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Why Is China So Anxious About Energy Abroad?

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Energy security is a pressing policy issue for many governments. Energy is the lifeblood of modern society – whether it is powering manufacturing industries, households or transport systems, economies could not function without a stable, affordable and reliable supply of energy. And as an energy transition from hydrocarbons to new energy sources gathers pace, policymakers are again turning attention to how 21st century energy systems can be designed. Nearly every government today maintains some kind of energy security policy.

Yet China cares about energy more than most. With a rapidly industrialising and urbanising economy, the Chinese government has made energy security a centrepiece of its economic reform program. Since the Twelfth Five-Year Plan (2005-10), it has gone to great lengths to develop its energy systems. On the domestic front, it has rapidly built-out its electrical distribution system, while actively promoting a range of new energy sources – including nuclear, hydro, solar, wind and natural gas – in order to foster a move away from high-polluting oil and coal sources.

China has also looked abroad for its energy supplies. Since 2004, the Chinese government has actively encouraged its energy firms – especially, but not only, its state-owned enterprises (SOEs) – to Go Out and acquire energy projects in other countries. This was supported through extensive investment subsidies through the state banking system, as well as forms of ‘resource diplomacy’ targeted at energy-rich governments in Asia, Africa and Latin America. In the decade to 2016, Chinese companies spent $827 billion acquiring over 1,000 energy projects in foreign countries. No other government has so aggressively bought-up foreign energy supplies.

China’s overseas energy acquisitions have proven extremely controversial. Critics have suggested it is attempting to ‘lock-up’ global oil supplies in competition with other importing countries, particularly Japan and South Korea. Others have criticised its resource dealings with several ‘pariah’ states – such as Libya, Sudan and Zimbabwe – noting that Chinese diplomatic support has propped up regimes with poor human rights records. It has also been suggested that China is triggering a neo-imperialist ‘scramble for Africa’, as other countries ramp up their energy investments in the continent to match Chinese efforts. Both the EU and US have publicly criticised China for what they view as a mercantilist approach to energy security, that threatens to undermine the transparency and openness of world energy markets.

Why has China adopted such a contentious strategy for securing its energy supplies?

First, China faces an accelerating ‘external dependence’ problem. While well-endowed with coal, its lack of high-quality domestic reserves has seen the Chinese economy become reliant on imports for oil and gas. As rapid industrialisation has driven energy demand upwards, China’s import dependence rate for oil has risen from 27 percent in 2000 to 60 percent today. This means China is far more exposed to the vicissitudes of international markets than previously, as energy costs are no longer captured within the Chinese economy, but are lost abroad as imports. Acquiring oil at the site of production thus provides a hedge against price movements, by enabling prices rises to be ‘internalised’ by Chinese firms.

China’s energy SOEs have also played a role. Three SOEs – CNPC, Sinopec and CNOOC – dominate the oil sector. These are highly powerful within the Chinese political system, with their heads holding vice-ministerial rank – a higher political rank than the energy agency heads, which supposedly regulate them. The SOEs have been one of the principal beneficiaries of China’s overseas energy investment program, as it has given them preferential access to subsidised credit through the state banking system. Indeed, the initial impetus for foreign energy investments came from the energy SOEs, who wished to use foreign investment as means to escape the unprofitable and declining domestic oil sector.

Geopolitical considerations have also loomed large, given China’s emerging rivalry with the US. Because most multinational energy firms are domiciled in the US, Chinese policymakers believe that global energy markets are ‘controlled’ by, and thus serve, US interests. It is also feared that during any future military confrontation, the US could use its naval supremacy in the Pacific to interdict China’s seaborne energy imports in the Straits of Malacca. The fact that approximately 45 percent of China’s oil and gas imports come from the Middle East – a region dominated by the US Navy, and comprised of US-aligned states – further contributes to these concerns. The consequence is a tendency to view energy security as a matter of national security, and to look for solutions that minimise Chinese dependence on US-secured energy supplies. Chinese investment in ‘independent’ energy producers assists this agenda.

