The Institute for Domestic and International Affairs
World Trade Organization Effects of Chinese Economic Expansion on Global Oil Markets Rutgers Model United Nations 16-19 November 2006
Director: Dozie’ Uzoma
Š 2006 Institute for Domestic & International Affairs, Inc. (IDIA) This document is solely for use in preparation for Rutgers Model United Nations 2006. Use for other purposes is not permitted without the express written consent of IDIA. For more information, please write us at idiainfo@idia.net
Introduction _________________________________________________________________ 1 Background _________________________________________________________________ 2 Chinese Policy____________________________________________________________________ 2 China and Oil ____________________________________________________________________ 4
Current Status _______________________________________________________________ 7 Possible Solutions ________________________________________________________________ 10
Bloc Positions_______________________________________________________________ 12 China __________________________________________________________________________ 12 The Global Oil Market ___________________________________________________________ 13 Developed States_________________________________________________________________ 14 Less Developed States ____________________________________________________________ 15 Non Governmental Organizations __________________________________________________ 15 Business Interests ________________________________________________________________ 16
Summary___________________________________________________________________ 17 Discussion Questions _________________________________________________________ 19
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Introduction The dramatic increase of China’s demand for oil has put a severe strain on global oil markets, causing prices to rise annually for all consumers across the world, except the Chinese. The overwhelming amount of oil subsidies upheld by the Chinese government allow for its citizens to enjoy the lowest rates for gasoline on the planet, which allows for the sustainability of China’s high growth rate. By the year 2020 global oil consumption will rise an estimated 60 per cent and the number of automobiles could double by 2025 to 1.25 billion adding to the pressure for oil refineries to produce more than their present maximum capacity. In the next decade, the Chinese economy will increasingly become more oil dependant and an increasingly higher per centage of global petroleum reserves will be located in the Middle East. Although China presently denies any interest in the domestic affairs, developed nations will have an increasing need to secure their link to Middle Eastern oil reserves in order to maintain their economic and social stability in the coming decades. To date, China maintains a relatively indiscriminate list of business partners ranging from developed s to the Sudanese government. In the process China sets a troubling precedent for other developing states to shirk multinational projects that foster democratic governments and economic transparency in favor of pursuing international natural resource suppliers. China, as latecomer to the business of world energy consumption, must adapt to its own dramatic growth and demand for energy in a world where the best oil fields have already been claimed. The United States, Europe and Japan, have already learned how to handle themselves in the global energy market as the oil shocks of the 1970s supplied the lessons that have shaped their thinking about energy. Yet, “Many people argue that oil interests are the driving force behind the Iraq war,” said Zhu Feng, a security expert at Beijing University.
“For China, it has been a reminder and a warning about how
geopolitical changes can affect its own energy interests. So China has decided to focus much more intently to address its security.” As it copes with the fear that one day there
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may be too little oil to meet worldwide demand, it is on a campaign to secure foreign oil fields, predominately in Africa. Most of all, China worries that the demand of other states in particular the United States, “will choke China.”1
Background Napoleon once proclaimed, “When China awakes the world will tremble.” Today, two hundred years later, China has awakened from its slumber and has found itself older, wiser, and at the whim of an insatiable appetite. China’s 1.3 billion citizens hunger too. China boasts the fourth largest economy in the world and has grown at double-digit rates for the better part of the decade. 2 Its rapid ascension into the foray of geopolitical significance is staggering, and may very well prove to be the most rapid ascension in history. For the past fifty years China has forged a symbiotic relationship with the West, serving as a site of assembly for a plethora of products, ranging from socks to personal computers. Despite this significant partnership, China has yet to be considered a true ally of the West. In a world where Cuba remains under a blanket of sanctions and Russia is watched with a cautious eye, China finds itself in an awkward place. China’s ruling party, the Chinese Communist Party, has veered from its isolationist and xenophobic view of the global community, into one that now embraces more market driven international endeavors than at any other period in its lengthy history.3
Chinese Policy The current policy of the Chinese Communist Party, who to this day rules unopposed, was the brainchild of one of China’s most forward thinking sons. Deng Xiaoping changed the course of Chinese history forever by departing from the anti1
Goodman, Peter S., “Big Shift in China’s Oil Policy,” Washington Post, 13 July 2005, http://www.washingtonpost.com/wp-dyn/content/article/2005/07/12/AR2005071201546.html, Accessed 22 September 2006. 2 Bookers, Peter, “Afghan Anxiety: No ‘Cut & Run,” New York Post, 18 September 2006, http://www.nypost.com/postopinion/opedcolumnists/brookes.htm, Accessed 19 September 2006.
