China’s diversified energy strategy

China is trying to attract investment from the GCC in its rural region in order to diversify their energy-security.

Chinese oil worker
The Xinjiang region produces about 75,000 tonnes of oil daily and accounts for 14.4 per cent of China’s total production [EPA]

China has hit upon an interesting strategy to bind together a foreign financed energy programme and the government’s need to placate minority groups, some of whom have shown rebellious tendencies. It is offering ‘Arab friends’ an opportunity to participate in the Hu Jintao regime’s pet programme of uplifting the country’s backward western region, which can easily absorb billions of dollars in oil, electricity and wind energy, manufacturing, Halal food and agriculture development projects. 

The recent conflicts faced by China across different levels shows Beijing can expect a lot of fights if it wants to grow and retain its oil reserves. There is political insurgency in its oil-rich western province of Xinjiang, and a major clash with neighbours on the South China Sea-Japan, Vietnam, Indonesia and Philippines. India has also now joined the dispute by entering into a contract with a Vietnamese oil company for oil exploration in the disputed islands, something the Chinese foreign ministry is raging about. In fact, the China-US faceoff over Taiwan also has a dimension of energy-security because a future war, if ever, can affect the flow of Middle East oil supplies. 

Add to this the supply uncertainties caused by the Arab Spring, and you can see why the world’s biggest consumer of energy is investing in military hardware as much as it is on laying pipelines (to Myanmar and Kazakhstan), building storage capacities, buying overseas oil assets (Venezuela, Central Asia and Africa) and developing domestic fields. The first half of 2011 has seen the country’s reliance on imported crude oil rising one per cent to reach 54.8 per cent. Imports rose to 146.63m metric tonnes in the first seven months, up 8.4 per cent year on year.

Uncertainties on the external front, helpless dependence on suppliers and supply routes and delicate political relationship issues in energy – these are enough ingredients for a government’s nightmare. But Chinese leaders seem determined to fight back.

Invited investors

This is where the Arab factor comes in, and the story opens in a domestic scene. Arab governments and businesses are being invited to invest in what is being called in recent weeks as the ‘golden energy triangle’ covering a massive area of 133,800 square kilometres, about half the size of France and about 80 per cent larger than the size of United Arab Emirates. The plan also reflects Beijing’s worries about the domestic side of energy security, which is no less risk prone as the external side. 
The ‘golden triangle’ plan, being rolled out in small parcels in recent weeks, involves building a comprehensive energy production and supply base across four provinces: Ningxia, Shaanxi, Gansu and Inner Mongolia. That the area has a large Muslim and Mongolian population is not being glossed over. In fact, the governor of Ningxia, Wang Zhengwei, recently made a virtue of it.

China is actively trying to attract investments from the Gulf Cooperation Countries (GCC) in the four provinces in the ‘triangle’, not just to develop these backward areas, but also to bring about bonding between Chinese Hui Muslims and those in the oil-rich countries. Several Chinese leaders and officials made detailed presentations inviting Arab investments in the ‘golden triangle’ area during a five-day China-Arab States Trade Conference at Yinchuan, capital of the western province of Ningxia, between September 20 to 24.
The purpose is simple, and perhaps the cue comes from the GCC – let economic development overcome any tendency towards religious fundamentalism and anti-government sentiment. Economic backwardness is believed to be an important reason behind signs of rebellion in sections of people in the western region (Tibet, another western Chinese province, is a case apart and does not fit into such neat socio-economic framing). What could be a better funding source for this plan than oil?

Separatist movement

Also important for Beijing is to keep Hui Muslims in these areas detached from the Uighur Muslims of Xinjiang, which is the scene of a decades-old separatist movement and two bloody riots in recent weeks. As the government in the border Chinese town of Kashgar said recently, separatist Uighur leaders get their training and arms from terrorist bases in Pakistan. Those arrested after the riots, which killed 41 people, have admitted their links with Pakistan, the Kashgar government said.
This could be the reason, and the only plausible one, why the region producing the highest amount of oil and gas in China – the western province of Xinjiang – has been kept out of the ‘golden triangle’. The State-run People’s Daily quoted the government’s 3rd natural resources evaluation survey saying Xinjiang’s total oil and natural gas resource reserves exceeds 30bn tonnes. The region is producing 75,000 tonnes of crude oil daily, accounting for 14.4 per cent of the country’s daily crude oil output. An independent estimate suggested that Xinjiang’s Tarin Basin alone has proven reserves of over one billion tonnes of crude and 59bn cubic metres of natural gas.
But Xinjiang, bordering Taliban areas of Afghanistan and Pakistan (besides the disputed Pakistan Occupied Kashmir), is far too volatile to attract foreign investments. Neither would Chinese leaders like separatist Uighur leaders to develop new links with Muslims in the Arab world. Beijing wants to deal with this region separately, and delink it with the overall western development strategy.

This is not to say Beijing does not want to develop the vast resources available in Xinjiang, which also shares the border with Russia and eight countries of Central Asia. Some experts have suggested China wants to develop its energy links with Central Asia as the region can serve as a trans-shipment area for Middle East oil should war ever break out over Taiwan (China claims it owns Taiwan) or its oil related disputes with neighbours like Vietnam in the South China Sea. Kazakhstan and Kyrgyzstan, two Central Asia republics, are capable of helping China reduce its dependence on Middle East oil because they have large petroleum reserves of their own. 
This is why it is building railways, roads, and pipelines linking Xinjiang to Central Asia and Russia on one side, and to its own energy-hungry industrial heartland on the other. A 900-km long Sino-Russian pipeline connecting the Russian town of Skovorodino in the country’s Amur region and the Chinese city of Daqing became operational in January this year. Russia will annually pump 15 million tonnes of crude oil to China from 2011 to 2030, according to an agreement on the pipeline between the two countries.
Chinese companies are being pushed to seek out oil and gas companies for collaboration as a means to counter diplomatic challenges that may be thrown up by the United States and other governments. The latest move involves launching a joint venture between the London-listed oil and gas engineering and construction company Petrofac and China Petroleum Engineering & Construction, which will be based in Sharjah. The two firms worked jointly on a maintenance and repair contract for the Rumaila oil field in southern Iraq recently. “Together, we have considerable resources and world-class engineering and construction expertise,” Maroun Seeman, group chief operating officer of Petrofac said, “and our collaboration should enable us to capitalise on the significant opportunities in China and internationally.”
Put simply, China faces challenges in the area of energy security, and is applying a range of solutions. They involve foreign countries and companies in its defensive and offensive strategies.

The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial policy.