increased concerns in the region about China’s intentions.” Some American scholars advise the government to contain China by strengthening the US-Japan alliance. Consequently, the US, in the name of “rebalancing towards Asia”, has placed troops and strengthened its military alliances in the surrounding areas of China. US intervention in East Asian security affairs has to some extent encouraged certain countries to endlessly provoke China in maritime disputes. Such actions adversely affect the political environment for energy and resources cooperation in the region. Asia Pacific cooperation as advocted by the US competes directly with existing cooperative mechanisms between China and its surrounding countries, and seeks to contain China economically. In 2013, the US urged Japan to expedite negotiations on the “Trans-Pacific Partnership” (TTP), “The US-ASEAN Expanded Economic Engagement” (E3), and to expand cooperation with East Asian economies. In Central Asia, the US implemented the “The New Silk Road” initiative and extensively intervened in regional issues. Furthermore, the US has been criticizing Chinese cooperation projects in Southeast, South and Central Asia over environmental and heritage conservation concerns.

Section 5: The Diplomacy of Promoting Cooperation on Energy and Resources under the “One Belt and One Road” Initiative

Additionally, China’s extensive energy and resources cooperation with Central-Asian countries might trigger Russian concerns over the impact on Eurasian economic integration. Russia sees the Central Asia region an important “strategic rear” and seeks to promote the integration of Eurasian economies. These considerations are taken into account in Russia’s foreign policies. The first priority of Russia’s foreign policy is to consolidate the Commonwealth of Independent States and to promote further integration of the CIS region. To accomplish this requires the establishment of a Eurasian Economic Union. In 2013, Kyrgyzstan and Tajikistan applied for entrance into the Customs Union of Belarus, Kazakhstan, and Russia (the Eurasian Customs Union), and Armenia officially entered the Union the same year. Such achievements are a result of the efforts of the Russian led Eurasian Economic Union. China’s successful cooperation with Central Asian countries in the fields of energy and resources and interconnected infrastructure will inevitably raise concern in Russia. For example, Russia may worry that the standard gauge adopted in the China-Kyrgyzstan-Uzbekistan railway will be incompatible with the one used by Russia, and this will have a negative impact on her cooperation with Central Asian countries. What concerns Russia equally are the trade agreements that China has reached with Central Asian countries concerning energy commodity trades, as well as the expansion of upstream and downstream industrial cooperation and the strengthened interconnectivity between China and these countries. Consequently, one of the most prominent challenges of energy and resources cooperation is to win over the support of Russia. Our policy should be beneficial to both China and Russia, and in support of the Eurasian Economic Union. Only by directing our efforts at ensuring Russia’s benefit can vicious competition be avoided. Thirdly, India is apprehensive about the rise of China’s regional status, and both countries are competitors in the international energy and resource trade. India values her influence in the South-Asian region and is eager to develop bi- and multilateral relations with countries in Central Asia and Southeast-Asia. In recent years, India has been strengthening bilateral relations with Indonesia, Myanmar and Japan, and is also deepening cooperation with ASEAN. Additionally, China is endeavoring to expand its energy trade with Central-Asian countries such as Kazakhstan, as well as deepen the level of cooperation with these countries in the upstream and downstream sectors.

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As an emerging power, India has been strengthening her relationship and energy and resources cooperation with countries located in the “India-Pacific” region. These actions are carried out in accordance with any international political and economic principles, but they lead to rivalry between India and China. In July, 2013, an article in the Hindustan Times claimed that China’s cooperation with Kazakhstan in the Kashagan oil field project had in effect taken away the contract from India. In order to avoid zero-sum or even negative-sum competition between China and India, energy and resource diplomacy is necessary. (ii) The Negative Effects of Territorial and Water Resource Disputes The scope of OBOR extends to and covers vast land and sea areas. These regions face challenges including disputed sea and land borders as well as water resources. First of all, the ocean rights of China and countries along the OBOR have not yet been clarified owing to the influence of external powers and the international political landscape. Philippines, in recent years, has been trying to challenge China’s sovereignty over the Scarborough Shoal and Second Thomas Shoal by referring these disputes to the International Tribunal for the Law of the Sea. For instance, a fishing boat with soldiers and supplies aboard forcefully penetrated a perimeter set up by Chinese coast-guard vessels on 9 March, 2014. The boat then entered the Second Thomas Shoal and supplied Filipino personnel with food and fresh water. They carried out a troop rotation as well. A throng of Filipino and Western reporters were also invited to “witness” the operation and use the opportunity to smear China’s image. The Philippines conducted several similar acts of provocation. In addition, external powers such as the US and Japan, regarding these issues, sided with countries that oppose China. As a result, the political and military pressure on China in the South China Sea is continuously increasing. This may undermine the region’s stability as well. On top of that, there are still border issues between China and countries along the OBOR. The border between China and India is yet to be demarcated, yet both parties should discuss the issue in a calm and restrained manner. Nevertheless, there is still friction on specific issues. In April, 2013, the “Tent Confrontation” occurred on the western Chinese-Indian border. The confrontation was closely followed by media in China and India, and led to wide-scale debate in both countries. Among countries in Southeast-Asia and Central-Asia, territorial disputes are rife and constitute a destabilizing factor in the region.

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Water disputes still exist between certain countries along the OBOR, such as the crossborder water disputes between China and Kazakhstan. Located in the Eurasian heartland, Kazakhstan is extremely droughty with very limited water resources. They have access only to the water from cross-border rivers. There are 23 cross-border rivers between China and Kazakhstan, of which the Ili River and Irtysh River are the largest. Kazakhstan is situated at the mid- and downstream parts of both rivers, and is particularly concerned about China’s usage of the upstream. They worry that China’s construction of dams, reservoirs and water diversion projects may pose a threat to its water supply. These disputes between China and Kazakhstan should be handled with care so as not to affect bilateral relations and energy and resources cooperation along the OBOR. Finally, there are long-standing water disputes between South and Central Asian countries, and these are at risk of further escalation. (iii) Destabilizing Factors and Security Concerns in Regional Countries The four parts of Asia that are covered by the OBOR project – Southeast-Asia, South Asia, Central Asia and West Asia, are located along the Eurasian “arc of instability”. Social conditions in these areas are complex and conflicts are frequent. Regarding the situation of Central Asia and South Asia, the US and NATO forces will soon pullout from Afghanistan. Regional terrorist forces may seize this opportunity to cause chaos in the region. Countries from both in and outside the region have competing interests with respect to the future of Afghanistan. The future security of the nation is uncertain, with the increased possibility of clashes spilling over in the region. There have been various violent clashes in the border regions between Afghanistan and Pakistan, which erode regional stability and economic cooperation. In addition, the two separatist forces – East Turkestan Islamic Movement and Tibetan Separatists, have been engaging in political rebellion and violent confrontation aimed at disuniting Xinjiang and Tibet from China, so as to cause instability in the border regions. The security of China’s oil and gas pipeline network with Myanmar and Central Asian countries, as well as that of the people working there, is under threat. These activities threaten China’s economy and society. Furthermore, the future political transitions of some countries are still uncertain. Race, religion and politics also add to the complexity of the countries’ conditions, and affect their stability. Regime changes in Kazakhstan and Uzbekistan are imminent. Therefore, confrontation among 68

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various political powers within these countries may arise. Such issues point to new changes that are expected in the Central Asian region. Many political variables remain in Thailand and Myanmar. Militias based in Northern Myanmar are continuously resisting the government and pose a threat to China-Burma oil and gas pipelines. These unstable political conditions may have a negative impact on major projects and cooperation on energy and resources between China and relevant countries.

“Countries from both in and outside the region have competing interests with respect to the future of Afghanistan. The future security of the nation is uncertain, with the increased possibility of clashes spilling over in the region.”

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Chapter 2: Winning the Support of Key Countries Russia, the US and India are countries that are vastly influential and possess wide-ranging interests in the OBOR region. In the current era of globalization, these three countries share a wide-range of interests with China’s OBOR project, although competition and even conflicts do exist. These are objective and regular phenomena in international politics and economics. In order to win over the support of key countries China should actively promote cooperation that is based on the common interests of all parties, and vicious competition and conflicts should be avoided and controlled.