For these reasons, China suffers from a much greater degree of ‘energy angst’ than other comparable economies. While energy is a major concern for many governments, it is of almost existential importance for China given its external dependence, powerful SOEs and geopolitical rivalry with the US. Unwilling to leave its energy supplies to the international market, it has instead committed to a strategy of acquiring energy at the site of production through a massive, multi-billion dollar state-backed investment program. And as this has put China on a diplomatic collision course with the US, Japan and EU, it threatens to further destabilise energy relationships between the world’s major economic powers.

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About the Author

This article was written by Dr Jeffrey Wilson of Elgar Blog. Dr Jeffrey Wilson is Senior Lecturer in International Political Economy, Murdoch University, Australia. His new book International Resource Politics in the Asia-Pacific is out now.

Callum Connects

Denise Morris Kipnis, Founder & Principal of ChangeFlow Consulting

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Denise Mossis Kipnis’ curiosity in people and the world, lead her to set up ChangeFlow Consulting.

What’s your story?
I’m driven by curiosity. Having been the only one in a room who looks like me for most of my life, I developed a curiosity about who stays, who leaves and who thrives in minority/majority situations including when and how connection and collaboration happen. I was a systems thinker long before I knew what that was, always asking why and so what; and seeing the pieces, the whole, and the places in between. So helping people and organisations move through the complexity of transformation feels natural to me.

What excites you most about your industry?
I see change and inclusion as two sides of the same thing; I don’t practice one without the other. Some people see change as death, as loss, as exhausting. And it can be. But I see in the work I do as an opportunity for something new or hidden to emerge. When an organisation understands that it is first a group of people, who themselves represent and belong to groups of people, and it begins to tackle what it would mean to understand and learn from all that talent, all that diversity, to have them all working for and not against the organisation, to truly unleash all that their people have to offer; that’s magic.

What’s your connection to Asia?
Change and inclusion are personal values as well as professional strengths. For me, living and working outside of the States was a bold experiment to see whether any of the stuff I’d learned about change and inclusion would work outside of the US. My husband and I targeted Asia specifically: it would be the greatest contrast, culturally speaking, for me; and a unique career springboard for him.

Favourite city in Asia for business and why?
Although I’ve practiced in other cities, I am biased towards Singapore. In some ways it’s what Los Angeles is to the rest of the United States, a microcosm of sorts. The regional/global nature of it means that so many different nationalities and cultures are represented. As a result of this mix, you never know what you might get. In some situations, cultural dynamics are obvious, sometimes subdued. The variability is compelling.

What’s the best piece of advice you ever received?
“Never ask anyone to do anything you wouldn’t do yourself.” Michael Rouan.

Who inspires you?
Often it’s a “what” not a “who.” I can get inspiration from a passage in a book or a situation in a movie, as well as a turn of a phrase or watching people interact. I often make the biggest connections between the various threads I’m working on when I’m sitting in someone else’s event.

What have you just learnt recently that blew you away?
I’m honestly not blown away by much. Instead, I’m struck how circular things can be: ideas often come back around with a slightly different twist and I watch the way it shakes things loose for people. I recently sat through a workshop on Self as Instrument, and despite being thoroughly versed already, I learned something. In preparing for a panel on design thinking, I unearthed a new language to describe things.

If you had your time again, what would you do differently?
You’ve caught me at a good time. I’m sitting in appreciation and gratitude for all my experiences, because I wouldn’t be who I was today if all that has happened, didn’t. And yet one thing comes to mind: It wasn’t until I redesigned my website two years ago (shout out to Brew Creative!) that I realised I hadn’t made explicit agreements with my past clients as to what I could share publicly about our engagement, or whether I could use their logos in my promotional materials. In my business, confidentiality is so important, and yet I need to be able to talk about the work as reputation and experience leads to the next success, and so on. It turned out a lot of the contacts I had known had left the organisations where the work was done, so they couldn’t help at that point. So the practice I’m carrying forward is to get those agreements up front, and to make sure my relationships in client systems are broad as well as deep.

How do you unwind?
Science fiction, puzzles, wine.

Favourite Asian destination for relaxation? Why?
Home. I don’t travel to relax, I travel to learn and explore.

Everyone in business should read this book:
Built to Change, by Ed Lawler and Chris Worley. To my knowledge, it’s the first pivot from advising organisations away from stability and toward dynamism, from strategic planning to strategizing as an action verb; to blow up the traditions and rigidity that impede organisations from developing change capability.