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globalistic sentiments of Mao.4 This shift of doctrine brought on by Deng involved the realization that there was no inevitable conflict with the developed nations of the world looming on the horizon declaring “heping yu fazhan” (peace and development) were on the agenda.5 Although Deng never held the official leader of the government he was widely recognized as the de facto leader of the People’s Republic of China from 1970 until his death in 1997. Educated in France, as were many progressive Asian leaders such as Zhou Enlai and Ho Chi Minh, Deng studied the basic tenets of MarxismLeninism and soon engineered his own brand of socialism, crudely described as “Socialism with Chinese Characteristics.”6 In Deng’s new economic model local provinces and municipalities would only work on what would be most profitable for their citizens, a strategy that would dually utilize market forces and strict economic planning to promote large-scale growth across the nation. He realized that in order for China to emerge as a significant global player, efficient local factories needed to be produced throughout the country. With their success the Chinese would have the capabilities to produce and assemble products cheaply on the global market, the benefits of which would, in theory, appease the people and keep political dissenters at bay. The rationale behind appeasing the citizens was to prevent the protests and riots that routinely arose during times of hardship within poor farming communities. The new economic model would dually serve to raise the standard of living of those poor citizens and work to defuse any political advantage that competing party’s would have before they posed a threat. His policy is credited as the catalyst responsible for China’s present moves toward capitalism and massive economic expansion.5
4
Ibid. Gompert, David C., et al, China On the Move: A Franco – American Analysis of Emerging Chinese strategic policies and their consequences for Trans-Atlantic Relations , Accessed 3 June 2003. http://www.rand.org/pubs/conf_proceedings/2005/RAND_CF199.pdf#search=%2228%20character%20strategy%20 deng%20xiaoping%22, Accessed 29 August 2006 5 “The Life of Deng Xaioping,” Chinese business World, 7 February 1997, http://www.cbw.com/asm/xpdeng/life.html, Accessed 22 September 2006. 5
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Xiaoping was so successful at implementing his new brand of socialism that after his death he was officially recognized by the state as “The architect of China’s economic reforms and China’s socialist modernization.” 6
Unlike his predecessors Xiaoping
realized that the economic policies of the Chinese Communist Party needed to loosen their grip on domestic market forces and free enterprise in order to meet the ever burgeoning list of resources necessary to sustain the fast growing Chinese economy and population. Deng Xiaoping’s hand picked successor Hu Jintao carries on this economic philosophy today, which serves as a driving force to the Chinese economy.7
China and Oil China’s relationship with oil began somewhere around the 4th Century with drilling of natural gas and crude oil. 8 Methods for extracting oil remained largely unchanged until about 1850 with extraction in other parts of the world primarily collecting the resource from surface water. A Pennsylvanian American by the name of Edwin Drake however is responsible for the usage of the first modern oil well however, and the first oil refinery opened in 1861 in order to produce petroleum-derived products.9 The Organization of Petroleum Exporting Countries was formed only recently in 1960 and served to ensure that countries rich in oil resources were properly compensated by the oil companies that worked their land. In 1973 oil prices rose to USD $35 per barrel, straining economies worldwide. “The development of new oil fields in North America dramatically raised the global oil reserves from 645.8 billion barrels in 1978 to 1,052.9 billion barrels in 1998.”10 In 1999 OPEC raised the prices of oil worldwide by decreasing the amount that it was willing to supply.11 The Organization of Petroleum Exporting Countries, or OPEC, consists of 11 member nations and determines the price of crude oil worldwide. It was created during 6
Ibid. Ibid. 8 “Oil Industry,” Encylopedia, http://www.encyclopedia.com/html/o/oilindus.asp 9 Ibid. 10 Ibid. 11 Ibid. 7
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5 Members of the Organization of Petroleum Exporting Countries Algeria Nigeria Indonesia Qatar Iran Saudi Arabia Iraq United Arab Emirates Kuwait Venezuela Libya
of petroleum to consuming nations; and a fair return on capital to those investing in the industry.”12 The effects of China’s rapid industrialization and oil usage is widely seen as an empirically justifiable strategy aimed at improving the quality of life for all Chinese citizens, but the astonishing environmental footprint harm it creates can not so easily be brushed aside. According to a study by the World Health Organization, in 1998 seven Chinese cities were among the top ten worst air pollution plagued areas in the world. The pollution is so severe that acid rain now falls on a shocking 30 per cent of the country. In order to combat the problem the Chinese government’s State Environmental Protection Administration is considering the imposition of severe fines, largely disproportionate to the amount of damage, in order to fund cleanup as well as aid the enforcement of laws currently in place. This year new legislation was introduced that imposes a maximum penalty of USD $125,000 to any person or organization that damages the “scenery, vegetation [or] overall shape of the landscape,” but has no significant penalties for those that pollute the air and water.13 More recently, China has been undergone rapid industrialization. Its real gross domestic product growing at a rate of 8-10 per cent per year, China's need for energy is projected to increase by 150 per cent by 2020. In order to successfully sustain its growth, China requires increasing amounts of oil, as its oil consumption grows by 7.5 per cent per year, seven times faster than the U.S. The increase in the states dependence and need for oils is largely due to a large-scale transition away from bicycles and mass transit toward 12
OPEC: The Organization of the Petroleum Exporting Countries (OPEC) Brief History, 2006, http://www.opec.org/aboutus/history/history.htm, Accessed September 10. 13 Ibid.