1. Deepening Sino-Russian Strategic Cooperation on Energy and Resources (i) Vigorously Promoting Sino-Russian Energy Cooperation Russia has been positively responding to China’s promotion of the OBOR initiative, under which energy and resources cooperation has strategic significance for both countries. Currently, the potential and complementarity of China-Russia energy and resources cooperation has been on the rise and both parties are benefitting as a result. In the future, they can continue to deepen their cooperation in the following areas. Firstly, existing agreements should be fully implemented and trade between the two countries should continue to be expanded. In May, 2015, China and Russia, after more than 10 years of negotiations, reached a long-term agreement on the supply of Russian gas via the eastern route that will last for 30 years. The route will supply a total of 38 billion cubic meter of natural gas yearly. As a result, the scale of energy and resources cooperation between both countries has substantially increased. The next objective will be managing the construction, financing and 70

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technological issues of the gas pipeline, to ensure that the pipeline will be operational by 2018, and that the volume of supply is gradually increased year by year. At the same time, there is still enormous room for the further development of China-Russia energy and resources cooperation. Improvements should be made in accordance with agreements reached at energy talks under the regular consultation mechanism between both prime ministers. Specifically, the oil and gas trade between both Chinese and Russian enterprises should be expanded, and the amount of oil and gas supplied through the east route pipelines should be increased as well. This will strengthen interdependence between China and Russia. Secondly, energy interconnectivity should be enhanced. At present, the capacity of the China-Russia oil and gas pipelines is insufficient to satisfy the demand for energy and resources cooperation, and maritime transport capacity has is yet to be fully developed. In fact, a primary objective of OBOR energy and resources cooperation is to enhance the quality and quantity of energy and resource infrastructure. The China-Russia pipeline in the west, China-Russia east route gas pipeline and new pipeline agreements should be implemented in order to largely increase the transport capacity for energy and resources. Moreover, in order to diversify the modes of energy and resources transportation and to relieve the pressure on other transportation channels, new maritime oil and gas transport channels between China and Russia should be explored. Thirdly, cooperation on energy technologies should be enhanced. China and Russia have enormous room for cooperation in terms of developing and utilizing new-energy technologies, non-traditional oil and gas exploration and development and environmental protection. On one hand, China’s technology in the exploration and development of shale oil and gas is maturing and there is no shortage of capital in the country. On the other hand, Russia possesses an immense reserve of shale oil and gas, which gives Russia a distinctive advantage in terms of its reserve to production (R/P) ratio. Aided by an increase in trade and transportation channels, the cooperation between China and Russia in relevant fields will elevate their level of energy and resources cooperation. In terms of utilizing new-energy technologies, there is an equally significant opportunity for Russia and China to cooperate. For instance, Russia plans to substitute natural gas for petroleum in its public transportation. Russia has already lowered the tax for using natural gas and cancelled the tariff for electric car users. China’s new energy vehicle technologies are relatively mature and it has more capital for investments. Consequently, 71

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new energy vehicle enterprises in China and Russia have begun to cooperate, with the support of Russian policies in terms of tax allowances and the provision of land. Such cooperation can serve as an example for countries along the OBOR to work together with China in the fields of new energy, environmental protection and energy conservation. (ii) Properly Managing Bilateral Interests Firstly, the coordination of both China and Russia’s foreign policies on Central Asia. Russia has a number of important strategic interests in Central Asia. In 2013, Russia obtained remarkable results in integrating the Eurasian economy and strengthening the Customs Union. Russia also plans to establish the Eurasian Economic Union before 2015. In light of the Ukrainian Crisis and western sanctions, establishing a Customs Union has become essential to Russia. Russia is in dire need of substantial support from China in all relevant areas. Besides, cooperating strategically with Central Asian countries helps safeguard China’s energy security and stability in western China. According to Russian scholar Sergei Luzyanin, China is attempting to redraw the Eurasian economic map with the “Silk Road Economic Belt”. Relevant projects in both China and Russia are underway and can possibly be integrated together, with China taking the lead. However, the possibility of competition and conflict cannot be ruled out. China and Russia, under the framework of their bilateral relationship, can coordinate their policies in support of their cooperation with the Central Asian countries. On top of that, China and Russia can work side by side under the framework of bilateral mechanisms and the SCO, in order to maintain the stability of the Central Asian region. The OBOR initiative, aimed at promoting mutual prosperity, will dispel the concerns of Russia and other countries over the “economic expansion” of China. China and Russia can provide Central Asian countries with joint support in the areas of transportation, water and electric power infrastructure. Improvements made in these areas can help improve the quality of life of the people in Central Asia. China and Russia should also encourage enterprises in both countries to cooperate on key energy and resource projects in Central Asian countries. Secondly, cooperation between the upstream and downstream energy and resource industries in China and Russia should be coordinated. The energy and resources industry includes exploration and development (upstream); transportation (midstream); and high value-added segments such as refining and sales (downstream). By contrast, the energy trade is a relatively 72

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primitive form of international energy cooperation. China and Russia’s cooperation on the Tianjin Refinery and the Yamal liquefied natural gas project marks the beginning of their cooperation in the upstream and downstream sectors. By opening up a portion of its downstream industries to Russia, China has left more room for Russia to exploit high value-added industries. In doing so, the interests of China and Russia are tied together. This can be seen as an embodiment of China’s “correct concept of reighteous” and the concepts of “amity, sincerity, mutual benefit and inclusiveness”. Upstream cooperation can provide China with a long-term and stable energy supply at reasonable prices. All in all, extensive cooperation throughout the industry chain will greatly enhanced the level of energy and resources cooperation between China and Russia.

Russian President Vladimir Putin and China’s President Xi Jinping shake hands after signing an agreement during a bilateral meeting at the Xijiao State Guesthouse ahead of the fourth Conference on Interaction and Confidence Building Measures in Asia (CICA) summit, in Shanghai on May 20, 2014.

Thirdly, China and Russia should be coordinating their policies on energy prices. In the future, long-term pricing agreements will inevitably be replaced by market prices as the main pricing mechanism for international natural gas trades. For that reason, China and Russia, being large natural gas consuming and producing states respectively, should explore a market-based approach to natural gas pricing. This will allow the two countries to play a greater role in the 73

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future development of the global natural gas pricing mechanism. Currently, the major western powers dominate the pricing mechanism of oil while the US’s natural gas exports are reaching new heights every year. China and Russia’s promotion of the marketization of natural gas prices is very important to enhancing the status of emerging markets in global energy governance. The export and price of Russia’s oil and gas resources are crucial to the financial and socioeconomic stability of Russia, whereas Russia’s stability bears great significance for China as well. This is why China should adopt a mutually beneficial approach to price negotiations, as this is in line with China’s long-term interests.

2. Strengthening Constructive Communication and Cooperation between China and the United States (i) Sino-US Competition and Cooperation

China and the US, in areas such as politics, economy, trade, security and culture, are competitive and have conflicting interests, where some of this competition and conflict is structural. In OBOR energy and resources cooperation, China and the US will be competing for economic and political influence in the South Asian, Central Asian and Middle East regions.

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Major energy and resource producing regions such as the Middle East and the Persian Gulf have always been important strategic areas for the US to maintain the world energy order and respond to unexpected issues. Oil, with commodity, financial and geopolitical attributes, is closely tied to the dominance of the US dollar. Therefore, in the view of the US, it is vital to maintain a dominant position in the Middle East and Central Asia. Only by this means can the US secure the supply of energy imports and maintain its global dominance. In light of the decrease in US energy imports, energy producing countries are placing more emphasis on their relationships with China. China’s development of energy and resources cooperation under the OBOR initiative aims to expand her influence in major energy producing regions by expanding trade volumes, building infrastructure and establishing cooperative mechanisms on energy and resources. The rise of the relative influence of China in these regions is threatening the regional dominance of the United States, and the US may adopt countermeasures in response. At the same time, there exists enormous potential for cooperation between China and the US on energy and resources along the OBOR. Regarding energy and resource connectivity and energy policy, China and the US have achieved remarkable results in the Greater Mekong Subregion scheme (GMS) in Southeast Asia. In Central Asia, China and the US possess mutual interests in areas such as regional security and pipeline security. In the Middle East, China and the US have great potential for cooperation in terms of ensuring a stable energy supply and reasonable energy prices, transportation security and the construction of infrastructure. Although both countries do have conflicting interests in the OBOR area, the functional cooperation mentioned above can be carried out with relative ease. Through this cooperation, China and the US can expand mutual interests and understanding, thereby reducing US resistance to energy and resource competition under the OBOR initiative. (ii) Promoting Sino-US Cooperation on Major Infrastructure Projects The reason for cooperating with the US on major energy and resource projects is to create a mutually beneficial environment, thereby minimizing resistance and concerns over China’s intentions for promoting international cooperation in this regard. In the Southeast Asian region, China and the US have always been important participants of the GMS. The Asian Development Bank, as the initiator of GMS, provides capital to support regional cooperative projects on energy and resources. With the help of financing from the ADB, 75

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subregional countries have built up a range of facilities for power generation and transmission. As a result, the regional electricity trade has been rapidly expanding. For example, Laos has been importing electricity from Thailand since the 1990s and Yunnan since 2009; Vietnam has been importing electricity from Yunnan since 2004; Yunnan has been importing electricity from Myanmar since 2008; and Cambodia has been importing electricity from Vietnam, Thailand and Laos since 2008, 2009 and 2010 respectively. China, through the GMS, has been cooperating with various countries on grid integration. For instance, a 110 kV power line between Hekou, Yunnan and Lao Cai, Vietnam has been operational since September, 2014. Up until August, 2011, the China Southern Power Grid (CSG) recorded a total of 20.9 billion and 136 million KWh of electricity transmitted to Vietnam and the northern part of Laos respectively. Over the next few years, the provision of energy and resource infrastructure will remain the mainstay of GMS. China and the US can cooperate on major energy and resource infrastructure projects in Southeast Asia. Cooperative relationships can also be developed between enterprises, academic institutes and non-governmental organizations (NGOs) in China and the US. In the Middle East, Chinese and US enterprises are already cooperating on energy in Iraq. There is still a lot of room for cooperation in areas such as investment and financing, research and development, exploration, production and transportation in the region. At the same time, countries such as The United Arab Emirates and Saudi Arabia are actively enhancing their energy efficiencies and developing new energies for the sake of improving their energy diversity. Leveraging their capital and technological advantages, China and US based enterprises can then cooperate with enterprises in the Middle East. Through supporting the production of renewable energy in the Middle East region, regional oil and gas exports will increase in return. Cooperating on Middle-Eastern energy security is strategic and sensitive. The governments of both countries should therefore play a leading role in the implementation of major projects. In the South Asian region, both China and the US’s interests are tied to the stability and economic development of Afghanistan. China’s participation in Afghanistan’s exploitation of mineral resources will help the Afghan economy grow. Investment from China can also increase revenues to the Afghan government, helping the country maintain its high level of spending on security. In fact, both the US and NATO want China to increase its economic assistance to Afghanistan. Upon this foundation, China and the US can cooperate on important projects involving energy and resource infrastructure and interconnection and intercommunication. The 76

