An Anatomy of China’s Energy Insecurity and its Strategies

Abstract

China’s energy insecurity largely originates from its constrained availability, questionable reliability, and uncertain affordability of its oil supplies. The country’s fast industrialization and urbanization, together with demand for infrastructure and increasing popularity of automobiles, requires a lot of energy, but it consumes energy both intensively and inefficiently, threatening the environmental well-being of China and its neighbors. China’s risk aversion and poor energy policy making system further magnifies its perceptions of the low availability, reliability and affordability of oil imports, which further compounds its sense of energy insecurity. Distrustful of the market, and suspicious of other major energy players in the international market, the Chinese leadership relies on the state-centered approach, or economic nationalism, rather than a market approach to enhance its energy security. However, the country lacks not only an energy policy making system that can make and implement sound energy policies but also an energy market that relies on market prices to allocate energy resources efficiently. As a result of this domestic failure, China has pushed its national flagship companies to undertake a global scavenger hunt for energy while muddling along a messy road of energy reform at home. Setbacks in acquiring new sources of oil have validated the Chinese leadership’s belief that the international oil market is not free and China’s access to international oil is not guaranteed through the market. China’s problems in the international energy market are also perceived as evidence of attempts to prevent China from exerting international influence. China’s leadership is convinced that China should focus on areas where western capital is not heavily concentrated or where western influences are weak. With the recent revaluation of Chinese currency and growing economy, China has both the wherewithal and appetite to acquire more oil assets abroad. Both China and the United States stand at a critical juncture of history where China’s rise depends on reliable energy supplies which it increasingly imports from abroad and where the growing wealth of the United States is increasingly dependent upon China’s success. If China does not have energy security it’s 1.3 billion fuel-starved people will prevent the rest of the world from achieving energy security.