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private automobiles, more affordable since China's admission to the World Trade Organization.14 By year 2010 China is expected to have 90 times more cars than it did in 1990. Predictions show that China could surpass the total number of cars in the U.S. by 2030. Another contributor to the sharp increase in automobile sales is the very low price of gasoline in China.15 China will have trouble providing for itself because its own oil reserves are small in comparison to its consumption. At its current rate of production, it would hardly last two decades. With its knowledge of this, China has sought to look elsewhere for its oil. Such places of interest include Kazakhstan, Russia, Venezuela, Sudan, West Africa, Iran, Saudi Arabia and Canada. However, despite its attempts to diversify its sources, China has become more dependent on Middle East oil. Over the last decade, fifty-eight per cent of China's imported oil has come from the region. Because China has historically had no long-standing interests or relationships in the Middle East, its relationship with the Middle East will be extremely important.16 Now, as China seeks to change its international ties and relationships, it may disrupt the status quo with other states relationships. For example, China and the U.S. have very different views including Taiwan, international trade, and human rights. Therefore as China seeks to increase its influence in the Middle East for oil, tensions may arise between China and the U.S. China has realized that in order for it to sustain its growth it must cooperate with the U.S. rather that competes with it.
“Many Chinese
leaders that the U.S. seeks to dominate the Persian Gulf in order to exercise control over its energy resources and that it tries to contain China's aspirations in the region.”17 As a result of this feeling the U.S. may be considered a threat to China. And though China has been working on development projects in other regions it may still want to develop its relations with the Middle East for insurance reasons. The trouble between China and the 14
“Fueling the dragon: China's race into the oil market,” The Institute for the Analysis of Global Security, http://www.iags.org/china.htm, Accessed 23 September 2006. 15 Ibid. 16 Ibid. 17 Ibid.
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U.S. will arise due to the fact that the Middle East has strong anti U.S. sentiment. Also, China has arms sales to the region which the United States may claim as support to state sponsored terrorist and proliferation of harmful technology. “A report by the U.S.-China Security Review Commission, a group created by Congress, warned that China's increasing need for imported energy has given it an incentive to become closer to countries supporting terrorism like Iran, Iraq and Sudan.”18
Current Status Today China stands as the world’s foremost consumer of almost every major consumer good, including grain, meat, and coal.
The China National Petroleum
Corporation (CNPC) Research and Development Department director Yan Xuchao states: The annual global crude oil output totals 3.8 billion tons. Excluding the portion of oil for domestic use, only 2.2 billion tons of oil is available for global trade. The United States imported over 700 million tons of oil each year, taking up one third of global oil trade volume. Japan's annual oil imports totaled 260 million tons while the oil imports of South Korea, Germany and France all exceeded 100 million tons.19
This leaves a very small amount available to not only suit the needs of China, but the vast majority of nations set to develop and expand in the future. If the United States in all its lorded technological sophistication imports 700 million tons of oil a year its clear to see how China, with four times the citizens, could end up consuming the vast majority of global petroleum reserves on its own if left unchecked.20 Each year China consumes an estimated 60 million tons of meat a year, to the 37 million tons consumed in the United States. To that end half of the pigs in the world can be found in China. China’s steel purchases, an important economic measurement, are no less astonishing; in 2003 alone China surpassed the United States demand purchasing 154 million tons. China’s insatiable of demand for oil and natural resources, along with the
18
Ibid. China: Environmental Issues. July 2003. Accessed September 1, 2006. www.eia.doe.gov/emeu/cabs/chinaenv.html 22 RICS: China to punish construction firms for environmental damage, August 22, 2006, Accessed September 10, 2006, http://www.rics.org/Builtenvironment/china_fines220806.html, 20 “China gives 8.5b Yuan oil subsidy,” 8 August 2006, Guangdong News, http://www.newsgd.com/business/prospective/200606080034.htm, Accessed 22 September 2006. 21