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benefits from these projects should be shared by both countries in accordance with economic and business principles. The Central Asian region is situated at the “crossroads” between Europe and Asia. It is a region where Chinese, Russian and US strategic interests intersect, with complex geopolitical, racial and religious dynamics. However, China and the US do have the opportunity to cooperate on projects for the exploration and production of energy and resources in the region. (iii) Maintaining a Constructive Sino-US Dialogue on Hotspot Issues OBOR energy and resources cooperation will inevitably touch upon regional affairs and certain hotspot issues in the Middle East and Central Asia. As part of China’s promotion of regional energy and resources cooperation, it will form various bi- and multilateral mechanisms that may have an impact on global energy governance. On the other hand, the US is very sensitive to regional changes in the areas of geopolitics, the economy and changes in the balance of discursive power in global energy governance. Therefore, China and the US should carry out discourses that specifically target such matters. During the fifth round of the US-China Strategic and Economic Dialogue held in July, 2013 and the sixth round that was held recently, China and the US jointly decided to strengthen dialogue and communication on issues concerning energy and resources. Both parties realize that they share the common objective of strengthening global energy security. They have made commitments to strengthen cooperation, dialogue and information sharing on stabilizing international energy markets, improving emergency response measures, ensuring energy supplier diversity, and reasonably and effectively utilizing energy sources. This reflects the eagerness of China and the US to have a more comprehensive dialogue on global energy. Under such a framework, China and the US, for the sake of tackling problems related to energy and resources cooperation under OBOR, can establish new communication mechanisms and engage in dialogue on Eurasian energy and resources cooperation and global energy governance. Important issues regarding OBOR energy and resources cooperation that concern the interests of China and the US should be incorporated into these discussions, and China and the US should respect each other’s interests and needs and communicate with each other in a timely manner on relevant hotspot issues.

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3. Expanding Common Interests between China and India in Energy and Resources (i) China-India Competition and Common Interests in the Realm of Energy and Resources China and India are major developing countries and are huge in terms of their population, yet their national oil and gas supplies are not sufficient to meet their increasing economic and energy demands. The two nations account for the bulk of the increase in global energy consumption. Political and economic factors jointly drive both countries to broaden their respective cooperation with energy producing countries, as this is essential to their economic and social development. From 2010 to 2011, India’s energy consumption was 522 million tons of oil equivalent (toe). It is anticipated that India’s energy consumption will reach 681 million toe, or even 738 million toe in the year 2016-2017, by which time its reliance on foreign oil will exceed 70%. India, due to its rapidly increasing energy consumption, is seeking to secure long-term and stable sources of energy imports as well as secure transportation channels. China also depends on foreign sources of oil for nearly 60% of its needs. Consequently, both countries are striving for energy cooperation with oil and gas producing countries in the Middle East, Russia, Central Asia and Africa, and are actively expanding their political and economic influence in these regions. Chinese and Indian energy and resource enterprises are engaging in fierce competition in many energy and resource producing countries. Taking the Eurasian region as an example, China and India’s proximity to the region means that rivalry is inevitable since they both have to compete for oil supplies from the Eurasian region. Owing to the fact that Eurasian countries are relatively less developed, their energy tends to be exported to a less diversified range of countries. For that reason, they have taken energy as an important policy tool to safeguard their economic interests by diversifying their energy exports and strategically positioning themselves among the major powers. Moreover, oil and gas are non-renewable energy sources and are strategic in nature. This means that the competition between China and India, to some extent, bears the characteristics of a zero-sum game, and there will be competition between Chinese and Indian enterprises over the Eurasian

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energy and resource trade and upstream investments. Due to overlapping import sources of oil and gas, China and India will face similar problems in energy producing regions in the Middle East and Africa. Chinese and Indian enterprises often run into each other in the Middle East and Africa in energy exploration and development as well as infrastructure projects. It is safe to say that China will face direct competition from Indian officials and enterprises when attempting to promote OBOR energy and resources cooperation. It is also important to note, however, that although there is competition between China and India over energy and resources in the OBOR region, there is still a lot of room for cooperation. In international relations, it is often hard to eliminate competition or conflict entirely. But if the two sides turn their mutual objectives and challenges into motivation for developing cooperation and mutual interests, they will be able to better manage these conflicts. At present, China and India face many common challenges in terms of energy and resources: They both depend highly on energy imports from the Middle East and Africa, and are now starting to increase their imports from the Caspian Sea and Siberian region; maritime routes for transporting energy sources are now being threatened by nontraditional security threats such as piracy and natural disasters; land-based oil and gas pipelines will have to safeguarded; their energy mixes are dominated by coal; their energy efficiencies are relatively low; they both face pressure from the “Asian Premium”; they both face enormous pressure to reduce greenhouse gas emissions; and their utilization of renewable and clean energy is insufficient. Regarding the above challenges, China and India can try working together in key fields such as supply security and the development and utilization of energy technologies. Cooperation in these areas can be incorporated into the framework of OBOR. This will help expand common interests between China and India, improve India’s energy self-sufficiency and help ease the rivalry between the two countries in energy and resource producing areas. Essentially, cooperation is a way to align the policies of one country with the interests of another. Sino-Indian cooperation on key energies and resources will motivate both countries to adopt policies that are in line with each other’s interests.

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(ii) Promoting Cooperation between China and India on the Security of Energy and Resource Supply The security of energy and resource supply involves various aspects, particularly price and transportation. Regarding pricing, China and India are both faced with the challenges of political instability in energy producing countries. They also face fierce competition with large western energy and resource enterprises. Large western energy and resource enterprises have an established presence in energy producing regions such as the Middle East. They possess a huge amount of high quality oil and gas fields and advanced, low-cost exploration and production technologies. Also, they established the existing trade and price mechanisms. By comparison, China and India’s enterprises are relatively disadvantaged and are often unable to obtain the energy and resource contracts they desire. It is only until recent years that the rise of largescale Chinese petrochemical enterprises (CNPC, SINOPEC, CNOOC, etc) has re-balanced the situation. Moreover, China based enterprises are usually the ones who win the contracts from Indian enterprises. Such vicious competition consumes astoundingly high amounts of money of both Chinese and Indian enterprises in the competition over production rights in these regions, drastically reducing cost-effectiveness. This kind of competition is only beneficial to sellers. Owing to the fact that China and India are disadvantaged in influencing oil and gas pricing mechanisms and that they lack coordination, both countries have to bear the Asian Premium despite high world energy prices. Besides, the regional political stability of Central Asian and North African countries is comparatively fragile. This poses a threat to the trade and exploitation contracts Chinese and Indian enterprises enter into in these countries. At present, enterprises from China and India have already started cooperating on the exploration and production of oil and gas resources in third party countries. For instance, they are jointly managing “The Nile Project” of Sudan, developing the Yadavaran field in Iran, and acquiring oil assets of Prtro-Canada in Syria, etc. Unnecessary competition between China and India can be reduced if such cooperation is extensively implemented, and their economies can be benefitted as well. On top of that, as China and India are important energy importers in Asia, their collective efforts in making changes to international energy pricing mechanisms can jointly raise their bargaining power, as well as mitigate the effects of the “Asian Premium”. Ultimately, this may provide the foundation for a collective price negotiation mechanism for Asian oil and gas importing countries. In the short term, China should actively invite Indian enterprises to participate in the crude oil future exchange market in Shanghai. A more equitable 80

Asian crude oil pricing mechanism can then be constructed.

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In terms of transportation, maritime and land-based energy transportation routes of China and India are facing security threats. The political situations in regions along the Indian Ocean route are complex and piracy is rife. In the past 30 years, Asian countries including China and India have benefitted from the international order led by the US and enjoyed relatively stable import markets and secure sea routes. Following the decrease in US energy imports and adjustments made to her Middle-Eastern policy, the US has been asking developing countries to share relevant security responsibilities. Global energy investments and the security of sea routes are confronted with new challenges. However, this provides China and India with new opportunities to cooperate on ensuring the security of these sea routes. Such cooperation will help address the “Malacca Dilemma” China faces with respect to its oil and gas imports. Given China’s increasing maritime power, related cooperation will be brought onto the agenda. China’s and India’s oil and gas pipelines connecting to Central Asia are now faced with various mutual risks. China-Central Asia oil and gas pipelines and the Turkmenistan– Afghanistan–Pakistan–India (TAPI) gas pipeline that India is attempting to build both face potential threats such as natural disasters, terrorist attacks and geopolitical instability. China and India can jointly establish international regulations concerning the security of pipelines and manage the Russia-China-India pipelines through more bilateral cooperation.

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(iii) Promoting Joint Participation in Global Energy Governance The lack of discursive power of China and India in global energy governance makes it hard for them to ensure their national energy and resource security by enacting international regulations. At present, the global energy market is beginning to show signs of fragmentation, creating an intra-region supply-demand equilibrium in Asia that covers both producing regions (the Middle East, Central Asia, etc) and consuming regions (East Asia and South Asia). As important net importers of energy, China and India can participate jointly in the forming of a coordinative mechanism for Asian oil and gas importing countries, thereby collectively forming an Asian oil and gas market with regional energy producing countries. China and India can also help transform the existing “Asian Ministerial Energy Roundtable Meeting” of major oil producing and consuming countries into a formal mechanism, to unite major oil and gas producing countries in Central and West Asia to form an Asian energy cooperative mechanism. From a wider perspective, Asian energy cooperation can take place well before the establishment of a cooperative security mechanism, to serve as a foundation for cooperation between Asian countries. China and India, as geopolitically influential powers, can play an important role in Asian energy cooperation and jointly increase their discursive power through their participation in global energy governance.

