Op-Ed Contributors

Sating resource appetite

By Hongyi Lai (China Daily)
Updated: 2010-06-14 07:21

Securing stable, long-term oil supply is paramount and will drive China's foreign policy over the coming decades

An appetite for resources has long been a key determinant of Chinese foreign policy and recent figures detailing China's crude imports have posed further daunting geopolitical challenges over how China can ensure its oil supply.

China's crude oil imports leapt 31 percent in April, compared with the previous year, to hit a record 5.15 million barrels per day, reinforcing the likelihood of China surpassing Japan as the world's second largest net oil importer in 2010.

The rising trend is here to stay. The head of Sinopec, China's largest oil refiner, said the nation's oil imports and fuel demand will continue on an upward curve this year despite government pledges to reduce energy consumption and guard against a bubble in the property market.

An important milestone - both statistically and psychologically - was passed last year when China's dependence on imported oil to meet domestic demand broke through the 50-percent mark. The figure reached a new high of 54.5 percent in the first quarter of this year.

China's leaders view oil as one of the two components - the other is finance - of national economic security. Securing a stable and long-term oil supply is therefore paramount and will govern China's global diplomacy strategy in the coming decades.

An effective strategy deployed by China in the aftermath of the financial crisis was to secure a series of loan-for-oil deals at rock bottom prices, using a slice of its colossal foreign reserves.

A report last month by Chinese financial magazine Caixin said China was exploring further loan-for-oil agreements to add to the $60 billion in deals agreed since 2009.

This decision is likely to have been impacted by China's recent experiences in the iron ore market when the country's steel producers took a hit from a sharp rise in the global iron ore price. China is loath to leave itself vulnerable to similar spikes in the international oil market.

The sources of China's imported oil will shape its foreign policy. The latest figures, which go back to 2007, show that 45 percent of China's crude oil imports came from the Middle East, while 32.5 percent came from Africa.

The striking statistic though is that the share of China's oil imports from the Middle East declined from 51.3 percent in 2003. Meanwhile, Africa's share increased from 24.4 percent in 2003. This shift is likely to continue as we head towards a scenario in which Africa is the chief source of China's oil imports.

Angola is currently China's largest oil provider, followed by Sudan and Congo. But China has moved to broaden its African oil arrangements, signing a deal with Nigeria in May to build oil refineries.

Previous attempts by China to construct refineries in Nigeria have failed, so this represents a crucial step forward in China's oil ambitions.

Imports from the Middle East, however, will not increase markedly in the long term even given China's rising demand. Global competition is far stiffer in the Middle East than it is in Africa, where Western countries are less inclined to do business. And then of course there is the thorny issue of Iran.