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very limited nature of their producers’ ability to supply those goods set the stage for increased tension and competition in the international community if left unchecked despite Beijing’s wishes to develop in a peaceful manner. In order to fully fathom the rate of Chinese development one need only look at the countries consumer electronics industry. In the mid 1990s the ratio of Chinese cell phone owners to that of the United States stood at 7 to 44 respectively, with 7 million cell phone owners in China and 44 million owners in the United States. Seven years later the ratio of mobile phones stood 27 to 16 in favor of the Chinese, and dramatic increase of 1063.4 per cent, with China boasting 269 million cell phone owners to the United States 159 million. The United States primarily surpasses Chinese demand with respect to one major resource however, oil. In 2004 the United States demanded three times more oil than China, affirming its place as the second largest consumer of petroleum in the world, a title once held by Japan.21 The Chinese government is currently scouring the world in search not only of reliable producers of products and commodities, but for markets in which it can export and its domestic goods. In its quest for resources China has taken a keen interest in securing many positions in Africa, including some African nations that continue to be alienated by the West. Nations like the Sudan, Zimbabwe, with anemic human rights records at best, have become strong trading partners with the Chinese government. Western nations resist trade with nations like the Sudan in order to pressure them into pursue and enforcing more democratic and transparent methods of governance. The Sudan remains a strong trading partner for China despite being embroiled in its twodecade-old civil war and accusations of its participation in mass humanitarian atrocities to this day. China’s communist roots enable the government to cast aside the stigma associated with trading with the Sudan despite the atrocities that go on there due to its long standing support of a strong central government and its own long history of suppressing internationally accepted policies of human rights, such as free speech. 21
Ibid
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As part of the agreement to do business in these troubled nations China has agreed to refrain from any intrusion in Sudanese politics as is evident from its former president, China will do business “without any expectation that [African] governments will improve democracy, respect human rights, or fight corruption.”22 Each year China receives more than 25 per cent of its oil from Africa, of which, 7 per cent comes from the Sudan. The Sudanese government publicly recognizes China as its “most important partner” and in a show of solidarity with the government has stated its intentions of blocking any sanctions imparted on the Sudanese government by the United Nations.23 China’s Deputy Finance Minister Zhu Zhigang recently announced his plan to appropriate USD $1.05 billion to local governments in an effort to curb the rising costs of oil. The proceeds are marked to be used exclusively for the assistance of taxi, fishery, traffic, and rural transport industries nationwide.24 This initiative, although beneficial to Chinese citizens, works against the nation’s efforts to become less oil dependant. China’s domestic subsidies on petroleum products only provide more incentives for Chinese citizens to increase the nation’s immense demand for fossil fuels. China currently plans to invest USD $500 million within its public and private sectors in order to develop fuel cells in the near future, but the current cost of each cell remains costly at more than USD $4,000 per kilowatt.25 Adding to the problem are the problems incurred with the complexities involved in storing hydrogen, which requires storage under very high pressures or conversion into a liquid. At present the hydrogen production process is highly dependant on fossil fuels, electricity, and water, which proves a significant barrier to its widespread use.26 The affects of China’s economic expansion have serious ill affects on the nation’s rural poor often making it increasingly more difficult to purchase essential goods and services such as education and healthcare. China’s healthcare system has often been 22
Ibid “Fueling the dragon: China's race into the oil market,” 24 “China gives 8.5b Yuan oil subsidy,” 8 August 2006, Guangdong News, http://www.newsgd.com/business/prospective/200606080034.htm. 25 Ibid 26 Ibid 23
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referred to as one of the most lacking in the world ranking 132 in the world and 189 in financing out of the 191 countries surveyed by the World Health Organization.27 Rural protests to the government have risen from 10,000 in 1994 to approximately 87,000 2005 alone due to the increasing disparity in living standards and barriers to upward mobility. As a result anti protest divisions have been positioned in 36 states throughout the country.28 In China the ability of rural citizens to better their livelihoods remains in a dire state, and continue to remain locked in a vicious cycle of poverty only strengthened by governmental hyper focus with regard to increasing economic growth. Each year China spends an estimated USD $3.125 billion on its healthcare system, which amounts to roughly 5 per cent of its GDP, but mismanagement and corruption allow for the benefits of this investment to be inefficiently appropriated to the service of the people. 29 Effectively 60 to 70 per cent of households in China lack access to healthcare do both to rising healthcare costs and a national shift toward the privatization of the healthcare system. The rural population accounts for roughly 60 per cent of the urban workforce. These migrant workers travel from the agricultural regions of the west to the factories of the coast displacing millions of family members each year.