4. Planning Eurasian Vertical Cooperation (i) Developing Vertically Integrated Eurasian Projects At present, China’s “Silk Road Economic Belt” focuses more on the connection between the East and West of the Eurasian Continent (horizontal cooperation) and is centered around projects that stretch from Xinjiang to Central and West Asia and on to Central and Eastern Europe. Comprehensive studies have been conducted regarding to the above projects, and results, so far, have been fruitful and constructive. Considering the geopolitical landscape of the Eurasian Continent, India and Russia’s attitude and response to the OBOR initiative is critical. If projects concerning the connection of the South and North of the Eurasian Continent (vertical cooperation) can be implemented, both Russia and India may be benefitted in the long run. Such projects can help alleviate the concerns of Russia and India and attract their active participation. 82

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From the perspective of the demands and interests of Russia and India, Russia has long been trying to gain a convenient route of access to the Asia Pacific and Indian Ocean, so that energy and resources in the Far East and New Siberia can conveniently enter into the markets of East Asia, South Asia and Southeast Asia. Meanwhile, China and India, owing to the fact that they have a shortage of energy and resources, also wish to have more convenient access to energy and resources from the eastern regions of Russia. By leveraging this convergence of interests of the three countries, a thoroughfare for oil and gas transportation that is centered at Urumqi can be formed in order to connect Russia and the Indian Ocean. In the short term, this will be able to satisfy the economic demand for energy and resource imports in these three countries and it will promote trilateral cooperation between China, Russia and India as well as multilateral cooperation, hence creating a community of interest. In the long run, vertically integrated Eurasian projects can connect with the Turkmenistan–Afghanistan–Pakistan–India (TAPI) gas pipeline proposed by India, and form a vertically integrated Eurasian pipeline network. This network can be further extended westward to the Baltic Sea and Europe, and south-westwards to southwestern countries such as Iran and Turkey. Such projects will bring about changes to the geopolitical and economic landscape of the entire Eurasian Continent. (ii) Deeping Strategic Cooperation amongst China, Russia and India The “China-Russia Joint Statement on a New Stage of Comprehensive Strategic Partnership of Coordination” signed by China and Russia in May, 2014, states that, “Both parties agree that the cooperation of China, Russia and India helps maintain the stability and peace of the region and the world. China and India will continue their efforts in strengthening the strategic trialogue so as to deepen mutual trust and to coordinate their position on current international and regional issues, as well as promote mutually beneficial and pragmatic cooperation.” China, Russia and India, being the core of non-Western emerging markets, share numerous interests in all aspects of global affairs. Their international influence is gradually increasing, though they all face pressure from the West. If all three parties can tighten cooperation on energy and resources, their cooperation will be of strategic significance globally.

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The existing Trilateral Foreign Ministers’ Meeting mechanism can be employed as a first step to deepening cooperation among China, Russia and India. The level of these meetings can be gradually raised in order to coordinate and cover a wider range of areas of cooperation. Under the OBOR initiative, vertical cooperation and the trade and transportation of energy and resources can be a stepping stone for trilateral cooperation among China, Russia and India.

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Chapter 3: Managing Relationships with Regional Countries and International Mechanisms Energy and resources cooperation under the OBOR initiative will make good use of existing regional cooperative platforms. In order to strengthen bilateral cooperation and provide effective platforms for energy and resources cooperation, the initiative should be integrated into China’s relationship with these regional mechanisms. The SCO, EEU, ASEAN and SAARC, ChinaArab States Cooperation Forum and the GCC are important regional cooperative mechanisms of Central Asia, South East Asia, South Asia and the Middle East. At the same time, deepening cooperation with international financial organizations such as the World Bank, Asian Development Bank and Islamic Development Bank will provide financial support for large-sale projects involving infrastructure and interconnectivity for energy and resources cooperation under OBOR. Kazakhstan, Uzbekistan, Pakistan, Afghanistan, Iran, Saudi Arabia and other key regional countries will be drivers of OBOR energy and resources cooperation. The aim of energy and resources cooperation under OBOR is to benefit more regional countries. It must increase the export revenues of transit countries and countries that possess huge amounts of energy, resources and wealth, ensure the stability of markets and build infrastructure projects for energy and resources. Economic development helps enhance people’s lives and increases social stability. Through the implementation of certain large projects, China can demonstrate to other countries her sincerity in promoting the “correct concept of righteousness” together with “amity, sincerity, mutual benefit and inclusiveness”. This will serve as an example for attracting more countries, enterprises and media to participate in energy and resources cooperation under the OBOR initiative. 85

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1. Strengthening Cooperation with Regional Mechanisms and Countries in Central Asia (i) Consolidating Energy and Resources Cooperation with Turkmenistan and Kazakhstan Turkmenistan, the source of the China-Central Asian natural gas pipeline network, is one of the most important sources of natural gas for China. The annual natural gas trade between China and Turkmenistan will amount to 65 billion cubic meters within a few years. Lines A, B and C of the China-Central Asia gas pipeline all pass through Kazakhstan. These pipelines, as part of China’s project of “natural gas transmission from West to East’’, enter China through the port of Khorgars in Xinjiang and extend eastwards for 4000 kilometers, passing through dozens of provinces and regions. These pipelines are responsible for the natural gas supply to northern and eastern China. Turkmenistan and Kazakhstan have gradually become the most important natural gas exporting and transit countries to China. Consequently, the influence would be disastrous to the whole of China if the natural gas supply from these Central Asian pipelines was to be reduced or cut off due to technical, economic or political reasons, natural disasters or non-traditional security threats. China-Turkmenistan relations have reached a historic height since the establishment of their strategic partnership. Considering changes to global energy supply and demand and world energy flows, as well as China’s gradual diversification of energy and resource imports, China has become the most crucial market for Central Asian oil and gas resources. Their level of interdependence is beginning to grow. Under the framework of their bilateral relationship, China should further establish long term contracts regarding the supply of natural gas and actively encourage Chinese oil and gas enterprises in their acquisition of high quality oil and natural gas resources from Turkmenistan. China should also encourage Chinese oil and gas enterprises to increase their investments in these resources as well as the quota for oil and gas imports, and decouple the price of Chinese natural gas imports from Turkmenistan from the prices at which other countries import their natural gas. Governmental cooperation with Kazakhstan and the establishment of specialized mechanisms on pipeline operation should be a key focus of bilateral cooperation on energy and resources. In addition, with the completion of line D of the China-Central Asia gas pipeline, the pipeline network would cover almost all Central Asian

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countries. Hence, the experiences of China and Turkmenistan in pipeline security and operation as well as the relevant treaties and laws they developed should have a demonstration effect. At the same time, it would be meaningful to China’s current cooperative relations with Kazakhstan if the scale of the energy and resource trade between them could be enlarged. According to the Agency of Statistics of Kazakhstan, in 2013, the total value of the import and export trade between Kazakhstan and China was 22.527 billion US dollars. This represented an increase of 3.94% from the previous year and accounted for 17.1% of the total value of Kazakhstan’s imports and exports. The value of Kazakhstan’s exports to China was 14.334 billion US dollars. It increased by 0.74% over the previous year and accounted for 17.4% of the total value of the country’s exports. Kazakhstan’s imports from China increased by 10.04% from the previous year to 8.193 billion US dollars, accounting for 16.8% of the country’s total imports. China is the second largest trading partner of Kazakhstan after Russia (the total value of the import and export trade between Kazakhstan and Russia was 23.492 billion US dollars). In addition, China is also the second largest import and export partner of Kazakhstan. In 2011, crude oil related products accounted for 52.8% of the total value of China’s imports from Kazakhstan. The top ten imported products also include resources such as copper, uranium and iron.

China’s cross-border gas pipeline network 87

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Kazakhstan and Turkmenistan are facing the tough challenge of economic transformation. Under OBOR, deepening cooperation with China on building infrastructure would benefit Kazakhstan in terms of capital and technology, thus benefitting Kazakhstan’s energy and resources industry. Kazakhstan and Turkmenistan can compensate China for its earlier investments with the export of relevant products to China. Not only does this mode of cooperation benefit both sides, the level of their bilateral cooperation would be raised and consolidated, and resistance to OBOR energy and resources cooperation would be abated. At the same time, China should also simultaneously engage in energy and resources cooperation with Uzbekistan and other Central Asian countries. (ii) Strengthening the Role of the Shanghai Cooperation Organization

The Shanghai Cooperation Organization

The Shanghai Cooperation Organization (SCO) is a relatively sophisticated multilateral mechanism in the western periphery of China. The SCO can be a vehicle for energy and resources cooperation under the OBOR project. Existing cooperative mechanisms within the SCO on finance, investment, trade, and energy could be utilized for establishing governmental agreements on projects relating to the energy and resource trade, the construction of infrastructure and pipelines as well as upstream and downstream cooperation. Through multilateral governmental agreements focusing on specific projects, China can gradually coordinate with other countries with regard to regulations concerning customs, investment, transit, and taxation. This will help 88

