While the recent international credit crunch has damaged the economies of the Western nations and slashed the profitability of their corporations, it has given an additional boost to China’s earlier policy of cornering large reserves of hydrocarbons and industrial metals. Also, its unprecedented pile of $2 trillion of foreign currency reserves has enabled it to become a leading global supplier of credit and in the process enhancing its standing in the world, especially in Africa and Latin America.
Beijing’s ongoing strategy is driven by multiple motives: to sustain its impressive economic growth; to insulate its economy against sharp swings in the prices of commodities, petroleum being the most important; and to increase its diplomatic strength by integrating the economies of the supplier countries with its own.
The latest example of China’s enhanced effort to secure foreign petroleum resources is Nigeria, the foremost oil producer in sub-Sahara Africa, and the fifth largest oil supplier to the United States.
The state-owned China National Offshore Oil Company (CNOOC) has moved to acquire one-sixth of Nigeria’s proven oil reserves of 36 billion barrels. It has made an initial bid for stakes in 23 prime oil blocks, most of them onshore, which until last year were operated by Western petroleum corporations as the dominant partners with the Nigerian government.
If successful, this will be a crucial breakthrough for China. The agreements that its oil corporations have made elsewhere in Africa cover only 4.7 billion barrels. And, whereas most of the Chinese oil corporations’ earlier contracts with the African states have been on the previously unexplored blocks, in Nigeria’s present instance, they are angling for blocks which are either producing oil or are about to.
Of course, long before the 2007-2009 financial tsunami, the Chinese government decided to diversify its oil and gas imports away from the volatile Middle East. It turned not only to neighbouring Russia and Kazakhstan but also distant Africa, Australia and Latin America.
China’s relentless pursuit of hydrocarbons is an essential part of its commitment to continue raising its citizens’ living standards. Despite its dazzling economic progress over the past three decades, judging by the use of personal transportation, China is still far behind the leading industrialised nations. Whereas there are 777 and 447 vehicles for 1,000 Americans and Japanese, the figure for the People’s Republic of China (PRC) is 17. Over the next decade the number of vehicles in China will treble, and they will almost invariably be powered by gasoline.
The search for energy brought the People’s Republic of China (PRC) to Africa, a continent with many of the natural resources China needs to feed its fast growing manufacturing and construction industries. For hydrocarbons China focused on Angola, Gabon, Somalia and Sudan.
In 2005, Angola became the second most important oil source for China after Saudi Arabia, overtaking Iran. By then, half of Sudan’s oil exports went to China. The PRC’s copper supplies came from Zambia, iron ore from South Africa, platinum from Zimbabwe, and tropical timber from Congo Brazzaville.
But China has not only tapped Africa for hydrocarbons. Latin America has also become a source for investment. In 2006, along with a joint refinery project to handle heavy Venezuelan oil in China, Chinese companies were contracted to build a dozen oil drilling platforms, supply 18 oil tankers, and collaborate with Petroleos de Venezuela S.A. (PdVSA), the state-owned Venezuelan oil company, to explore new oilfields in Venezuela. Worsening relations between oil-rich Venezuela, ruled by Hugo Chavez since 1999, and the Bush administration helped secure such a transaction.
In January 2009, flush with cash, China Development Bank agreed to loan PdVSA $6 billion for the oil to be supplied to the PRC over the next 20 years, and then doubled its development fund to $12 billion in return for Venezuela increasing its oil shipments from the current 380,000 barrels per day (bpd) to 1 million bpd.
Also in 2009, China Development Bank agreed to loan Brazil’s state-owned oil company, Petrobras, $10 billion to lock up supply of 160,000 bpd in the coming years. This amount was only one-tenth less than the total funding by the Inter-American Bank in 2008.