Economic Cooperation
China, India stoke energy bond
By Ma Jiali (China Daily)
Updated: 2010-02-02 07:49
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To ensure their rapid economic development and rise in international status, both China and India have paid great attention to energy security in recent years.
As two major developing countries in the world, China and India are working to cooperate in the energy sector in line with common benefits. This relationship helps to avoid bitter competition between the two, reduce unnecessary use of diplomatic and economic resources and dilute impacts from the global financial recession. Ultimately, this bond could ensure their economic recovery and growth in the post-crisis era.
Heading into this year, the global recession - triggered by the United States financial meltdown - seems to be nearing its end. In the new year, new emerging economies such as China and India will lead the recovery, becoming the engine of global growth. The energy cooperation between China and India is going to attract more eyes again.
India's current dependency on foreign oil exceeds more than 75 percent. Increase in imports, with the surge in oil prices, has cost India a great deal of foreign exchange assets and has burdened its foreign trade balance. According to estimates by India, if oil prices rise for every $5, India's economic growth rate will drop 0.5 percent, and its inflation rate would increase by 1.4 percent. Oil has become a key factor for India to sustain its economic development. As India's Prime Minister Manmohan Singh said: "Energy security has become a serious problem, second only to food security".
China, on the other hand, has only 5 billion tons in oil resources, less than 7 percent of the global average. Since China became a net importer of oil in 1993, its purchases of foreign oil have increased annually. In 2008, China's crude oil imports reached 17,800 tons, while refined oil imports were 39 million tons, a rise of 9.6 percent due to the foreign dependency rate of 48.5 percent. In 2009, China imported nearly 200 million tons of crude oil, and the foreign dependency rate was estimated at more than 50 percent.
This last figure is most convincing. The International Energy Agency predicted that China and India's foreign oil dependency will be 61 percent and 85 percent respectively by 2010. At present, China is the world's second largest consumer of oil. India is the world's fifth largest consumer but soon to become the fourth largest. By 2030, India will likely pass Japan and Russia to become the world's third largest energy consumer.
This is why the two governments of China and India have begun a dialogue and cooperation on energy. In April 2005, during Premier Wen Jiabao's visit to India, the two governments issued a joint declaration. Article 9 of the declaration states that the two countries have agreed to cooperate in energy security and energy savings. It also encourages a collaboration to explore and exploit oil and natural gas resources in the third country.
In December 2005, oil companies from the two countries teamed up for the first time to purchase 37 percent of oil assets in Syria that belonged to the Canadian Oil Co at a cost of $573 million. India Oil and Natural Gas Corp is also working with China Petroleum and Chemical Corp in Iran to exploit Aveda Varan oil field, of which China holds 50 percent and India holds 20 percent in shares.
On Feb 22, 2005, India Gas Co signed an agreement with China that India would invest $243 million in China Gas Co. It became the first-ever cooperation between listed companies of the two countries. In August 2006, China and India worked again to buy 50 percent of the shares of an oil field in Colombia.
In January 2006, Indian Petroleum Minister Mani Shankar Aiyar led an Indian natural gas delegation to visit China, helping in the signing of five agreements.
Moreover, the multilateral dialogue on energy has become a stage for Sino-Indian cooperation. In November 2004, India invited China, Japan and South Korea to hold a meeting in New Delhi in the hopes of collectively negotiating with Middle East oil suppliers to reduce oil premiums. In early 2005, India hosted a round table meeting of "Asian Ministers on Oil Co-operation", inviting China and other countries. At the meeting, major oil-consuming countries in Asia, including China, Japan, South Korea and India, agreed to adopt a unified position to deal with the "Asian premium" and oil security issues together.
On Dec 16, 2006, energy ministers of China, the US, Japan, South Korea, and India met in Beijing to discuss energy security issues, how to maintain the stability of the international energy market, and form a relationship of cooperation instead of competition. The summit and dialogue of foreign ministers between China, India and Russia also called for strengthened energy cooperation between them.
China and India, with rapidly growing economies, are also seeing a dependent rise in energy demand. Since both are large energy consumers and importers, there are some contradictions and competition between them. Therefore, we must pay attention to sticking to the following basic principles in considering Sino-Indian energy cooperation in the post-crisis era.
First, strengthen communication. Efficient communication between the two will enable them to know the situation well and make use of it.
Second, avoid unnecessary harm. With huge populations between them, China and India should hold long-term talks to avoid any "lose-lose" consequences.
Third, advance the exchange of technology. The two have comparative advantages, and should learn from each other for common development.
Fourth, jointly promote the stability of the global energy market. China and India have limited abilities because of their developing status, but both should strive for more power to speak their minds.
The author is a researcher at the China Institutes of Contemporary International Relations.
(China Daily 02/02/2010 page8)