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lay the foundation for an international legal framework for multilateral energy and resources cooperation. Meanwhile, in response to the rapidly increasing cooperation among SCO countries on energy and resources, arbitration and dispute resolution mechanisms can be established within the SCO framework. It is important to note that the SCO, as an international organization, has its own unique rules of procedure and decision making process. More than 10 years of experience has shown that under the framework of the SCO, short-term, project-based (particularly aid projects) bilateral economic cooperation as well as cooperation on the financial and enterprise levels is relatively easy to achieve. However, long-term, institutional cooperation such as economic unification, dissolving trade barriers and investment facilitation is still challenging. This is ascribed to the complex interests of SCO members and the fact that they must reach a “unanimous agreement” under the rules of procedure. Therefore, utilizing the SCO as a platform to effectively advance cooperation on energy and resources under the OBOR initiative should also be centered on concrete projects and the cooperation between enterprises. (iii) Managing the Relationship with the Eurasian Economic Union Maintaining regional stability and guaranteeing the security of energy and resource imports are two of China’s most vital interests in the Central Asian region. They are also the necessary conditions for ensuring stability as well as economic and social sustainability in western China. China has become the Central Asian countries’ most vital trading partner. The total amount of trade between China and Central Asia and investments from China into Central Asia have already exceeded that of Russia. Compared to China, Russia focuses more on her political and security leadership in Central Asia, building a closely linked economic environment, controlling energy and transportation routes, acquiring human resources and ensuring the stability of the region. These are the policy objectives of the EEU. The objectives of China and that of Russia do not contradict each other. On the one hand, China does not seek dominance in the Central Asian region and benefits from regional stability. On the other, Russia’s initiative of promoting Eurasian economic unification does not diminish the need of Central Asian countries for economic cooperation with China. Therefore, what China should consider is how to maintain pragmatic political and economic ties with the EEU in the future. Considering the fact that Russia has been faced with pressure from western countries 89

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in recent years in Eastern Europe and Central Asia, it is in Russia’s interests to support OBOR economic cooperation in order to gain China’s support of the EEU. At the present time, there is increasing opinion from both the academic and political fields in Russia saying that the EEU and the Silk Road Economic Belt can be established and promoted in parallel. Russia believes that China’s initiative of the Silk Road Economic Belt is significant, and it commented positively on China’s willingness to take into account Russian interests in formulating and implementing the initiative. Both China and Russia will look for points of cooperation between the Silk Road Economic Belt project and the soon to be established EEU. For this reason, China and Russia will continuously strengthen cooperation at the ministerial level, including on the development of regional transportation and infrastructure. Specifically, OBOR energy and resources cooperation can be carried out in an adaptive and flexible manner, not only through bi- and multilateral cooperation with Central Asian countries but also under the framework of China-EEU relations. Since Russia still holds great concern over the development of China in that it might have a negative impact on the formulation of the EEU, China could adopt the “ASEAN+N” framework to launch cooperation with the EEU and gradually establish mechanisms such as the “EEU+1 (China)” or “EEU+2 (China and India)” . Consequently, by combining the economic potential of China and Russia’s security capabilities, stability and prosperity can be brought to Central Asia as well as Russia’s far east and new Siberian regions.

2. Promoting Cooperation with South Asian and Southeast Asian Countries (i) Enhancing the Level of Cooperation on Energy and Resources between China and Pakistan China and Pakistan face numerous common challenges with respect to energy and resource security: unbalanced supply and demand, fierce international competition, the dominance of developed countries in international energy markets as well as high global energy and resource prices. Pakistan’s energy situation, compared with China’s, is grim, characterized by a fragile power supply, insufficient oil and natural gas reserves, a lack of development of coal and clean energies, a lack of energy and resource infrastructure and industries, and rapidly increasing demand for energy and resources. Owing to these difficulties, Pakistan is eager to actively 90

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develop its energy and resources. China, on the other hand, has a relatively developed energy and resource industry and enjoys advantages over Pakistan in terms of providing infrastructure and capital. China is materially capable of cooperating with Pakistan in the energy and resources field. In addition, China and Pakistan have traditionally enjoyed good relations and have a high degree of political mutual trust. This provides a solid political foundation for energy and resources cooperation between China and Pakistan.

In order to steadily advance the cooperation between China and Pakistan on energy and resources, preparations can be made in the following priority areas: first of all, the construction of China-Pakistan oil and gas pipelines should be gradually expanded; Secondly, China can accommodate Pakistan’s demands in terms of transit fees, taxation and natural gas supply; Thirdly, intergovernmental agreements can be established on pipeline operation and security. Since the distance between Gwadar Port in Pakistan and the Strait of Hormuz is only around 400 kilometers, the timely completion of oil and gas pipelines running from Gwadar Port to Southwest China would benefit China in resolving “The Malacca Dilemma” and enhance China’s energy supply security. At the same time, considering Pakistan’s fragile supply and demand dynamics and the economic difficulties in Balochistan province (where Gwadar Port is located) and other provinces that the pipeline will be passing through, China could benefit Pakistan by providing employment and investment opportunities. On one hand, this will be able to abate the resistance from regional forces in Pakistan. On the other, this will help alleviate extreme nationalistic sentiments in Pakistan and eliminate hotbeds of extremism.

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Secondly, China and Pakistan should expand their cooperation on electric power and create new modes of collaboration. China should make full use of its capital, technology and rich experiences in terms of development, utilization and management, to achieve results in cooperation on hydroelectric, wind, nuclear, coal and solar power, as well as their transmission. Pakistan has an abundance of water and wind resources but relatively underdeveloped energy industries. Energy enterprises in Pakistan lack capital and technologies and there is a huge shortage of power nationwide. China’s energy industries are well developed, and can complement Pakistan in this regard. The participation of Chinese enterprises in Pakistan’s power industry will help restore balance to the demand and supply of electric power in the country, thus reducing Pakistan’s dependence on oil and natural gas for power generation. This will guarantee the flow of oil and gas to China via pipelines from Pakistan in the future, all the while generating economic benefits for relevant power generation and transmission enterprises. Thirdly, the China-Pakistan Joint Energy Working Group should be fully utilized and elevated in status. According to the “Minutes of the Third Meeting of the China-Pakistan Joint Energy Working Group and the First Meeting of the Energy Working Group of the China-Pakistan Economic Corridor’’ signed by China and Pakistan during the third meeting of the ChinaPakistan Joint Energy Working Group in January of 2014, the two countries reached various agreements in fields such as nuclear power, electricity, coal and renewable energy, and both parties agreed to establish an energy planning working group. The energy planning working group focuses on planning for the development of coal, the exploration, production, storage and transport of oil and natural gas, as well as power supply and power distribution. It also aims to promote the construction of energy infrastructure and grid interconnections along the ChinaPakistan Economic Corridor, and sets out a list of key projects and safeguard mechanisms. The energy planning working group has achieved remarkable results in coordinating cooperation between enterprises from both countries and in the implementation of major projects, and is considered an important mechanism for Sino-Pakistan energy cooperation. Making full use of this group will pave the way ahead politically for the cooperation between enterprises of both countries. Lastly, international cooperation between energy and resource enterprises should be encouraged in the “China-Pakistan Economic Corridor’’ and the China-Pakistan free trade

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zone. In addition, financial cooperation in the Economic Corridor and free trade zone will serve to facilitate financing, settlement and currency exchange. (ii) Promoting China-ASEAN Energy and Resources Cooperation in the upcoming “Diamond Decade”

The Association of Southeast Asian Nations

China and ASEAN cooperate on energy and resources primarily through energy trading, investments, safeguarding sea routes, energy interconnectivity and the joint development of energy and resources in the South China Sea. Energy and resource trading and investment are traditional forms of China-ASEAN cooperation with respect to energy and resources. Within Southeast Asia, Vietnam, Indonesia and Malaysia are the major countries which export crude oil to China while oil products are mainly imported from Singapore. In recent years, since ASEAN countries have started limiting the amount of their oil exports, the Chinese-ASEAN crude oil trade has been contracting. At the same time, China now imports more natural gas from Indonesia, Malaysia, Thailand and Brunei. ASEAN member states are the main export markets for China’s new energy products. Furthermore, there is already a solid foundation for investments in oil, natural gas and water resources between China and ASEAN, where both sides have been cooperating closely in upand downstream segments such as exploration, production, refining and sales. 93

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Forging the China-ASEAN “21st Century Maritime Silk Road’’ and the “Diamond Decade” can be achieved primarily by expanding trade and broadening investment channels. A stable, secure and abundant supply of energy and resources from China’s periphery is vital for safeguarding China’s energy and resource security. China should take active diplomatic measures to prevent certain ASEAN countries from placing further restrictions on their energy exports, and it should expand its energy and resource trade with these countries given increases in their oil and gas production. By deepening upstream and downstream cooperation on oil and gas resources and opening up more industrial segments, a community of common destiny can be formed by tying together the interests of energy and resource industries from both sides. Investments in biomass energy, hydropower, photovoltaics and solar energy should also be promoted in order to expand channels of cooperation on energy and resources. Another important aspect of forging the China-ASEAN “21st Century Maritime Silk Road’’ is maritime transport security and energy interconnectivity. For many years the Strait of Malacca has been plagued by piracy and terrorist threats. Under the framework of China-ASEAN relations, non-traditional security cooperation should be strengthened and institutionalized. Joint counter-terrorism and counter-piracy exercises as well as personnel training and exchange can help promote cooperation on safeguarding sea routes for energy and resources. Relying on subregional cooperative mechanisms such as the “Greater Mekong Subregional Economic Cooperation Program’’ and the “Pan-Beibu Gulf (PBG) Economic Cooperation Forum’’, China and ASEAN can build on existing facilities for oil and gas transportation and power transmission and continue to implement large-scale projects for the construction of highways, railways and ports to facilitate the transportation of energy and resources.