Possible Solutions In order to ensure the economic welfare of China and other members directly affected by its economic expansion much more must be done on the part of the Chinese government and the International Community to develop ways of dealing with the serious environmental and geo-political ramifications that result. In this endeavor, as indicated by the inefficient and corrupt appropriations of government funds earmarked toward healthcare, more must be done to increase the transparency of financial transactions and
27
Britt, Robert, “End of Oil Could Fuel 'End of Civilization as We Know It,� Live Science, 14 December 2004, http://www.livescience.com/environment/end_oil_041214.html, Accessed 22 September 2006. 28 Ibid. 29 Ibid.
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government accounting practices.30 By enacting and enforcing tough laws that punish corruption and rewards for citizens that provide information to stop blatant mismanagement including the protection of anonymous sources, more of China’s most in need of its aid can receive it as intended. International efforts are also necessary to further facilitate the sharing of technology regarding efficient forms of alternative energy.
This is of the utmost
importance given the fact that global demand for non-renewable energy sources is severely stretched even today. By providing incentives for international research into both governmental and private development of alternative energy sources and a commitment to loosening the restrictions with regard to patent protection in this particular case the lives of billions of citizens in China and within the international community can benefit more from China’s strong growth and if successful prevent the looming geo-political crisis aforementioned in this essay. In order to decrease the pressure on oil producers WTO nations would also benefit from agreements to invest in more efficient means of oil usage in the transportation sector. The Institute for Analysis of Global security states that, “From now to 2020, world oil consumption will rise by about 60%,” and, “that transportation will be the fastest growing oil-consuming sector.” 31 While sharing efficient strategies that promote more energy efficiency and the creation of technology that utilizes petroleum products, and their chemical derivatives, in an efficient manner are excellent initial efforts, cooperation on the development of other renewable energy sources is the most vital in the long term. An emphasis on this is paramount as crude oil is a non-renewable and rapidly diminishing source of energy. By investing in renewable energy projects such as fuel cell technology, wind power, and solar power the difficulties spent today in developing a solution to the world’s oil demand dilemma can be avoided again in the future when global petroleum reserves are eventually depleted. As a developing nation, China has the unique benefit of not 30 31
Ibid. “Future Dragon.”
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having developed its energy sector into one as highly reliant on fossil fuels as that of the West.
The Chinese government still has the opportunity to employ massive
improvements to its energy sector without having to deal with the same conversion costs as that of the west. If sincere efforts and planning are made in the near future, and alternative energy means like hydrogen power are developed properly China will be able to maintain its current rate of expansion with relative impunity.
Bloc Positions China China’s de facto position on its economic expansion is that it desires to increase its rate of expansion at a sustainable rate for the foreseeable future. Highly conscious of its position within the world, China seeks to surpass the nations of the world in every possible facet and ensure its place as a geo-political and geo-economic superpower. The Chinese government, while wishing to maintain a laissez-faire approach to its international business ventures, has asserted its will on the international community by vetoing sanctions of nations with whom it did business, most notably Sudan.32 China is fully aware of the environmental impact of its burgeoning industrial system, but deems its place on the global stage and the economic well being of its domestic infrastructure critical above all else.33 China’s major security risks with regard to its supply of oil are risks in pricing, suppliers, the transportation of oil. China’s importation of crude oil cost the nation more than USD $43 billion in 2004 and USD $50 billion in the following year. The resulting price increase is a direct result of the sunk costs of oil exploration, which becomes increasingly more difficult each year. This means that even though the estimated 1,000 billion barrels of probable oil reserves that remain can be extracted the cost of their extraction will continue to increase dramatically in addition to the rising market prices.34 32
Ibid. Ibid. 34 “China gives 8.5b Yuan oil subsidy,” 8 August 2006, Guangdong News, 33
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The competition that China will face in the coming decades for crude oil among suppliers will pose a major risk to its continued economic prosperity. To date: “The United States import[s] over 700 million tons of oil each year, taking up one third of global oil trade volume. Japan's annual oil imports totaled 260 million tons while the oil imports of South Korea, Germany and France all exceeded 100 million tons.�35 With increased competition already evident and set to increase the Chinese government must develop strong ties to the Oil producing nations that are projected to own the largest market share, namely Saudi Arabia. China’s necessary business partnerships with the Middle Eastern countries as well as those that are on bad terms with the governments of the West due to poor human rights records like the Sudan and Libya will no doubt emerge as a further source of friction in the international community.36 China currently receives 70 per cent of its oil imports via the Straights of Malacca, which connect the Indian and Pacific oceans. This heavily congested waterway will be prove a major difficulty to increased fuel transports in the not to distant future. The United States expansion of its military presence in the region also poses a significant risk, and has the potential to severely damage the Chinese economy in the event of a military crisis.37
The Global Oil Market The Global Oil Market as a whole wishes to maintain access to its present oil supplies and maintain the relatively stable prices it has encountered in the last decade. The ever approaching oil shortages of the future are only exacerbated by present demand from China and will force developed nations to ensure access to their global supplies in a much more vigorous manner.