Shameless plug for your business:
We’re taught that there are two kinds of people: those who see forests, and those who see trees. There is a third type, my type, and we see the ecosystem. Worms, climate, birds, the spaces in between. This is the perspective organisations need to be successful in solving complex problems and thriving in change.
ChangeFlow uniquely blends four disciplines (two of which are multi-disciplinary in themselves): organisation development, culture and inclusion, change management and project management.

How can people connect with you?
Facebook: https://www.facebook.com/ChangeFlowConsulting/
LinkedIn: https://www.linkedin.com/in/dmorriskipnis/
LinkedIn Company page: https://www.linkedin.com/company/4862954/
Email: [email protected]
Website: http://www.changeflowconsulting.com

Twitter handle?
@ChangeFlow

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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Callum Connects

Agnes Yee, Legal & Compliance Recruiter of Space Executive

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Agnes Yee started Space Executive in Singapore, which is a hub for businesses in some of the world’s fastest growing economies.

What’s your story?
After graduation, I joined a design media company as a Business Development Executive, during the era when ‘reading a magazine online’ was unheard of. I believe that laid the foundation for being unfazed by rejections.

I fell into recruitment pre-GFC and rode the highs and lows in the early years. A decade later, I decided to set up my own recruitment company, partly because I could. I’m acutely aware of the face that being an Asian female in Singapore is sometimes a privilege, and that many women in the world are living a very different existence.
Thereafter, we joined Space Executive as part of a merger. I am currently the Partner of Space Executive, a recruitment company focused specialist disciplines, including Legal, Finance, Digital, Sales and Marketing and Change. We also run Space Ventures, a venture capital business, which invests in seed and pre-series A businesses.

What excites you most about your industry?
On a daily basis, we’re influencing how one spends a third of their day. It is interesting how the Internet has transformed the industry, and I’m excited to see how we can harness technology to bring us to the next phase of this business.

The VC is an extension of applying our skills and experience in reading people. We very much invest in the people as much as the idea. Being a native Singaporean, it’s been exhilarating watching Southeast Asia becoming a hotbed of ideas; and young entrepreneurs simply daring to dream.

What’s your connection to Asia?
I’m a born and bred Singaporean. I love that I speak both English and Mandarin, grew up playing with Indian friends and eating Malay food.

Favourite city in Asia for business and why?
Singapore for the low barriers of entry to set up a business, but has to be China (and Hong Kong) for their hunger and constant innovation.

What’s the best piece of advice you ever received?
青春不要留白 which translates to ‘Don’t waste your youth.’

Who inspires you?
Anyone who has gone against the grain.

What have you just learnt recently that blew you away?
It wasn’t recent but reading the article on https://waitbutwhy.com/2015/12/the-tail-end.html never fails to blow my mind how little time we have left. Charting our lives in weeks, and realising I only have enough time left to enjoy 60 Christmas turkeys, read 300 books (all if I’m lucky); and mostly, I’m left with the last 5% of the time that I spend in-person with my parents.

If you had your time again, what would you do differently?
I’m cognisant that every decision I made in life has brought me to where I am today, and I wouldn’t change one thing. But I’d really like to have had more time to travel.

How do you unwind?
Exercise and wine.

Favourite Asian destination for relaxation? Why?
Trekking any mountain in Asia. It brings us back to the most basic. To overcome elements of nature and our own mind.

Everyone in business should read this book:
Start with Why, Simon Sinek

Shameless plug for your business:
Space Executive started in Singapore, a hub for businesses in some of the world’s fastest growing economies. We assist organisations in accessing a targeted and specialised, and often times transient talent pool.

Out of Singapore, we have recruited across 14 countries; and have embarked on our global expansion plans with offices in Hong Kong and London this year, and US, Japan and Europe in the following years.

Space Ventures provides funding, management and financial guidance to young businesses with original ideas. We have invested in peer to peer lending platforms, credit scoring, social media education, and other start-ups spanning diverse industries. We are always interested in hearing more about new ideas.

How can people connect with you?
https://www.linkedin.com/in/agnesyee/

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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