3. Closer Cooperation on Energy and Resources with Middle Eastern Countries and Mechanisms The Middle East is China’s most important source of oil and gas imports. China is currently cooperating with relevant enterprises in the Middle East in upstream and downstream oil and gas industries and on investment in infrastructure. Although Chinese enterprises are involved in a wide range of investment projects in the Middle East, their ownership of shares and actual resources is limited. China’s oil imports from the region are still insufficient, and there are threats to investments and security of supply due to geopolitical risks. 94

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(i) Consolidating Energy and Resources Cooperation with Middle Eastern Countries The Middle East is located at the crossroads of the one Belt and Road and is China’s most important source of energy imports. With global energy supply slightly higher than demand and the increase in Northern American oil and gas production, the Asia Pacific has become a significant export market for Middle Eastern oil and gas exports and countries in the region are increasingly “looking eastward”. China should seize this opportunity to build closer ties with Middle Eastern countries by cooperating with them on areas such as acquiring oil and gas resources, increasing the production quotas for oil and gas, upstream oil and gas operations, safeguarding investments, energy technologies and labour. Firstly, China should strive to obtain high-quality oil and gas resources from the Middle East and increase their amount of oil and gas imports. Chinese petroleum enterprises have been investing in oil and gas exploration and production in the region but these projects are limited in number and in scale. Owing to political and historical reasons, Chinese petroleum enterprises have been restricted in terms of investment in oil and gas production in the Gulf. Given the changes in the global energy landscape, diplomatic efforts should be re-doubled in order change the policies of certain Middle Eastern countries that seek to access China’s downstream market but are unwilling to open-up their upstream industries. China should seek to acquire more oil and gas resources from the existing and newly developed production capacities of these countries. At the same time, because long-term trade contracts reached between energy enterprises under the existing framework of intergovernmental agreements are likely to be influenced by political factors, increasing the quota for oil and gas imports will help reduce the impact of geopolitical changes in the Middle East on China’s oil and gas imports. Secondly, China should participate in regional issues in the Middle East and actively safeguard regional stability, its investments and its imports. Middle Eastern geopolitics is influenced by cyclical factors that threaten China’s energy security. At the same time, due to the US’s increase in energy production and reduced reliance on the Middle East, the policies it adopts in the Middle East will be more flexible. This requires China to engage more actively in Middle Eastern issues and contribute significantly to maintaining regional stability. Thirdly, China should expand cooperation on natural gas with Middle Eastern countries. In 2012, the total amount of China’s liquefied natural gas (LNG) imports from Middle Eastern and 95

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African regions was 8.59 billion cubic meters, which accounted for 43% of the China’s total LNG imports that year. According to predictions in the government’s “12th Five-Year Plan for natural gas development”, by 2015, annual natural gas imports will reach 93.5 billion cubic meters and dependence on imports will exceed 40%. China should leverage its rapidly expanding domestic natural gas market to actively participate in developing production capacities for natural gas and LNG in the Middle East and establish long-term cooperative agreements. (ii) Enhancing the Level of Cooperation with the Gulf Cooperation Council Firstly, China should promote cooperation with the Gulf Cooperation Council (GCC) on new energy and the construction of energy infrastructure, and should expand its natural gas imports from the GCC countries. The export of natural gas from the GCC countries is primarily constrained by their production and domestic consumption. In terms of production, natural gas reserves in the GCC account for more than 20% of the world’s total, yet the production in these countries account for less than 10% of total global production. There is significant potential for improvement in this regard. In terms of domestic consumption, the bulk of the GCC’s natural gas production is for domestic use in areas such as power generation, desalination, petrochemical production and household use. Natural gas accounts for over 45% of primary energy consumption in the GCC countries. The share of natural gas as a fuel for power generation is 90% in Qatar, 88% in Bahrain, 75% in Oman, 59% in the United Arab Emirates, 54% in Kuwait, and 47% in Saudi Arabia. All of these are well above the world average. Since 2007, China has started to import LNG from countries such as Oman, Qatar and the United Arab Emirates, and concluded a long-term contract for its supply with Qatar. This can serve as a foundation for deepening cooperation between China and the GCC on new energy and energy infrastructure, which, on the one hand, will help raise production capacities for natural gas and LNG in the GCC countries, and, on the other, can help reduce their domestic natural gas consumption with technologies such as photovoltaic power generation and solar desalination. The GCC countries are rich in capital and solar resources while China has welldeveloped traditional energy industries and mature photovoltaic and solar thermal technologies. These conditions allow ample room for cooperation. Secondly, China should expedite negotiations on the China-GCC Free Trade Area. At present, the GCC has commenced negotiations with the European Union, Japan, India and Korea 96

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on the establishment of free trade areas, and has independently signed free trade agreements with Bahrain, Oman and the US. The establishment of a China-GCC Free Trade Area would be beneficial to China on the whole. The competitiveness of China’s petrochemical enterprises has noticeably increased in recent years. As such, it may be possible for China to adopt more flexible policies on opening up its petrochemical industry, to facilitate the establishment of the China-GCC Free Trade Area and better position itself in face of international competition. Thirdly, China should cooperate with the GCC in the form of capital and technology transfer. The GCC countries are faced with the economic tasks of industrial upgrading and promoting further industrialization, and China’s assistance with capital and technology in this respect would help strengthen its economic ties with the GCC. This would then serve as a foundation for further bilateral energy cooperation.

4. Strengthening Cooperation with International Financial Institutions International financial organizations such as the World Bank, the Asian Development Bank, the Islamic Development Bank and the African Development Bank play a vital role in facilitating regional cooperation and financing for major projects. Energy and resources cooperation in the OBOR involves a great deal of fundamental research as well as the provision of energy and resource infrastructure and projects for interconnection and intercommunication. China should fully utilize its growing influence in the World Bank and the Asian Development Bank to deepen energy and resources cooperation with Central Asia and Southeast Asia, and encourage these banks to develop specialized projects to promote regional economic integration and research and development into interconnectivity. At the same time, it is vital to actively cooperate with the Islamic Development Bank and the African Development Bank. Not only will this will help boost regional economies and provide the financial support necessary for energy and resources cooperation under the OBOR initiative, it will also help deepen cooperation and understanding between China and relevant countries.

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Chapter 4: Building a Favorable International Environment To create a favorable international environment for cooperation on energy and resources under OBOR, issues like cross-border terrorism, energy transportation security and border and water resource disputes must be appropriately addressed to minimize the potential risks that these factors might affect the overall cooperation scheme. A new set of foreign policies and principles embodying the values of amity, sincerity, mutual benefit and inclusiveness should also be established to guide China’s peripheral diplomatic activities and to foster a better legal framework and favorable public opinion in the region. This will also help gain support from regional governments and peoples for the OBOR initiative.

1. Actively Addressing Regional Issues (i) Combating Transnational Terrorism and Extremist Forces Currently, terrorism, separatism and extremism are rampant in Central Asia. Driven by the rising risk of terrorism due to the destabilizing security situation in Afghanistan, there have been growing signs of alignment between terrorist groups and local extremist groups in Central Asia, further complicating the region’s unconventional security risks. This poses a threat to both intra-region cooperation and China-Central Asia cooperation, and particularly to the security and operation of the China-Central Asia oil and gas pipelines. The role of the SCO should be fully utilized to respond to the rising risks imposed by the “three forces” and to prevent them from threatening the security of China-Central Asia oil and gas pipelines, thus creating a favorable environment for energy and resources cooperation in the OBOR.

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Soldiers of the People’s Liberation Army (PLA) Marine Corps taking part in a military drill at a military base in Taonan, China

(ii) Safeguarding Energy Transport Security The energy imports of China mainly arrive via two routes: land-based pipeline transportation and sea-based shipping. The security of pipelines can be affected by multiple political, economic and legal factors such as regime changes in resource producing or transit countries, adjustments to energy and foreign policies, domestic as well as international conflicts, terrorist attacks and the less transparent rules governing cross-border pipeline transportation. The pipeline network in Central Asia is facing potential risks of terrorist attacks and political changes in Central Asian countries. The China–Myanmar oil and gas pipelines are susceptible to ethnic armed forces in Myanmar and the foreign policies of Naypyidaw. The complex geographical conditions that accommodate the China-Central Asia, China-Myanmar and China-Russia pipelines only further complicate their operational security, making them easily affected by natural disasters. China’s sea routes for energy and resource transportation are equally sensitive to geopolitical changes and are also exposed to unconventional security risks such as piracy and terrorism.