The challenge with this however is the tumultuous
relationship that the has with the Middle East, who will by 2015 control approximately
http://www.newsgd.com/business/prospective/200606080034.htm, Accessed, 22 September 2006 35 Ibid. 36 Ibid. 37 Ibid.
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70 per cent of the worlds crude oil reserves.38 According to the Institute for Analysis of Global Security, “Today 66% of global oil reserves are in the hands of Middle Eastern regimes: Saudi Arabia 25%, Iraq 11%, Iran 8%, United Arab Emirates 9%, Kuwait 9%, and Libya 2%.”39 The rapid rate of China’s development poses a particular threat to the smooth operation of western economies, which would suffer greatly due to the economies created in the west that have for so long depended on cheap oil in order to succeed. Despite China’s rapid ascension up the list of global oil importers the nations of the West contribute more than their share to pressures on oil supply. The long history and the large degree of capital expenditures present in Western society make a change to alternative energy sources more costly than it would be in a less developed economy. The physical and mental dependence of Western nations with regard to petroleum and the engines that combust them at times seem daunting to comprehend. Thousands of miles of underground oil and gas pipelines crisscross the western world and millions of drivers disregard high gasoline prices in favor of powerful engines and imposing SUV’s. While Western governments remain the most wealthy and powerful in the world they, unlike China do not have the luxury of imposing their economic strategies on their citizens. In order to truly bring about a thorough systemic change the long standing culture of waste and societal links between these cultural excesses and high energy use must be broken from within by China’s citizens themselves.
Developed States Developed states look toward China with an uneasy gaze as a result of their understanding that Chinese development rides on the back of oil. Due to its limited nature each additional field extracted from the earth make for increasingly more costly ventures in order to explore and extract crude from more remote sources, such as the deep sea. Developed nations are also affected by the Chinese governments aggressive courting
38 39
“Fueling the dragon: China's race into the oil market,” Ibid.
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of the oil rich nations of the world, especially those with which suffer from a lack of human rights enforcement like the Sudan. Germany, is linked more so than any other nation in the European Union to Chinese development. An example of the breath of which Germany trades with is evident in the number of technology transfers between the two countries. China has signed more than 6,700 technology transfer contracts with Germany worth an estimated USD $26.14 billion. Bilateral trade between the two nations tops 33.6 per cent of SinoEU trade and a whopping 26 per cent of China’s overall trade during the year 2002 alone.94 Germany also supports China in its pursuit of solar energy, with German Foreign Minister Joschka Fischer opening the largest solar collector in the world.93
Less Developed States China’s oil demand indirectly serves as a significant source of profit for the governments of oil rich nations throughout the developed world.
As of 2001 the
government of the Sudan received approximately USD $500 million per year from its oil industry which is 40 per cent owned by the China National Petroleum Corporation (CNPC).
The human rights organization Amnesty International has reported the
Sudanese governments inhumane methods of protecting its oil industry, most notably its resort of a ‘scorched earth’ policy used to expel swaths of its citizens communities from the industries infrastructure. Chinese oil firms have also bought into Nigeria. A Chinese company recently bought forty five per cent of and off shore oil field.40
Non Governmental Organizations Non Governmental Organizations or NGOs have most effectively advocated for change within the oil industry’s relationship with China by purchasing significant stakes in oil companies like BP Amoco in order to disassociate the companies with projects linked to the Chinese government. The efforts of NGOs world wide to better the standard 40
Hogg, Chris, “China Oil Firms buy into Nigeria,” BBC News, 9 January 2006, http://news.bbc.co.uk/1/hi/business/4594058.stm, Accessed 22 September 2006.
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of living for all citizens is continuously hampered by China’s pledge to not interfere with government affairs while extracting a nations natural resources in general. In order to procure crude China has notoriously and unapologetically engaged in bribery and strong armed tactics in order to get what it needs with a callous disregard for international efforts to cut off funding to governments that engage in or tolerate war crimes like the Sudan, or whose countries still wallow in a fog of corruption like Russia, and Nigeria.
Business Interests China’s National Petroleum Corporation, owner of the holding company PetroChina, made 10 per cent of its sale available for purchase on the New York Stock Exchange in the year 2000. For the most part large companies passed on the sale due to labor issues and various infractions of human rights that take place with minimal government intervention.