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At present, the following steps should be taken: 1) aggregate the strengths of political, academic and industrial resources to carry out in-depth studies of the risks associated with land-based cross-border oil and gas pipelines as well as shipping routes; 2) establish a scientific risk evaluation system to make regular assessments of the risks and to collect scientific evidence to facilitate decision making; 3) establish a joint security coordination mechanism with neighboring countries to design and implement specific rules and regulations governing the freedom of transit, non-discrimination and the principle of non-interference with respect to transportation. Furthermore, strengthening unconventional maritime security cooperation with countries along China’s sea-based energy transportation routes is equally important. (iii) Properly Managing Border and Water Resource Issues Border disputes between China and neighboring countries in Central Asia and Southeast Asia and India over land and sea boundaries remain unresolved. Given the vastness of the territories in dispute and their political significance, the room for compromise for the parties involved is usually small. Some extra-regional powers attempt to instigate conflicts and inflame disturbances on issues of maritime boundary disputes between China and Southeast Asian countries with the aim of destabilizing China’s peripheral political environment. By May of 2014, when China advocated to build the next “diamond decade” together with ASEAN countries, Vietnam and the Philippines launched challenges against China’s position on regional maritime disputes almost instantaneously. Behind this incident, the hint of intervention by extra-regional powers was apparent, which created significant obstacles for China’s energy and resources cooperation plans under the OBOR strategy. Energy and resources cooperation in the OBOR strategy requires a stable political environment among China’s neighboring countries. In order to achieve this purpose, China needs to explore both economic and security means with equal weight. More specifically, it should pay more attention to the interests of small and medium nations around China, including those who have border disputes with China. Expanding mutual economic benefits can be an ideal way to consolidate bilateral relationships between China and its surrounding nations. On the one hand, an effective crisis management mechanism should also be established to prevent crises from escalating and to prevent emergencies. On the other hand, more assertive and responsive actions should be taken to respond to and stop any deliberate attempts made by individual countries to inflame conflicts and disrupt regional stability. 100

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Regarding the water resource disputes between China and countries in Southeast Asia and Central Asia, China should explain its policies more clearly and more convincingly to address the concerns held by other parties. Take for example the Ili River and the Ertix River, two important rivers flowing across China and Kazakhstan. They represent not only important water resources for the development of China’s northwestern regions, but also a critical matter of concern for Kazakhstan’s ecological stability and water security. On the basis of equality and mutual benefit, more attention should be paid to Kazakhstan’s concerns on issues of water resource distribution and the design of a workable compensation mechanism. On top of this, strengthening bilateral cooperation on building power infrastructure and concluding contracts among enterprises in the fields of cross-border power transmission and renewable power development can also help lessen Kazakhstan’s demand for water resources.

The water resource constraint is one of the top issues that hampers development in Central Asia. Water resource disputes also constitute a key resource problem that subsequently influences the political relationships among Central Asian states. Under the current context, China could take a more proactive approach in pushing for breakthroughs by addressing water resource issues in Central Asia. To improve the water resource utilization efficiency in Central Asian 101

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countries, the following aspects deserve more attention: irrigation technologies, professional training services on water technologies and the coordination of water resource distribution. For the current stage, by conducting in-depth researches and studies into the historical and geographical conditions of the land through which these rivers pass, China can coordinate with the relevant parties to work out an integrated plan that address a basket of issues related to hydropower development, irrigation, flood prevention, environmental conservation, land, climate and bio-diversity. By duly taking the interests of different stakeholders in the region into account, China should establish a new water resource governance system featuring equity and flexibility. This will also help to nurture political confidence among regional stakeholders. The provision of such public goods and services will greatly help China improve its national image in Central Asia and thus reduce political resistance to its energy and resources cooperation plan under the OBOR strategy.

2. Creating a Favorable Legal Environment (i) Maintaining Relatively Flexible Trade Laws and Treaties for Energy and Resources The energy commodity trade is of obvious strategic importance. Overly strict policies and regulations over energy export, trade and large-scale energy projects should be avoided, especially considering Chinaâ&#x20AC;&#x2122;s interest in safeguarding energy security. Recently, driven by increasing domestic production, some Southeast Asian countries have imposed more restrictive policies on the export of energy, resources and products. An important reason that caused this situation is the lack of an effective system in the current international community to regulate export restrictions imposed by energy and resource producing countries. Perhaps due to insufficient consideration during design of the system, or perhaps due to divergent views held by different parties, the export of energy, resources and products is rarely regulated by existing international organizations and international treaties, and export tariffs for energy products are not included in the Schedules of Concessions either. This provides grounds for the producing countries to impose or increase export tariffs as they see fit. Furthermore, although many treaties prohibit the introduction of non-tariff restrictions on the export of energy, resources and products, there are often general exception clauses that apply as well, negating the effects of these requirements. 102

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Meanwhile, given the political influence of certain extra-regional powers, some neighboring countries have frequently cited environmental protection, heritage conservation and taxation as reasons to impose protectionist conditions on energy cooperation projects wherein China’s interests are involved. Establishing effective bilateral and multilateral international rules and clauses to foster energy and resources cooperation and the construction of certain landmark projects can greatly help to promote energy and resources cooperation in the OBOR. Leveraging existing frameworks between China and ASEAN as well as the SCO, China should actively take part in strengthening laws and regulations governing trade, transportation, projects and investments in energy and resources. This will be critical for the creation of a flexible legal environment under which treaties targeting energy and resources cooperation can be enacted. (ii) Establishing a Security Mechanism for Operating Cross-Border Oil and Gas Pipelines Cross-border oil and gas pipelines around China are facing numerous security threats from both conventional and unconventional sources and are not protected by any of the existing international laws. Pipeline transportation around China is also vulnerable to the risks of volatile government policies in transit countries. The unilaterally determined transit fees and value-added taxes (VAT) imposed by transit countries not only raise the cost of China’s energy imports, but also set bad examples for the stable operation of the cross-border oil and gas pipelines. Considering the security and stability of China’s energy imports, legally binding agreements should be made and duly executed to safeguard China’s interests in cross-border energy pipelines. These agreements can serve as an example for other potential transit countries to follow suit and cooperate with China on energy pipelines. At present, China should first try to reach agreements on easier issues such as visas for emergency response personnel and crossboundary equipment transportation. These can serve as a good starting point in facilitating multilateral cooperation on natural disaster relief and solutions to technological problems. This will establish a sound basis for realizing deeper multilateral security agreements on oil and gas pipelines.

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(iii) Participating in Regional and Global Energy Mechanisms China has long held a weak position in global energy governance, compromising her discursive power in the processes of energy law-making and rule-setting on both the global and regional levels. To promote China’s influence in global energy governance, greater participation in regional energy affairs could be a good starting point. As a major energy importer in Asia, China shares with other regional importing countries the same burden of high energy prices (Asian Premiums) and rising security risks to oil and gas supply stability and transportation. Therefore, apart from enacting treaties on land pipeline transportation with its neighboring countries, China should build on its common interests with other regional powers on issues of oil and gas to collectively improve their bargaining power and facilitate a more transparent global oil and gas market. A more cooperative stance should be adopted by energy stakeholders in Asia to seize the opportunities stemming from the rising importance of the Asian energy market in global energy trade, and seek ways to raise the collective bargaining power of the region to establish a more reasonable energy pricing mechanism. Through energy and resources cooperation, China and its neighboring countries will be able to form a unique cluster of energy markets wherein China’s interests in guaranteeing a stable oil and gas supply can be well addressed, and the interests of its neighboring countries in terms of their energy trade can also be protected by an improved regional energy security cooperation mechanism and the enactment of international laws governing cross-border energy trade. In doing so, a win-win scenario will be achieved as the security interests of both energy exporting and importing countries will be assured.

3. Gaining the Support of International Public Opinion (i) Public Opinion Challenges Facing Energy and Resources Cooperation under the “One Belt and One Road” Initiative In international politics, it is not surprising to see some of China’s neighbouring countries show concern over its rapid economic growth. Under normal circumstances, such concerns can be alleviated through robust official and non-governmental bilateral relationships.

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However, in recent years certain extraterritorial powers and regional political forces have been advocating the “China Threat Theory” and “China Economic Threat Theory”, claiming that the rapid development of China’s economy will threaten industries, markets, currency and finance in neighboring countries. They also claim that over-reliance on China economically will worsen their national security problems and threaten the regional economic interests of other powers. Furthermore, some say that China’s foreign investments and export of labor constitute so-called neo-colonialism and create economic dependence. They widely propagate that Chinese investments do not bring real benefits to local economies, but are merely an attempt to exploit various energy and resources and turn these countries into markets for cheap, sub-standard Chinese goods. When Chinese enterprises win contracts for major local projects, these political powers often cite issues of environmental protection and heritage preservation to slow down the progress of the projects. Although adverse public opinion itself is insufficient to disrupt energy and resources cooperation in the one Belt and Road, it does have many negative effects. These effects were seen in certain hydropower and high-speed rail projects in Southeast Asia, where China was forced to withdraw. (ii) Publicizing our Policy Under the premise of coordinating its diplomatic efforts, China should rely on the combined efforts of official diplomacy, track II diplomacy and public diplomacy to provide an authoritative, accurate and consistent representation of OBOR energy and resources cooperation, and actively respond to the adverse public opinion that is deliberately aimed at undermining this initiative. Official diplomacy is the primary means of explaining China’s policies to foreign governments. Track II diplomacy can effectively complement this by providing a platform for eliminating any doubts or concerns through the interaction between official think tanks and research institutes from both sides. Chinese diplomatic officials and scholars should be encouraged to write articles, give interviews and appear on television programs in mainstream media in relevant countries, to use plain words and vivid images to describe the benefits brought by the OBOR initiative to the citizens of these countries, thereby improving its public diplomacy.

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(iii) Facilitating Interpersonal Exchanges among Countries Close interaction between senior officials is a prominent characteristic of relations among countries along the OBOR. China and many of these countries have established strategic partnerships and mechanisms where leaders meet regularly. They also communicate regularly in multilateral forums. In the future, interaction between personnel could be further strengthened on the governmental level by creating and consolidating working relationships and mechanisms between central government departments. Subnational governments also have a role to play in terms of “paradiplomacy”, leveraging the comparative advantages of individual provinces to strengthen transnational cooperation and interpersonal exchanges among various countries on the provincial level. The relationship between two countries is based on the affinity between their two peoples. The close interaction between citizens of various countries is essential for cultivating cooperation between China and countries along the OBOR. Along the ancient Silk Roads friendships among countries have been strong for centuries. Today’s Silk Road economic belt and 21st century Maritime Silk Road utilize modern transportation, logistics and information technology to achieve even closer cooperation on the trade of goods, capital and services. As a result, personnel exchanges will also increase. At the same time, cultural exchanges between nations should be strengthened, visits between government officials, industry professionals and academics as well as student exchanges should be more frequent in order to foster an atmosphere of mutual understanding and respect. Therefore, student exchange and visiting scholar programs among countries should be expanded to encourage closer interactions between government officials and citizens. It is believed that through academic exchanges and policy discussions on various levels, an atmosphere of honesty, understanding and friendship can be created in academia and policy circles of various countries.

4. Implementing New Concepts of China’s Diplomacy China peruses an independent foreign policy of peace, adhering to the path of peaceful development and guided by the Five Principles of peaceful coexistence. The merits of Chinese diplomacy are widely recognized by nations all over the world. Since 2013, President Xi Jinping has put forward new diplomatic concepts such as “amity, sincerity, mutual benefit and 106

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inclusiveness”, the “correct concept of righteousness” and the Asian security concept. These new concepts have evolved from foreign policies that China has always adhered to. Cooperation on energy and resources in the Belt and Road will be able to serve as an extensive platform for implementing these new diplomatic concepts. Thoroughly integrating these diplomatic concepts into the OBOR initiative will facilitate its progress and help create a favorable international environment. (i) Appropriately managing the interests of parties When cooperating on energy and resources with countries along the Belt and Road, unless it is on issues that involve China’s core national interests, China should try their best to accommodate the needs and demands of small and medium-sized countries. China should rely more on politics, and, economically, it should “offer more” and “take less” and “give before taking”, in order to bring real benefits to these nations and promote the sustainable development of their economies, society and livelihoods. Only by winning widespread trust can energy and resources cooperation in the OBOR continue to make progress. Through OBOR energy and resources cooperation, China can help countries along the Belt and Road improve their energy and resource infrastructure and develop their interconnection and intercommunication. Cooperation can then gradually be achieved in a range of areas such as finance and the trade of goods and services. China should pinpoint the particular needs for economic and social development in different nations in order to support them in areas such as transportation, agriculture, science and technology and finance. This way China will be able to demonstrate its sincerity in sharing the fruits of economic development and benefiting its neighboring countries. Morality and justice has been deeply rooted in Chinese tradition for thousands of years. China’s diplomacy is based on independent judgment on international affairs based on the facts of the matter. President Xi Jinping said at a speech at Seoul National University that in international relations, one must implement the correct principles of morality and interests: “In international cooperation we should attach importance to interests but attach more importance to morality. The Chinese people have always believed that ‘righteousness is the essence of the gentleman’ and emphasized that ‘wealth attained through immoral means is to me as empty as floating clouds’”. After Foreign Minister Wang Yi met with of Foreign Minister Mankeur Ndiaye of Senegal, he pointed out in the press conference that “China should base its interaction with African countries on the principle of morality and justice. It should treat its African 107

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brothers with respect and sincerity and make good on its promises. China should also speak out on behalf of Africa over their legitimate rights and reasonable demands. ‘Interests’ means mutual benefit. China refuses to walk the old path of colonialism and plunder in Africa, nor will it follow the exploitative practices of capitalists. Unlike certain countries, China does not only seek to further its own interests but instead hopes to develop and prosper together with its African brothers.” This principle is equally applicable to the entire OBOR region and can serve as an essential guide for energy and resources cooperation between China and nations along the Belt and Road. (ii) Understanding Similarities and Differences The one Belt and Road covers vast territories that contain diverse civilizations, cultures and religions where different political and economic systems co-exist. China is committed to understanding, respecting, and learning from the cultures of all nations. China should promote mutual respect and peaceful co-existence among the different civilizations in the region. Cultural exchanges and mutual learning should be turned into a bridge for strengthening friendship between the peoples of different countries, a driving force for social development and a bond for safeguarding regional peace. To effectively promote friendship and mutual understanding among countries, the rich civilizations and cultures along the one Belt and Road can be used to establish and promote periodic cultural exchange mechanisms, to facilitate interaction in areas such as literature, painting, music, dance and drama. Countries should respect one another’s political and economic systems and learn from each other as they explore developmental pathways that are suitable for them. They should also devise appropriate modes of bilateral and multilateral cooperation, and reserve their differences and seek common ground on political issues that do not involve core interests. (iii) Implementing New Security Concepts During the 4th Conference on Interaction and Confidence Building Measures in Asia (CICA) Summit held on May 21, 2014, President Xi Jinping stated, “We need to keep pace with the changing circumstances and evolving times. One cannot live in the 21st century with the outdated thinking from the age of Cold War and zero-sum games. We believe that it is necessary to advocate common, comprehensive, cooperative and sustainable security in Asia. We need to innovate our security concept, establish a new regional security cooperation architecture, and jointly build a road for the security of Asia that is shared by and win-win to all.” In July of 2014, 108

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President Xi Jinping visited Latin America. In his speech to the National Congress of Brazil, he remarked that “History has taught us that aggression is not the way to coexistence and warmongering does not lead to a better world. All nations should promote equality, mutual trust, inclusiveness, mutual learning and mutually beneficial cooperation in international relations and make joint efforts to uphold international fairness and justice in order to build a harmonious world of enduring peace and common prosperity.” “We should raise awareness about human beings sharing a community of common destiny. A country should accommodate the legitimate concerns of others when pursuing its own interests and it should promote common development of all countries when advancing its own development. Countries should establish a new type of global development partnership that is more equitable and balanced. We should champion common, comprehensive, cooperative, and sustainable security, and respect and ensure every country’s security. We also need to step up cooperation at the global and regional level and jointly counter non-traditional security threats which are on the increase.” To implement the common, comprehensive, cooperative and sustainable security concepts in energy and resources cooperation under the OBOR initiative, China should collectively take into account relationships such as those between the market security of producing countries and supply security of consuming countries; energy and resource security and security in general; and sort-term security versus long-lasting security etc. Through cooperation, the energy and resource security of all nations can be strengthened, and it will help promote the establishment of a more fair and reasonable international energy governance mechanism.

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Conclusion Jointly building a Silk Road Economic Belt and 21st Century Maritime Silk Road is a common task of China, Eurasian and East African countries. Throughout history, despite numerous baptisms of fire and blood, the ancient Silk Roads have never ceased to exist. Despite the transportation and technological obstacles of ancient times, traders, scholars, students and dignitaries have fought to overcome these challenges with perseverance and courage to establish and preserve the Silk Roads. By incorporating the spirit of solidary and mutual trust, equality and mutual benefit, inclusiveness, mutual learning and win-win cooperation once embodied in the ancient Silk Roads into energy and resources cooperation under the 21st Century “One Belt and One Road” initiative, countries along the route would benefit economically and socially and relations among them will be strengthened as well. Differences in opinion, competition and conflict are norms in international politics and economics, and OBOR energy and resources cooperation is no exception. China, as the initiator of the one Belt and Road concept, in an open and inclusive manner and in the spirit of mutual benefit, welcomes countries along the OBOR and from beyond the region to participate in this initiative to jointly reconcile conflicting interests and plan for future regional development. China should accommodate the legitimate concerns of countries along the OBOR and not harm the interests of other countries for the sake of its own benefit. Energy and resource competition under the one Belt and Road initiative requires long-term commitment and continuous effort. It requires communication on all levels and pragmatic cooperation in all areas, and is in line with the common interests of all relevant countries.

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推進“一帶一路”能源資源合作的外交運籌

China Institute of International Studies Research Report 中國國際問題研究院（CIIS）研究報告 37

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CIIS Research Report CIIS研究報告

The Diplomacy of Promoting Cooperation on Energy and Resources under the “One Belt and One Road” Initiative

推進“一帶一路”能源資源合作的外交運籌 SHI Ze（石澤）

YANG Chenxi（楊晨曦）

Issue 7 September 2014

China Institute of International Studies 中國國際問題研究院

Monograph Promoting Cooperation on Energy and Resources under the

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â&#x20AC;&#x153;One Belt and One Roadâ&#x20AC;? Initiative

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Contents P46

Chapter 1: Challenges and Opportunities for Energy and Resources Cooperation along the Belt and Road

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1. Opportunities for Energy and Resources Cooperation 2. Challenges Facing Energy and Resources Cooperation

Chapter 2: Winning the Support of Key Countries

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Chapter 3: Managing Relationships with Regional Countries and International Mechanisms

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Chapter 4: Building a Favorable International Environment

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1. Actively Addressing Regional Issues 2. Creating a Favorable Legal Environment 3. Gaining the Support of International Public Opinion 4. Implementing New Concepts of China’s Diplomacy

Conclusion

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Xi Jinping, President of the People’s Republic of China

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Li Keqiang, Premier of the State Council of the People’s Republic of China

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2. Strengthening Constructive Communication and Cooperation between China and the United States (i) Sino-US Competition and Cooperation

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Asian crude oil pricing mechanism can then be constructed.

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China’s cross-border gas pipeline network 87

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The Shanghai Cooperation Organization

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The Association of Southeast Asian Nations

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Soldiers of the People’s Liberation Army (PLA) Marine Corps taking part in a military drill at a military base in Taonan, China

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