48
Many private companies around the world benefit directly
from Chinese economic expansion and the development of the petroleum industry that fuels it. China’s ongoing economic expansion provides billions of dollars and millions of jobs for not only privately held companies, but their government owned, and often military backed, counterparts as well. This phenomenon proves, as in the case of BP Amoco, a dangerous and increasingly complex business venture due to the immense potential rewards and the potentially devastating potential backlash brought on by a socially conscious public and Congress.
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Summary Without intervention China’s unusually high rate of development could lead to widespread global conflict and suffering in the coming decades due to the projected shortcomings of global crude oil supply. China’s rapid development could also pose as a destabilizing force in the region given the immense size and ambitions of the Chinese military branches. The Institute for Global Security states that: [China’s] oil consumption grows by 7.5 percent per year, seven times faster than the United States. From now to 2020, world oil consumption will rise by about 60%. By 2025, the number of cars will increase to well over 1.25 billion from approximately 700 million today, [and] global consumption of gasoline will double.41
In order to satiate the growing resource demands of its economy the Chinese government probes globally for trading partners, some of which are not held in high regard by the West due to numerous severe human rights abuses of which their governments took part. In an effort to secure its supplies of the resources it desires China publicly acknowledges its plans to veto resolutions or sanctions that interfere with its business agreements concerning those shunned nations.42 The resulting precedent proves a tempting path to developing nations with desires to develop and could result in stalled efforts to propagate democracy and financial prosperity in struggling nations across the world. By expanding in an irresponsible manner China also risks harming its local resources and that of the adjacent region in the long term. In 1998 a survey by the World Health Organization reported seven of the world’s ten most polluted cities are found in China and that acid rain falls on roughly 30 per cent of the countries land as a result.43 Approximately seven per cent of China’s annual gross domestic product is spent solely to repair damages resulting from pollution.
In response to the increasing levels of
environmental damage China would like to change the current ratio of coal to oil usage from the present ratio of 3 to 1 respectively to one that is more focused on oil, petroleum derivatives, renewable energy, and nuclear power. 41
“Fueling the dragon: China's race into the oil market,” Ibid. 43 Ibid 42
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Many plans exist worldwide to curb the international demand of petroleum products ranging from the implementation of gasoline efficiency standards and gasoline/ethanol mixes in the United States to economic strategies such as higher taxes on petroleum products seen in Europe. Like the Chinese, the West’s best solution to the impending energy crisis seems to lie in the further development of hydrogen fuel cells and other alternative energy sources. Encouraging more responsibility among average citizens with regard to using their petroleum products is also a significant step in dampening the rate of oil usage in that region. Funding for educational programs to educate the young people as well as the expansion of existing agreements to share new developments on alternative energy sources remain vital steps toward complete independence from the members of the Middle East and Sub- Saharan countries with which it refrains from supporting financially. At present China is working to discover and extract deposits of natural gas and coal in order to dampen domestic demand for oil as well as investing in fuel cell research. China is now the largest market for fuel cells in the world the majority of which are being developed for the transportation industry.44 To date approximately 54 per cent of fuel cell designs are that of the proton exchange membrane fuel cells, which enjoy widespread use around the world.45 Over the next 15 years China plans to invest USD $200 billion on renewable energy, enough money to buy some oil companies like Chevron as well as fund Europe’s entire renewable energy projects for the next 25 years. 46 Throughout China projects range from developing new forms of corn derived bio fuel to investing in wind turbine generators. By the year 2010 China wants to increase the domestic use of renewable energy to 20 per cent, and significantly reduce its dependence on foreign oil by 2020.47
44
Britt, Robert, “End of Oil Could Fuel 'End of Civilization as We Know It,” Live Science, 14 December 2004, http://www.livescience.com/environment/end_oil_041214.html, Accessed 22 September 2006. 45 Ibid. 46 “Cashing in on China’s renewable energy boom,” MSNBC, 19 July 2006, http://www.msnbc.msn.com/id/13938365/ 47 Ibid.
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Discussion Questions • How should nations work toward easing the trade of information pertaining to alternative fuel sources between the developing world and the developed world? • What incentives if any should be provided to highly populous nations whose unchecked rate of development has unacceptable affects on the global economy? • Does the rapid growth of the Chinese economy directly benefit the Chinese people more than its government? If so how? • What nations benefit from China’s economic expansion? • What regions are hurt most by China’s economic expansion? • What is the WTO’s role in resolving the supply conflicts that arise from China’s ever increasing demand for fossil fuels? • What efficient energy alternatives exist to slow global demand for crude oil? • What, if anything must be done to discourage member nations of the WTO from blocking sanctions against members charged of human rights violations? • How effective can the WTO be in solving the external costs of Chinese economic expansion? In what ways? • To what degree are WTO members responsible for keeping their external costs to a minimum? • In what ways does the ecological damage from China’s many new construction projects and factories affect the surrounding area? • Should economic incentives be provided to China in order to prevent further ecological damage? If so what? • How would substantial trade with China affect your nation in the long run? • Do developing nations with China’s ambitions of economic expansion have a better chance of achieving high development by using China’s footsteps or is a less rapid ascension more beneficial in the long run?
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Works Cited Bookers, Peter, “Afghan Anxiety: No ‘Cut & Run,” New York Post, 18 September 2006, http://www.nypost.com/postopinion/opedcolumnists/brookes.htm. Britt, Robert, “End of Oil Could Fuel 'End of Civilization as We Know It,” Live Science, 14 December 2004, http://www.livescience.com/environment/end_oil_041214.html, Brown, Lester R., “Earth Policy Institute: China Replacing the United States As world’s Leading Consumer,” 16 February 2005, http://www.earthpolicy.org/Updates/Update45.htm “Cashing in on China’s renewable energy boom,” MSNBC, 19 July 2006, http://www.msnbc.msn.com/id/13938365/ “China’s Army,” The Economist, 25 October 2005, http://www.economist.com/research/backgrounders/displayBackgrounder.cfm?bg =1010646 China Development Brief: NGOs force BP Amoco shareholder vote on divestment from Chinese oil company, 1 January 2001, www.chinadevelopmentbrief.com/node/196. China: Environmental Issues. July 2003. www.eia.doe.gov/emeu/cabs/chinaenv.html “China gives 8.5b Yuan oil subsidy,” 8 August 2006, Guangdong News, http://www.newsgd.com/business/prospective/200606080034.htm. China-US Agreement on China’s WTO Accession http://www.chinability.com/WTO.htm “Fact Sheet on China,” The Economist, 6 July 2006, http://www.economist.com/Countries/China/profile.cfm?folder=Profile-FactSheet “Fueling the dragon: China's race into the oil market,” The Institute for the Analysis of Global Security, http://www.iags.org/china.htm. “The Future of Oil”, Institute fore the Analysis of Global Security, 2004, www.iags.org/futureofoil.html “Germany and China look to the sun for energy answers,” Gas and Oil Connections, 4 August 2006, http://www.gasandoil.com/goc/news/nte43115.htm,
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Gompert, David C., et al, China On the Move: A Franco – American Analysis of Emerging Chinese strategic policies and their consequences for Trans-Atlantic Relations , 3 June 2003, http://www.rand.org/pubs/conf_proceedings/2005/RAND_CF199.pdf#search=%2 228%20character%20strategy%20deng%20xiaoping%22, Goodman, Peter S., “Big Shift in China’s Oil Policy,” Washington Post, 13 July 2005, http://www.washingtonpost.com/wpdyn/content/article/2005/07/12/AR2005071201546.html. Interview: China’s WTO Entry Benefits Global Economy,” The People’s Daily, 27 February 2001, http://english.people.com.cn/english/200102/27/eng20010227_63467.html “The Life of Deng Xaioping,” Chinese business World, 7 February 1997, http://www.cbw.com/asm/xpdeng/life.html OPEC: The Organization of the Petroleum Exporting Countries (OPEC) Brief History, http://www.opec.org/aboutus/history/history.htm RICS: China to punish construction firms for environmental damage, August 22, 2006, http://www.rics.org/Builtenvironment/china_fines220806.html, Roberts, Dexter, “China’s New Capitalism,” Business Week, 29 September 1999. http://www.businessweek.com/1999/99_39/b3648087.htm?scriptFramed Saich, Anthony, “How Globalization will affect china,” 13 December 2000, http://www.ksg.harvard.edu/news/experts/2000/saich_china_globalization.htm “The should-list to discuss with Mr. Hu,” The Economist, 20 April 2006, http://www.economist.com/displayStory.cfm?Story_id=6826203 “Understanding the WTO,” World Trade Organization, http://www.wto.org/English/thewto_e/whatis_e/tif_e/tif_e.htm. “WTO 10 benefits of the WTO trading system,” The World Trade Organization, www.wto.org/English/res_e/doload_e/10b_e.pdf “WTO Entry Spurs China’s Economic Expansion,” 12 November 2003, http://www1.china.org.cn/english/MATERIAL/79868.htm Zumwalt, James P., “How WTO membership Affects China,” United States Embassy,
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http://www.usembassy-china.org.cn/press/release/2002/0202e-Zumwalt-wto.html